Optional Internet Availability of Investment Company Shareholder Reports, 29158-29209 [2018-12423]

Download as PDF 29158 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200, 230, 239, 240, 249, 270, and 274 [Release Nos. 33–10506; 34–83380; IC– 33115; File No. S7–08–15] RIN 3235–AL42 Optional Internet Availability of Investment Company Shareholder Reports Securities and Exchange Commission. ACTION: Final rule. AGENCY: The Securities and Exchange Commission is adopting new rule 30e–3 under the Investment Company Act of 1940. Subject to conditions, new rule 30e–3 will provide certain registered investment companies with an optional method to satisfy their obligations to transmit shareholder reports by making such reports and other materials accessible at a website address specified in a notice to investors. We are also adopting amendments to rule 498 under the Securities Act of 1933 and our fund registration forms to require that during a certain transition period funds that choose to implement the new delivery method for shareholder reports provide prominent disclosures in prospectuses and certain other shareholder documents that will notify investors of the upcoming change in transmission format for a period of two years. New rule 30e–3 and the amendments to rule 498 and our registration forms address the fact that some investors may wish to receive shareholder reports in paper. As such, the new rule incorporates a set of protections so that investors who prefer to receive reports in paper will continue to receive them in that format. These protections include, among others, a minimum length phase-in period that ends no earlier than December 31, 2020 and notice requirements that must be implemented and followed beginning January 1, 2019, or the date shares are first publicly offered, if a registered investment company would want to use new rule 30e–3 as of January 1, 2021. The rule requires that a paper notice be sent to an investor each time a current shareholder report is accessible online. The notice must include instructions for how an investor can elect—at any time—to receive all future reports in paper, or request to receive particular reports in paper on an ad hoc basis. We are also adopting related amendments to certain other rules and forms. This optional method is intended to daltland on DSKBBV9HB2PROD with RULES2 SUMMARY: VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 modernize the manner in which periodic information is made available to investors, which we believe will improve investors’ experience while reducing expenses associated with printing and mailing shareholder reports that are borne by investment companies and ultimately their investors. DATES: This rule is effective January 1, 2019, except: • Amendatory Instructions 5 and 25 to 17 CFR 230.498 and Form N–CSR (referenced in 17 CFR 249.331 and 274.128), which are effective January 1, 2021; and • Amendatory Instructions 6, 13, 16, 18, 20, 22, and 24 to 17 CFR 230.498, 17 CFR 270.30e–3, Form N–1A (referenced in 17 CFR 239.15A and 274.11A), Form N–2 (referenced in 17 CFR 239.14 and 274.11a–1), Form N–3 (referenced in 17 CFR 239.17a and 274.11b), Form N–4 (referenced in 17 CFR 239.17b and 274.11c), and Form N–6 (referenced in 17 CFR 239.17c and 274.11d), which are effective January 1, 2022. FOR FURTHER INFORMATION CONTACT: J. Matthew DeLesDernier and John Lee, Senior Counsels; or Michael C. Pawluk, Senior Special Counsel, at (202) 551–6792, Investment Company Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the ‘‘Commission’’) is adopting: New rule 30e–3 1 under the Investment Company Act of 1940 (‘‘Investment Company Act’’); 2 amendments to Forms N–1A,3 N–2,4 N–3,5 N–4,6 and N–6 7 under the Investment Company Act and the Securities Act of 1933 (‘‘Securities Act’’); 8 amendments to Form N–CSR 9 under the Investment Company Act and the Securities Exchange Act of 1934 (‘‘Exchange Act’’); 10 amendments to rule 498 11 under the Securities Act; amendments to rule 14a–16 12 under the 1 17 CFR 270.30e–3. U.S.C. 80a–1 et seq. Unless otherwise noted, all references to statutory sections are to the Investment Company Act, and all references to rules under the Investment Company Act are to Title 17, Part 270 of the Code of Federal Regulations [17 CFR part 270]. 3 17 CFR 239.15A and 17 CFR 274.11A. 4 17 CFR 239.14 and 17 CFR 274.11a–1. 5 17 CFR 239.17a and 17 CFR 274.11b. 6 17 CFR 239.17b and 17 CFR 274.11c. 7 17 CFR 239.17c and 17 CFR 274.11d. 8 15 U.S.C. 77a et seq. 9 17 CFR 249.331 and 17 CFR 274.128. 10 15 U.S.C. 78a et seq. 11 17 CFR 230.498. 12 17 CFR 240.14a–16. 2 15 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 Exchange Act; and amendments to Section 800 of 17 CFR part 200.13 Table of Contents I. Introduction A. Public Comment B. Overview of Final Rule and Transmission Framework Generally C. Other Actions II. Discussion A. General Comments Regarding Rule 30e–3 1. Increased Internet Usage 2. Use of ‘‘Implied Consent’’ 3. Cost Savings 4. Regulatory Consistency 5. Environmental Benefits 6. Reliability and Security Concerns 7. Investor Advisory Committee B. Adoption of Rule 30e–3 and Related Amendments 1. Overview 2. Conditions of Rule 30e–3 3. Related Amendments C. The Role of Certain Financial Intermediaries 1. Distribution of Notices to Beneficial Owners 2. Beneficial Owner Elections for Paper Reports 3. Website Availability of Materials D. Extension of Similar Delivery Framework to Other Documents E. Effective Dates 1. Rule 30e–3 2. Disclosure Amendments 3. Other Amendments 4. Communications With Investors During the Extended Transition Period III. Economic Analysis A. Introduction B. Economic Baseline and Affected Parties C. Benefits 1. Cost Savings 2. Increased Access to and Review of Portfolio Information and Shareholder Reports D. Costs 1. Compliance Costs 2. Other Costs E. Alternatives IV. Paperwork Reduction Act A. Availability of Shareholder Report and Other Materials B. Proposed Initial Statement C. Notice D. Delivery Upon Request E. Impact on Information Collections for Rules 30e–1 and 30e–2 F. Related Disclosure Amendments G. Form N–CSR V. Final Regulatory Flexibility Analysis A. Need for and Objectives of the Rule, Rule Amendments and Form Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Rule D. Projected Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities VI. Statutory Authority 13 17 E:\FR\FM\22JNR2.SGM CFR 200.800. 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations I. Introduction daltland on DSKBBV9HB2PROD with RULES2 Today we are adopting rule 30e–3 under the Investment Company Act,14 a rule that provides registered management companies and any separate series thereof and certain registered unit investment trusts (‘‘UITs’’) 15 with an optional method to satisfy requirements to transmit shareholder reports by posting those reports online if they meet certain conditions.16 In order to rely on the rule, funds will be required to make their reports and other required materials publicly accessible, free of charge, at a website address specified in a notice to shareholders,17 and meet certain other conditions specified in the rule. In recognition of the fact that some investors may wish to receive their shareholder reports in paper, the rule incorporates a set of protections designed to preserve the ability of these investors to do so. Thus, the rule accommodates the preferences of all investors regarding their preferred means of communication—whether they wish to receive reports in paper or electronically, or simply to be notified that the reports are available online. To that end, we are also adopting an extended transition period with staged effective dates, and the earliest that a fund could rely on the rule to satisfy shareholder report transmittal requirements is January 1, 2021. 14 Rule 30e–3 was proposed in May 2015 as part of the Commission’s broader Investment Company Reporting Modernization proposal. See Investment Company Reporting Modernization, Investment Company Act Release No. 31610 (May 20, 2015) [80 FR 33590 (June 12, 2015)] (‘‘Proposing Release’’). As part of the proposal, we also proposed new forms (Form N–CEN and Form N–PORT), amendments to Regulation S–X, and other amendments to modernize the reporting and disclosure of information by registered investment companies. In October 2016, the Commission adopted final rules related to the proposal, with the exception of rule 30e–3. See Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (‘‘Reporting Modernization Adopting Release’’). 15 Unless the context otherwise requires, for ease of reference, throughout this release ‘‘fund’’ or ‘‘funds,’’ individually or collectively, refers to registered management companies (and any separate series thereof) and UITs. 16 The final rule applies to reports required by rule 30e–1 (reports of registered management companies) and reports required by rule 30e–2 (reports to shareholders of registered UITs, substantially all of the assets of which consist of securities issued by a management company). See rule 30e–3(a); rule 30e–1(a); rule 30e–2(a). 17 Interests in securities issued by insurance company separate accounts organized as UITs are typically referred to as accumulation units, not shares. For convenience, however, in this release owners of interests in securities issued by UITs, whether the issuer is a separate account or otherwise, are referred to as shareholders, and accumulation units are referred to as shares. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 This new option is intended to modernize the manner in which funds deliver periodic information to investors. We believe it will improve investors’ ability to access and use this information (for example, by providing investors with access to at least a full year of complete portfolio holdings information in one location), while reducing expenses associated with printing and mailing that are borne by funds, and ultimately, by their investors. The rule draws on the Commission’s experience of more than twenty years with use of the internet as a medium to provide documents and other information to investors.18 The 18 See, e.g., Use of Electronic Media for Delivery Purposes, Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (‘‘1995 Release’’) (providing Commission views on the use of electronic media to deliver information to investors, with a focus on electronic delivery of prospectuses, annual reports, and proxy solicitation materials); Use of Electronic Media by BrokerDealers, Transfer Agents, and Investment Advisers for Delivery of Information, Investment Company Act Release No. 21945 (May 9, 1996) [61 FR 24644 (May 15, 1996)] (‘‘1996 Release’’) (providing Commission views on electronic delivery of required information by broker-dealers, transfer agents, and investment advisers); Use of Electronic Media, Investment Company Act Release No. 24426 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (‘‘2000 Release’’) (providing updated interpretive guidance on the use of electronic media to deliver documents on matters such as telephonic and global consent, issuer liability for website content, and legal principles that should be considered in conducting online offerings). See also Securities Offering Reform, Securities Act Release No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (‘‘Securities Offering Reform’’) (adopting rule 172 under the Securities Act providing an ‘‘access equals delivery’’ framework under which issuers and intermediaries can satisfy their final prospectus delivery obligations); Shareholder Choice Regarding Proxy Materials, Investment Company Act Release No. 27911 (July 26, 2007) [72 FR 42222 (Aug. 1, 2007)] (‘‘Shareholder Choice Regarding Proxy Materials Release’’) (adopting rule amendments requiring issuers to post their proxy materials on a specified website and provide shareholders with a notice of internet availability of the materials); Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)] (‘‘Summary Prospectus Release’’) (permitting the use of a summary prospectus by registered openend management investment companies); Interactive Data for Mutual Fund Risk/Return Summary, Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748 (Feb. 19, 2009)] (‘‘XBRL Release’’) (requiring open-end funds to provide the risk/return section of their prospectus in interactive data format using eXtensible Business Reporting Language (‘‘XBRL’’)); Amendments to Rules Requiring Internet Availability of Proxy Materials, Securities Act Release No. 9073 (Feb. 22, 2010) [75 FR 9073 (Feb. 26, 2010)] (‘‘Internet Availability of Proxy Materials Release’’) (providing additional flexibility regarding the format of the notice of internet availability of proxy materials); Reporting Modernization Adopting Release, supra note 14; Inline XBRL Filing of Tagged Data, Securities Act Release No. 10323 (Mar. 1, 2017) [82 FR 14282 (Mar. 17, 2017)] (‘‘Inline XBRL Release’’) (proposing the use of the Inline XBRL format for the PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 29159 rule also draws on the Commission’s investor testing efforts and other empirical research concerning investors’ preferences about methods of delivery for required disclosure documents and use of the internet for financial and other purposes generally.19 We continue to search for better ways of providing investors with the disclosure that they need to evaluate funds in which they are considering investing or currently hold shares. As part of these general efforts, we are also issuing a Request for Comment directed at investors regarding ways in which fund disclosure, including shareholder reports, may be improved.20 We are also issuing a second Request for Comment on the processing fees charged by intermediaries for distributing fund shareholder reports and other materials to investors.21 A. Public Comment We received over 1,000 comments on the Proposing Release, the vast majority of which specifically commented on submission of operating company financial statement information and mutual fund risk/return summaries); Exhibit Hyperlinks and HTML Format, Securities Act Release No. 10322 (Mar. 1, 2017) [82 FR 14130 (Mar. 17, 2017)] (‘‘Exhibit Hyperlinks and HTML Format Release’’) (requiring exhibit hyperlinks and filings in HTML format); FAST Act Modernization and Simplification of Regulation S–K, Securities Act Release No. 10425 (Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (‘‘FAST Act Regulation S–K Release’’) (proposing amendments to modernize and simplify certain disclosure requirements in Regulation S–K, and related rules and forms). 19 For example, in 2011, the Commission engaged a consultant to conduct investor testing regarding shareholder reports. The consultant’s report concerning that testing (‘‘Investor Testing of Mutual Fund Shareholder Reports’’) is in the comment file for this rule (available at www.sec.gov/comments/ s7-08-15/s70815.shtml). Separately, Commission staff prepared a study of investor financial literacy pursuant to Section 917 of the Dodd-Frank Act. Materials relating to this study, including the staff’s report, are available at https://www.investor.gov/ publications-research-studies/sec-research. In addition, in 2007, the Commission engaged a consultant to conduct focus group interviews and a telephone survey concerning investors’ views and opinions about various disclosure documents filed by companies, including mutual funds. The consultant’s report concerning the focus group testing and related transcripts are in the comment file for this rule (available at www.sec.gov/ comments/s7-08-15/s70815.shtml). The consultant’s report concerning the telephone survey is available at https://www.sec.gov/pdf/disclosuredocs.pdf. 20 Fund Retail Investor Experience and Disclosure Request for Comment, Investment Company Act Release No. 33113 (June 5, 2018) (‘‘Disclosure Request for Comment’’). Comments are requested by October 31, 2018; see infra Section I.C. 21 Request for Comments on the Processing Fees Charged by Intermediaries for Distributing Materials Other Than Proxy Materials to Fund Investors, Investment Company Act Release No. 33114 (June 5, 2018) (‘‘Processing Fee Request for Comment’’). Comments are requested by October 31, 2018; see infra Section I.C. E:\FR\FM\22JNR2.SGM 22JNR2 29160 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations proposed rule 30e–3.22 While some commenters provided comments on specific aspects of the proposal, most focused on whether the Commission should adopt the rule at all. Commenters supporting the proposed rule cited benefits including those related to website transmission generally, the proposed rule’s consistency with internet usage trends, savings to funds and ultimately investors from the reduction in printing and mailing costs, and environmental benefits. In many cases, these commenters recommended modifications to the proposed rule to increase cost savings and other benefits under the rule and to provide clarity regarding how the rule would operate in certain contexts.23 Commenters opposed to the proposed rule focused on concerns such as the impact on certain demographic groups that may have limited access to the internet, the proposed rule’s use of implied consent, the extent to which cost savings under the proposed rule would not be as great as anticipated by the Commission, and the adverse impact on certain third parties such as the paper industry and mail carriers. B. Overview of Final Rule and Transmission Framework Generally daltland on DSKBBV9HB2PROD with RULES2 After consideration of the comments we received, we are adopting rule 30e–3 with several modifications designed to respond to investor protection concerns, provide additional flexibility and clarity in the operation of this transmission regime, and further increase cost savings for investors. Some key elements of the new transmission framework under rule 30e–3 include: • Use of Rule is Optional. We note that this new method of transmission is optional—funds that wish to transmit shareholder reports in paper or pursuant to the Commission’s existing electronic delivery guidance 24 will continue to be able to satisfy their regulatory obligations by those methods. • Use of Rule With Respect to Investors Who Have Opted Into Electronic Delivery. The rule will not require changes to existing methods of delivering shareholder reports electronically. The rule does not supercede or modify the Commission’s 22 See infra Section II.A. The comment letters on the Proposing Release (File No. S7–08–15) are available at https://www.sec.gov/comments/s7-0815/s70815.shtml. 23 See infra Sections II.B.2 (application to UITs with transmission obligations under rule 30e–2), II.C (shares held through certain financial intermediaries). 24 See 1995 Release, supra note 18; 1996 Release, supra note 18; 2000 Release, supra note 18. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 existing guidance regarding electronic delivery of fund shareholder reports. Funds and intermediaries may continue to rely on the Commission’s guidance to electronically transmit reports to investors who have elected to receive reports electronically.25 • Preservation of Preference for Paper Reports. Recognizing that some investors may wish to receive their shareholder reports in paper, the final rule—as did the proposed rule— incorporates a set of protections designed to preserve the ability of investors to receive paper reports on a per report or ongoing basis if that is their preferred means of communication.26 • Website Availability of Reports and Other Information. As proposed, the shareholder report and other required materials must be made publicly accessible and free of charge at a website address specified in a notice to investors.27 • Notice. Substantially as proposed, investors must be provided with a paper notice of the website availability of the shareholder report (‘‘Notice’’) that contains instructions by which investors will be able to request a paper or email copy. The final rule allows funds greater flexibility than the proposal in the design of the Notice by permitting it to contain additional information including, for example, content from the shareholder report that the fund considers helpful to investors, instructions on how investors can elect electronic delivery of reports and other materials, and pictures, logos, or similar design elements so long as the design is not misleading and the information is clear.28 • New Extended Transition Period. To inform investors in advance of the change of transmission method, and to accommodate systems and operations changes by funds, intermediaries and service providers necessary to implement the new optional transmission regime, we are adopting an extended transition period.29 This extended transition period replaces the 25 For example, a fund or intermediary will not be required to send those investors, electronically or otherwise, a notice required by the rule. Some investors who receive shareholder reports pursuant to rule 30e–3 may in the future elect delivery under the Commission’s electronic delivery guidance. The final rule requires funds to include in notices instructions regarding how an investor can elect to receive shareholder reports or other documents by electronic delivery if the fund offers electronic delivery. See rule 30e–3(c)(1)(v)(C). 26 See infra Sections II.B.2.c, II.B.2.d. 27 See infra Section II.B.2.a. 28 See infra Section II.B.2.b; note 191 (reminding funds of their obligations with respect to the antifraud provisions of the federal securities laws). 29 See infra Sections II.B.2.d, II.B.2.f, II.E. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 proposed requirement to send an ‘‘Initial Statement’’ 60 days in advance of reliance on the rule with respect to an investor. • Filing of Notice. We have modified the proposal by adopting amendments to Form N–CSR to require the filing of Notices that incorporate disclosures from the shareholder report.30 This requirement should help further inform Commission regulatory efforts with respect to how the content of shareholder reports can be improved and should help our monitoring for compliance with the rule. • Guidance Regarding Financial Intermediaries. We are also providing guidance, as requested by commenters, to clarify the operation of the rule in the context of financial intermediaries such as broker-dealers.31 C. Other Actions We are committed to continuously improving the content and delivery of information to investors, including through efforts that encourage the use of technology to provide investors with the tools they need to evaluate their investments, and reducing costs and other regulatory burdens where appropriate. To that end, today we are taking two related actions intended to further these goals. First, we approved amendments to rules of the New York Stock Exchange (‘‘NYSE’’) regarding processing fees paid to financial intermediaries for the delivery of shareholder reports and Notices under ‘‘notice and access’’ rules such as rule 30e–3 to investors holding shares through certain financial intermediaries.32 The NYSE rule 30 See infra Section II.B.2.b.v. infra Section II.C. 32 See Exchange Act Release Nos. 83378 (June 5, 2018) (Order Affirming Action by Delegated Authority Approving SR–NYSE–2016–55 and Discontinuing Stay); 79370 (Nov. 21, 2016) [81 FR 85655 (Nov. 28, 2016)] (Stay Order); 79355 (Nov. 18, 2016) [81 FR 85291 (Nov. 25, 2016)] (Approval Order) (‘‘NYSE Approval Order’’); 78589 (Aug. 16, 2016) [81 FR 56717 (Aug. 22, 2016)] (Notice). NYSE rule 451 outlines three types of processing fees discussed by commenters in connection with the proposal: (i) The ‘‘interim report’’ fee (a processing unit fee of $0.15 per account, whether a report is delivered in paper, or delivery is ‘‘suppressed’’ because the report is delivered electronically or not delivered because of ‘‘householding’’ or other reasons); (ii) the ‘‘preference management’’ fee (a $0.10 fee assessed for each suppressed account— e.g., accounts receiving shareholder reports by email or householded accounts); and (iii) a ‘‘notice and access’’ fee (an incremental fee charged at declining marginal levels based on the number of all financial intermediary accounts through which fund securities are beneficially owned; there are five marginal fee tiers (in $0.05 increments) per account beginning with the $0.25 per account tier and decreasing to $0.05 per account tier). See NYSE rule 451.90.3–451.90.5; see also NYSE rules 465 and 451.10 (noting applicability of fees under NYSE 31 See E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 amendments state that ‘‘notice and access’’ processing fees, which previously applied only to proxy distributions where an issuer elects to utilize notice and access for a proxy distribution,33 may also apply to transmission of shareholder reports under rule 30e–3 to beneficial owners who purchase their fund shares through broker-dealer intermediaries.34 The amendments clarify, however, that the ‘‘notice and access’’ fee will not be charged for any account with respect to which a fund pays a ‘‘preference management’’ fee in connection with a distribution of shareholder reports.35 In addition, the NYSE rule amendments clarify that, for purposes of determining the amount of notice and access fees to be charged, the number of accounts should be computed by aggregating shares of any class of stock of the issuer eligible to receive the same distribution.36 Second, today we also are issuing two releases requesting comment on issues related to shareholder reports. In the first release, we are requesting comment on enhancing fund disclosures to improve the investor experience and to help investors make more informed investment decisions.37 This release requests feedback directly from fund investors on the delivery, design and content of fund disclosure. In the second release, we are requesting comment on the processing fees charged by intermediaries for distributing fund shareholder reports and other materials to investors.38 For example, we are requesting comment on the current processing fee structure, including the application of various processing fees and rates thereof under the NYSE rules, transparency of these fees, practices related to the payment of these fees and remittances received by financial intermediaries for delivery of fund documents (including shareholder reports), and the appropriateness of these fees in cases where intermediaries rule 451 to distribution of interim and annual reports). 33 See rule 14a–16 under the Exchange Act which permits issuers, that comply with the requirements of the rule, to distribute proxy material electronically through the ‘‘notice and access’’ method. 17 CFR 240.14a–16. 34 See NYSE rule 451.90(5). The Commission notes that the NYSE rule states that the ‘‘notice and access fees’’ in NYSE rule 451.90(5) apply to the ‘‘distribution of investment company shareholder reports pursuant to any ‘notice and access’ rules adopted by the [Commission].’’ We believe that rule 30e–3 qualifies as such a rule. 35 Id. 36 Id. 37 See Disclosure Request for Comment, supra note 20. 38 See Processing Fee Request for Comment, supra note 21. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 are separately paid shareholder servicing fees from fund assets. II. Discussion A. General Comments Regarding Rule 30e–3 Most commenters on the proposal focused on whether we should adopt rule 30e–3 and particularly its optional method of satisfying requirements to transmit shareholder reports by making them available on websites. We discuss below general comments received on the proposal, as well as why we have determined to adopt the rule. Specific comments on the particular provisions of the rule as proposed are discussed in more detail in Sections II.B.2–II.E below. 1. Increased Internet Usage Commenters supporting the rule cited the benefits of allowing transmission of shareholder reports by making them accessible on websites, including improving the overall accessibility of the information 39 and expanding the possibilities for innovative visual displays and layered disclosure.40 Commenters pointed to trends towards increasing internet usage, with some commenters highlighting that 94% of households owning mutual funds had some form of internet access in 2014, up from 68% in 2000.41 Commenters also noted that internet usage has increased 39 See, e.g., Comment Letter of Capital Research and Management Company (Aug. 11, 2015) (‘‘Capital Research Comment Letter I’’); Comment Letter of Capital Research and Management Company (May 7, 2018) (‘‘Capital Research Comment Letter II’’); Comment Letter of Simpson Thacher & Bartlett LLP (Aug. 11, 2015) (‘‘Simpson Thacher Comment Letter’’); Comment Letter of Interactive Data Pricing and Reference Data LLC (Aug. 10, 2015) (‘‘Interactive Data Comment Letter’’); Comment Letter of Investment Company Institute (Aug. 12, 2015) (‘‘ICI Comment Letter I’’) (noting many investors now prefer enhanced availability of information on the internet). 40 See Comment Letter of Investment Company Institute (July 8, 2016) (‘‘ICI Comment Letter II’’) (‘‘Paper reports are unable to help investors navigate layered information or access more detailed information. The internet offers the ultimate a la carte menu: Those who want more extensive information can get it; those who do not can access or be provided the essential information they need, in a form they are likely to use.’’); see also Recommendation of the Investor Advisory Committee Regarding Promotion of Electronic Delivery and Development of a Summary Disclosure Document for Delivery of Investment Company Shareholder Reports (Dec. 7, 2017) (‘‘Investment Advisory Committee Recommendation’’); Comment Letter of the Consumer Action and National Consumers League to Anne Sheehan, Chairman of the Investor Advisory Committee (Dec. 1, 2017), available at https://www.sec.gov/comments/265-28/265282748128-161587.pdf. 41 See, e.g., Comment Letter of the Committee of Annuity Insurers (Aug. 11, 2015) (‘‘CAI Comment Letter I’’); Capital Research Comment Letter I; ICI Comment Letter I. PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 29161 among previously underserved demographic groups.42 A number of commenters stated that website disclosure is consistent with many investors’ preferences.43 One commenter stated that shareholder use of the internet to conduct fund transactions had increased sharply since 2005, with 89% of the transactions processed by its fund family for direct shareholders made through electronic means in 2014.44 Similarly, another commenter stated that ‘‘with increased ease of access, investors also increasingly prefer enhanced availability of financial information on the internet.’’ 45 This commenter provided survey results from 2013 finding that 82% of U.S. households owning mutual funds used the internet 42 See, e.g., ICI Comment Letter I (noting widespread use of the internet among various age groups, education levels and income levels and highlighting a 2014 ICI study that ‘‘found the following with respect to internet access in mutual fund owning households: (1) Head of household age 65 or older, 86% have access; (2) education level of high school diploma or less, 84% have access; and (3) household income of less than $50,000, 84% have access’’); ICI Comment Letter II (highlighting a 2015 survey showing that 85% of all Americans had access to the internet); CAI Comment Letter I (stating that ‘‘very widespread internet access holds true even for those demographic groups that may generally be assumed to have relatively less internet access than most’’). 43 See, e.g., Capital Research Comment Letter I; Comment Letter of CFA Institute (Aug. 10, 2015) (‘‘CFA Institute Comment Letter’’) (‘‘We support this proposal to modernize the system for providing reports and believe most investors will view this as positively.’’); ICI Comment Letter II (stating ‘‘the Commission’s proposal aligns much more effectively with shareholder preferences for information access than the current outdated system’’). 44 See Comment Letter of T. Rowe Price Associates, Inc. (Aug. 21, 2015) (‘‘T. Rowe Price Comment Letter I’’) (comparing this with data from 2005 when 65% of transactions processed with direct shareholders were made through electronic means); Comment Letter of T. Rowe Price Associates, Inc. (Apr. 17, 2018) (‘‘T. Rowe Price Comment Letter II’’) (noting that in 2017, 87% of their interactions ‘‘with personal and workplace investors took place digitally via mobile applications or the Web’’). See also FINRA Investor Education Foundation, Investors in the United States 2016 (Dec. 2016), available at https://www.usfinancialcapability.org/ downloads/NFCS_2015_Inv_Survey_Full_ Report.pdf (‘‘FINRA 2016 Investors Study’’). While the FINRA 2016 Investors Study does not distinguish fund shareholder reports from other disclosure materials regarding investments (nor does it specify what disclosure materials are contemplated in this survey e.g., shareholder reports, summary prospectuses, statutory prospectuses, account statements, etc.), it presents general investor survey data regarding investor disclosure preferences: 49% of respondents prefer paper documents physically mailed, 27% of respondents prefer electronic documents by email, 14% prefer in-person meetings with a broker/ adviser, and 6% prefer that documents are accessed on the internet (not via email). 45 See ICI Comment Letter I. E:\FR\FM\22JNR2.SGM 22JNR2 29162 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations for financial purposes.46 Several commenters also believed that the rule as proposed included appropriate protections for investors preferring paper by preserving the option for fund investors to continue receiving paper reports.47 A number of commenters in opposition to the proposed rule, however, suggested that the rule could have adverse effects on investors.48 Specifically, several commenters argued that internet access and use among Americans was not universal.49 Some commenters provided data showing that approximately 25–30% of Americans do not have a computer with broadband internet access in their homes.50 Some 46 See id. e.g., CFA Institute Comment Letter (‘‘We believe the proposed conditions for using this option are appropriate to accommodate those investors wishing to receive paper reports.’’); Comment Letter of State Street Corporation (Aug. 11, 2015) (‘‘State Street Comment Letter’’) (‘‘We believe there are adequate safeguards in Rule 30e– 3 which would allow shareholders who desire a hardcopy to still receive one.’’); Comment Letter of Jonathan F. Zeschin, Independent Trustee and Board Chair of Matthews Asia Funds (Sept. 27, 2016) (‘‘[T]hose few shareholders who prefer to receive written reports in the mail can still do so, and the proposed rule includes appropriate notices and other safeguards for those shareholders.’’); Comment Letter of Independent Directors Council (May 10, 2016) (‘‘IDC Comment Letter’’) (‘‘It is important to bear in mind that the proposed rule includes appropriate safeguards for those shareholders who may still prefer to receive written reports in the mail.’’); Comment Letter of Fidelity Equity and High Income Funds (Apr. 24, 2017) (‘‘Fidelity Comment Letter II’’) (‘‘Accordingly, investors ultimately would retain the ability to determine the manner in which they receive their shareholder reports and those who desire paper delivery would be appropriately protected.’’). 48 See, e.g., Comment Letter of Sen. Susan M. Collins, Sen. Angus S. King, Jr., and Rep. Bruce Poliquin (Aug. 10, 2016) (‘‘Collins, King and Poliquin Comment Letter’’) (‘‘Our concern, is that the safeguards in the proposed rule will not adequately ensure that those who rely on paper delivery will continue to have access to this important information.’’); Comment Letter of David T. Herrod (Aug. 1, 2015) (‘‘I feel an electronic default option would be detrimental to me as well as thousands of other investors.’’); Comment Letter of Thomas G. Umenhofer (July 20, 2015) (‘‘Not all Mutual Fund participants have access to computers or the internet, but do have access to the USPS. By implementing Rule 30e–3, you will be disadvantaging many mutual fund participants.’’). 49 See, e.g., Comment Letter of Zane Hollenberger (July 27, 2015) (contending that internet access was not universal and would serve as a ‘‘poor replacement’’ for timely receipt of personal financial information through the mail); Comment Letter of John R. Dyce, President of the Ohio State Association of Letter Carriers (July 28, 2015) (‘‘Significant portions of this country’s population lack access to electronic services.’’); Comment Letter of National Rural Letter Carriers’ Association (Aug. 5, 2015) (‘‘National Rural Letter Carriers’ Comment Letter’’) (‘‘[T]he proposed rule would disadvantage the elderly, those with disabilities, and racial and ethnic minorities as these groups are far less likely than other Americans to have regular access to the internet.’’). 50 See, e.g., Comment Letter of American Forest and Paper Association (Aug. 7, 2015) (‘‘American daltland on DSKBBV9HB2PROD with RULES2 47 See, VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 commenters noted that particular demographic groups may be less likely to use the internet.51 Some commenters drew on the results of studies we noted in the Proposing Release, which indicate that, in 2013, 41% of seniors 65 and older do not use the internet and that, in 2014, 34% of seniors 65 and older own mutual funds.52 Some commenters suggested that some people are less likely to use the internet specifically for financial purposes, to research funds, or to receive shareholder reports and other disclosure.53 2. Use of ‘‘Implied Consent’’ A number of commenters addressed the use of ‘‘implied consent’’ to allow for website transmission of shareholder reports. One commenter pointed to behavioral research that suggested implied consent is a ‘‘weak’’ reflection of actual willingness and that the introduction of new processes (e.g., website transmission) may block ‘‘psychologically effective access’’ to shareholder reports.54 Another commenter stated that implied consent is inadequate because the proposed method for obtaining implied consent ‘‘does not justify the conclusion that implied consent is gained for investors’’ and that most investors preferred paper communications.55 Some commenters noted that certain federal agencies do Forest and Paper Comment Letter’’); Comment Letter of Forest Resources Association Inc. (Aug 10, 2015) (‘‘Forest Resources Comment Letter’’); Comment Letter of Consumer Action and National Consumers League (Apr. 12, 2016) (‘‘Consumer Action and Consumers League Comment Letter’’). See also Comment Letter of Broadridge Financial Solutions, Inc. (Aug. 11, 2015) (‘‘Broadridge Comment Letter I’’) (noting that ‘‘growth in internet usage is driven in part by a greater penetration of mobile devices whose use to access regulatory reports on the internet would add costs to investors’’). 51 See, e.g., American Forest and Paper Comment Letter; Comment Letter of Best Cutting Die Company (Aug. 6, 2015) (‘‘Many ‘seniors’ are not computer literate, and may not even own, or have access to a computer.’’); Comment Letter of Consumer Action (Jan. 8, 2016) (‘‘Consumer Action Comment Letter’’) (stating that seniors and minorities would be disadvantaged by the proposal given statistics showing these groups may be less likely to have access to the internet); National Rural Letter Carriers’ Comment Letter (‘‘internet access in some rural parts of the country remains limited and many of our customers must rely on the mail for their investment reports.’’). 52 See Proposing Release, supra note 14, at 33627; see, e.g., American Forest and Paper Comment Letter; Comment Letter of Eric Skogseth, EVP of Bay State Envelope (July 16, 2015); Comment Letter of Lydia J. Morgan, CEO of Morgan Printers, Inc. (June 12, 2015). But see ICI Comment Letter I (discussing the results of a 2014 ICI survey showing that, among Americans 65 or older, those who own mutual funds are more likely to have internet access). 53 See, e.g., Broadridge Comment Letter I. 54 See id. 55 See American Forest and Paper Comment Letter. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 not permit implied consent for electronic delivery of certain materials.56 Commenters also pointed to a 2013 survey that asked if the government or firms in the private sector should force consumers to shift from paper to electronic content in which 73% of respondents said it is wrong to expect anyone to go online to interact with government agencies.57 Some commenters opposed to the implied consent provisions in proposed rule 30e–3 suggested that the proposed Initial Statement (from which consent would be inferred under the proposed rule) 58 could be inadvertently discarded or missed by investors.59 We also received a number of comments stating that website transmission of shareholder reports should not be the default transmission option.60 Others expressed concerns with having to use personal printers to print shareholder reports,61 and one commenter expressed concern that funds would eventually charge investors for paper shareholder reports.62 On the other hand, we received several comments stating that the proposed rule better aligns with investor preferences for access to financial information,63 and recommending that 56 See, e.g., American Forest and Paper Comment Letter (stating that the Internal Revenue Service does not allow financial organizations to use implied consent to enroll investors in electronic delivery of tax documents); Comment Letter of Domtar (Aug. 3, 2015) (‘‘The SEC should follow other federal agencies in requiring recipients to take an affirmative action for e-delivery of important investment documents.’’). With respect to electronic delivery (where documents or website links thereto are emailed directly to an investor’s individual email address), the Commission also does not permit implied consent. See 1995 Release, supra note 18; cf. Comment Letter of L.A. Schnase (July 2, 2015) (‘‘Schnase Comment Letter’’) (supporting the proposal, but expressing concern about the ‘‘piecemeal approach’’ the Commission is taking to the regulatory scheme governing electronic deliveries). 57 See, e.g., American Forest and Paper Comment Letter; Consumer Action Comment Letter. The proposed rule, however, would not have required electronic transmission of shareholder reports, and investors would not have been required to go online to interact with the Commission or any other government agency. 58 See proposed rule 30e–3(c). 59 See Collins, King and Poliquin Comment Letter; Comment Letter of Karen Hibdon (July 31, 2015). 60 See, e.g., Comment Letter of Barry Daniels (June 12, 2015); Comment Letter of Larry Hensley, Process Engineer, Glatfelter (Aug. 3, 2015); Comment Letter of Craig Timm (Aug. 10, 2015). 61 See, e.g., Comment Letter of Bob Broadbear (July 20, 2015); Comment Letter of Marina Joyce (June 12, 2015); Comment Letter of Forest2Market (Aug. 7, 2015). 62 See Comment Letter of Robert C. Tugwell (Aug. 10, 2015). 63 See, e.g., ICI Comment Letter II (‘‘[F]ewer than half of mutual fund shareholders still review some printed materials for information about their fund E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations we broaden the use of implied consent in certain ways.64 One of these commenters noted that the proposal, which would allow investors to ‘‘opt into’’ paper delivery, would allow funds to more readily accommodate the preferences of all investors.65 Several commenters also noted that this approach was consistent with prior Commission efforts to improve accessibility of information for the benefit of investors.66 daltland on DSKBBV9HB2PROD with RULES2 3. Cost Savings Many commenters supporting the proposed rule stated that the rule would result in reduced printing and mailing costs for funds (and ultimately fund investors).67 Several commenters provided estimates of costs relating to potential cost savings under rule 30e– 3.68 One commenter indicated that its fund group spends approximately $3.8 million annually to print and mail shareholder reports to direct fund investors, and estimated that the investments, and over two-thirds of these individuals likewise access online materials to gather information on their fund investments.’’). 64 See, e.g., Comment Letter of Allianz Life Insurance of North America (Aug, 11, 2015) (‘‘Allianz Comment Letter’’) (recommending that the Commission expand proposed rule 30e–3 to allow broader electronic delivery of certain documents, including prospectuses, using implied consent); ICI Comment Letter I (recommending that the Commission permit investors’ implied consent to cover all series and funds in a fund complex and all funds held through a single financial intermediary). 65 See ICI Comment Letter I. 66 See, e.g., id.; see also Comment Letter of The Dreyfus Corporation (Aug. 11, 2015) (‘‘Dreyfus Comment Letter’’). 67 See, e.g., Comment Letter of BlackRock, Inc. (Aug. 11, 2015) (‘‘BlackRock Comment Letter’’); Comment Letter of the Center for Capital Markets Competitiveness (Sept. 6, 2016) (‘‘CCMC Comment Letter’’); Comment Letter of Confluence Technologies, Inc. (Aug. 11, 2015) (‘‘Confluence Comment Letter’’); ICI Comment Letter I; ICI Comment Letter II; IDC Comment Letter; Comment Letter of Mutual Fund Directors Forum (Aug. 11, 2016); Schnase Comment Letter; Comment Letter of the Securities Industry and Financial Markets Association (Aug. 11, 2015) (‘‘SIFMA Comment Letter’’); Comment Letter of the Asset Management Group of the Securities Industry and Financial Markets Association (Aug. 11, 2015) (‘‘SIFMA AMG Comment Letter’’); Simpson Thacher Comment Letter; T. Rowe Price Comment Letter I; T. Rowe Price Comment Letter II; Comment Letter of Vanguard (Aug. 11, 2015) (‘‘Vanguard Comment Letter’’); Capital Research Comment Letter II. 68 Another commenter cited a third party’s estimate of $320 million in savings from the Commission’s e-proxy initiative in 2014. See Confluence Comment Letter (citing estimates published by Broadridge in Analysis of Distribution and Voting Trends Fiscal Year Ended June 30, 2014). The commenter further stated that ‘‘[b]y changing the default, Rule 30e–3 will result in a greater percentage of electronic delivery, which in turn will lower fund expenses, lower fund expense ratios, and generate higher returns, a benefit to all investors, both those comfortable with electronic delivery and those who require continued physical delivery.’’ VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 proposed rule would result in savings of up to 50% of that amount.69 Another commenter estimated annual industry costs for print and mail delivery of shareholder reports at $344 million and suggested that, if the proposed rule was adopted, it had the potential to save fund shareholders on a net basis an estimated $140 million within the first three years and $89 million per year after the first year.70 One commenter claimed that the cost savings realized from proposed rule 30e–3 would likely not be passed on to investors and would not have a noticeable impact on investor costs even if it were passed on to investors.71 Another commenter suggested that the cost savings would benefit a relatively small number of mutual funds and be less significant than in the notice and access approach used in the proxy statement context, which the commenter compared to the proposed rule.72 This commenter stated that the proposed rule would result in greater processing fees for fund shares held through certain intermediaries. This commenter also suggested that cost savings could be better realized through the continued growth of electronic delivery under the Commission’s existing guidance, which the commenter suggests is already common and projected to reach 59% of all transmissions of shareholder reports in 2018.73 The commenter estimated that 69 See T. Rowe Price Comment Letter I. ICI Comment Letter I (stating further that if the Commission adopted the commenter’s suggested changes to the rule, potential net savings could instead total $465 million within the initial three-year timeframe). In a subsequent comment letter, the commenter revised its estimates to account for another commenter’s interpretation of how NYSE processing fees would be applied to a rule 30e–3 framework. See Comment Letter of Investment Company Institute (Mar. 14, 2016) (‘‘ICI Comment Letter III’’) (stating that based on this interpretation, the net savings would be less than the ICI Comment Letter I projections; and estimating that even if ICI’s recommended ‘‘postcard’’ modification were incorporated in the final rule, there would be a net cost of $84 million in the initial year and a subsequent net savings of $83 million per each subsequent year). 71 See Comment Letter of Consumer Federation of America (July 29, 2015). 72 See Broadridge Comment Letter I (contending that, based on its interpretation of New York Stock Exchange regulated rates, approximately 5% of fund report distribution jobs that Broadridge processes would result in a savings of $10,000 or more). We believe that in light of the NYSE Approval Order regarding processing fees paid to financial intermediaries for the delivery of shareholder reports and other documents to investors holding shares through certain financial intermediaries, the facts supporting the assumptions underlying this commenter’s analysis have changed. See supra note 32. 73 See Broadridge Comment Letter I; Comment Letter of Broadridge Financial Solutions, Inc. (Jan. 13, 2016) (‘‘Broadridge Comment Letter II’’). This commenter subsequently submitted presentation 70 See PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 29163 fund companies currently expend $354 million for printing and mailing of shareholder reports and projected printing and mailing costs of $382 million in 2018 under the existing requirements.74 The commenter estimated that aggregate net savings under the proposed rule would be about $18 million, or $0.02 per report, in 2018.75 Finally, several commenters highlighted that the potential cost savings for funds and investors resulting from the proposed rule may depend in part on the application of the NYSE processing fees that funds pay to financial intermediaries.76 As noted earlier, today we approved amendments to NYSE rules regarding processing fees paid to financial intermediaries that would clarify the application of certain fees under the rule 30e–3 framework.77 4. Regulatory Consistency Some commenters also supported the proposed rule as consistent with other regulatory frameworks adopted by the Commission and other regulatory bodies that encourage website availability as a means to satisfy disclosure obligations.78 For example, one commenter stated that the proposed rule was consistent with prior Commission efforts to modernize the manner in which information is provided to investors and to improve accessibility by taking advantage of technology for the benefit of investors.79 Others asserted that the notice and access model under the proposed rule was similar to the model adopted by another federal agency in 2014 for certain financial institutions to satisfy privacy materials in connection with a meeting with Division of Investment Management staff, which included survey data in support of their projections. See Memorandum from the Division of Investment Management re: Meeting with Broadridge (Sept. 27, 2017) (including attachments thereto containing the survey data presented) (‘‘Broadridge Meeting Memo I’’); Memorandum from the Division of Investment Management re: Meeting with Broadridge (Apr. 13, 2018) (‘‘Broadridge Meeting Memo II’’) 74 See Broadridge Comment Letter I; Broadridge Comment Letter II. 75 Broadridge Comment Letter I. 76 See, e.g., ICI Comment Letter II; Broadridge Comment Letter I. 77 See supra Section I.C. 78 But see supra note 56 and accompanying text (noting some commenters that stated that certain federal agencies do not permit implied consent for electronic delivery of certain materials). 79 See, e.g., ICI Comment Letter I. But see Schnase Comment Letter (supporting the proposal, but arguing that the Commission should go further and ‘‘allow funds to use the web to satisfy their delivery obligations for prospectuses, [statements of additional information] and other investor documents in addition to shareholder reports . . . .’’). E:\FR\FM\22JNR2.SGM 22JNR2 29164 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations notice transmission requirements.80 In addition, one commenter highlighted regulatory regimes in foreign jurisdictions that permit a transmission framework for shareholder reports similar to that under the proposed rule.81 daltland on DSKBBV9HB2PROD with RULES2 5. Environmental Benefits Some commenters highlighted the environmental benefits associated with the reduction of paper reports under the rule, including fewer trees needed to make paper and a reduction in landfill waste.82 Some of these commenters also 80 See, e.g., CAI Commenter Letter; ICI Comment Letter I. Referring to a rule adopted by the Bureau of Consumer Financial Protection (commonly known as the Consumer Financial Protection Bureau and referenced herein as the ‘‘Bureau’’). The rule that the Bureau adopted in 2014 permitted financial institutions to post the required privacy notice online if they met certain conditions, including the financial institution notifying consumers by mail on an annual basis about the availability of the notice. See Amendment to the Annual Privacy Notice Requirement Under GrammLeach-Bliley Act (Regulation P), Bureau of Consumer Financial Protection (Oct. 20, 2014), available at https://files.consumerfinance.gov/f/ 201410_cfpb_final-rule_annual-privacy-notice.pdf. In December 2015, Congress amended the Gramm-Leach-Bliley Act (‘‘GLBA’’) as part of the Fixing America’s Surface Transportation Act. These amendments to the GLBA provide an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers. Because the Bureau determined that the alternative delivery method was no longer necessary in light of this new statutory exception, the Bureau proposed in June 2016 to remove the alternative delivery method from its regulations implementing the GLBA. See Amendment to the Annual Privacy Notice Requirement Under the Gramm-Leach-Bliley Act (Regulation P), Bureau of Consumer Financial Protection (June 29, 2016), available at https:// www.consumerfinance.gov/policy-compliance/ rulemaking/rules-under-development/amendmentannual-privacy-notice-requirement-under-grammleach-bliley-act-regulation-p/. 81 See ICI Comment Letter II. This commenter suggested that the proposed rule was consistent with a global movement toward online financial disclosure and cited three foreign regimes as examples of this movement. These examples include: (1) The European Union, where funds are permitted to post shareholder reports on a website, with paper annual or semi-annual reports available by mail on request; (2) Canada, where funds send a negative consent letter to shareholders on an annual basis and shareholders may request a copy of the shareholder report by mail if desired; and (3) Australia, where funds can make shareholder reports available on a website, as long as in the first year of doing so they notify shareholders, explain how to access the website, and provide the option to request a mailed copy of the report. 82 See, e.g., Comment Letter of Environmental Paper Network (Oct. 4, 2016) (proposed rule would reduce landfill waste and resources associated with processing, printing, and transportation, which ultimately would reduce greenhouse gas emissions, water consumption and pollution, air pollution, wood and energy use, and solid waste); ICI Comment Letter II (estimating that the proposed rule would save approximately 2 million trees each year); Comment Letter of the Committee of Annuity Insurers (July 22, 2016) (‘‘CAI Comment Letter II’’) (noting that several members of the Committee VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 stated that the proposed rule is consistent with certain national and international initiatives regarding environmental issues, including The American Business Act on Climate Pledge 83 and The Paris Agreement 84 to combat climate change.85 Some commenters suggested, however, that environmental benefits of the proposed rule are overstated, citing environmentfriendly initiatives previously undertaken by the paper industry.86 6. Reliability and Security Concerns A number of commenters also expressed a preference for transmission of paper shareholder reports because of the reliability and security of information delivered by the U.S. Postal Service.87 We note that, under the rule as proposed and final rule 30e–3, paper Notices would be mailed to investors, and those investors who prefer to have their shareholder reports mailed to them will continue to be able to receive them in that manner by making a request to permanently receive all future reports in paper, or by requesting individual reports in paper whenever they desire. We also received a number of comments expressing cybersecurity concerns related to the proposed rule. The vast majority of these comments, however, did not appear to fully appreciate the method of transmission proposed under the rule (e.g., paper notice of the website availability of the reports rather than electronic delivery of the reports by email or other means) or the information that would be made available (e.g., shareholder reports rather than account statements that may have personal information).88 indicated that they each send approximately 1 billion pages per year to contract owners in connection with their regulatory obligation to delivery annual and semi-annual reports to contract owners). 83 See ICI Comment Letter II (citing the American Business Act on Climate Pledge). 84 See id. (citing the United Nations Framework Convention on Climate Change, the Paris Agreement). 85 See, e.g., ICI Comment Letter II; BlackRock Comment Letter. 86 See, e.g., Comment Letter of Doug Delaney (Aug. 7, 2015); Comment Letter of Mark A. Heyde (Aug. 7, 2015); Comment Letter of Shane Johnson (June 12, 2015). Many other commenters argued that the proposed rule would harm the paper industry and postal workers. See, e.g., Comment Letter of Kathy Watters (July 20, 2015); Comment Letter of James Sandstrom (Aug. 7, 2015) (‘‘Sandstrom Comment Letter’’); Comment Letter of PDF Print Communications Inc. (Aug. 10, 2015). 87 See, e.g., Comment Letter of Richard Griffin (July 28, 2015); Comment Letter of Tom Jones (July 28, 2015); Comment Letter of Michael J. Flynn (Aug. 4, 2015). 88 See, e.g., Comment Letter of Kenneth J. Janulewicz (July 27, 2015); Comment Letter of Mary Wells (Aug. 17, 2015); Comment Letter of Jacquelyn Mangold (July 29, 2015). PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 We are sensitive to these issues and acknowledge the importance of protecting the security of personal information. However, we do not believe that this new method of transmission would meaningfully increase the cybersecurity risks, such as identity thefts or ‘‘phishing’’ attacks, noted by these commenters. Rule 30e– 3, as proposed and adopted, does not present email ‘‘phishing’’ attack concerns because investors will not receive email communications as a result of the rule. Rather, shareholder reports would be posted on a public website, and investors would be provided with a paper notice regarding their availability. The final rule does not require that a Notice contain any personally identifiable information. If a fund were to choose to include this information in a Notice, the fund should take measures to protect this information just as funds do today regarding other mailings, like account statements, that may contain sensitive information.89 7. Investor Advisory Committee In December 2017, the Investor Advisory Committee 90 issued a recommendation regarding the promotion of electronic delivery and the development of a summary disclosure document for the delivery of fund reports.91 The recommendation provided, among other things, that the Commission explore: (i) Methods to encourage a transition to electronic delivery that respect investor preferences and that increase the likelihood that investors will see and read important disclosure documents; and (ii) development of a summary, layered disclosure document for annual 89 See, e.g., Regulation S–P [17 CFR 248.30] (requiring written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information); Privacy of Consumer Financial Information (Regulation S–P), Exchange Act Release No. 42974 (June 22, 2000) [65 FR 40334 (June 29, 2000)] (adopting Regulation S–P); Disposal of Consumer Report Information, Exchange Act Release No. 50781 (Dec. 2, 2004) [69 FR 71322 (Dec. 8, 2004)] (adopting requirements for proper disposal of consumer report information and records). 90 Section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 39 to the Securities Exchange Act of 1934, which establishes the Investor Advisory Committee. The Committee advises and consults with the Commission on regulatory priorities, issues, and initiatives and submits findings and recommendations to the Commission. 15 U.S.C. 78pp(a). The Commission reviews the findings and recommendations of the Committee and issues a public statement assessing the finding or recommendation and disclosing the action, if any, the Commission intends to take with respect to the finding or recommendation. 15 U.S.C. 78pp(g). 91 See Investment Advisory Committee Recommendation, supra note 40. E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations shareholder reports that incorporates key information from the report along with prominent notice regarding how to obtain a copy of the full report, and would be designed to be delivered either by mail or by email (depending on the investors’ delivery preferences). The Committee also recommended that the Commission seek comment on the appropriate content and format of such a disclosure document and engage in investor testing or encourage testing by industry members. B. Adoption of Rule 30e–3 and Related Amendments daltland on DSKBBV9HB2PROD with RULES2 1. Overview After consideration of the comments discussed above, we are adopting rule 30e–3 with several modifications designed to address preservation of investor preferences, cost, and administrability of the rule. Rule 30e–3 is intended to modernize the manner in which shareholder reports and other information are made available to investors and reduce expenses associated with printing and mailing that are currently borne by funds, and ultimately, fund investors.92 Reliance on the rule is optional. Funds are permitted to satisfy their delivery obligations by mailing shareholder reports in paper, delivering reports pursuant to the Commission’s electronic delivery guidance, providing notice and website accessibility pursuant to rule 30e–3, or any combination of the foregoing, so long as the conditions of the applicable transmission methods are met. We believe that a fund is in the best position to choose whether or not to implement the rule after considering the costs and benefits of the rule, including consideration of the needs and preferences of the fund’s particular investors.93 As discussed below, the final rule has been modified from the proposal to provide increased flexibility for funds to implement the rule according to their particular circumstances and the preferences of their investors. For example, these modifications permit funds to include in the Notice additional information from shareholder reports that they may 92 If any provision of this rule, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or the application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. 93 We understand that internet access and use is not uniformly distributed geographically. See infra note 97. In considering whether use of the rule is appropriate, we encourage each fund, in consultation with its intermediaries, to consider the prevalence of internet access and use across its investor base. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 deem helpful when notifying investors of the availability of reports. The rule is consistent with our prior initiatives to harness the benefits of the internet and other new technologies for investors,94 and is consistent with similar initiatives of other regulators (both domestic and foreign).95 Furthermore, as we discussed in the Proposing Release, investor testing and internet usage trends have highlighted the evolution of investor preferences about electronic delivery of information, and shown that many investors would prefer enhanced availability of fund information on the internet.96 Given 94 See supra note 18. supra notes 78–81 and accompanying text. But see supra note 56 and accompanying text (noting that some commenters stated that certain federal agencies do not permit implied consent for electronic delivery of certain materials); supra note 80 (noting that because of provisions in the Fixing America’s Surface Transportation Act that amended the GLBA to provide an exception under which financial institutions that meet certain conditions are not required to provide annual privacy notices to customers, the Bureau determined that the alternative delivery method for the annual privacy notice requirement was no longer necessary in light of this new statutory exception). 96 For example, investor testing sponsored by the Commission and conducted in 2011 (‘‘2011 Investor Testing’’) suggested that an investor looking for a fund’s annual report is most likely to seek it out on the fund’s website, rather than request it by mail or phone or by retrieving it from the Commission’s Electronic Data, Gathering, Analysis, and Retrieval System (‘‘EDGAR’’). Proposing Release, supra note 14, at 33626–27. Many investors indicated that they would prefer that fund information be made available in both electronic and paper versions, with a plurality of respondents preferring electronic transmission by email with the option to easily request a paper copy of a particular report, though a significant minority indicated that they would still prefer to receive a paper copy through the mail. Id. at 33627. According to the most recent U.S. census data, approximately 77.2% of U.S. households had some form of internet access in their home in 2015 and 86.8% have a computer (e.g., desktop, laptop, tablet or smartphone). See Camille Ryan & Jamie M. Lewis, Computer and internet Usage in the United States: 2015 (Sept. 2017), available at https:// www.census.gov/content/dam/Census/library/ publications/2017/acs/acs-37.pdf; see also Sarah Holden, Daniel Schrass & Michael Bogdan, Ownership of Mutual Funds, Shareholder Sentiment, and Use of the internet, 2017 (Oct. 2017), available at https://www.ici.org/pdf/per2307.pdf (‘‘[i]n mid-2017, 95 percent of households owning mutual funds had internet access, up from about two-thirds in 2000’’ and ‘‘86 percent of mutual fund-owning households with a household head aged 65 or older had internet access in mid2017’’); Andrew Perrin & Maeve Duggan, Americans’ internet Access: 2000–2015 (June 2015), available at https://assets.pewresearch.org/wpcontent/uploads/sites/14/2015/06/2015-06-26_ internet-usage-across-demographics-discover_ FINAL.pdf (finding in 2015, 84 percent of all U.S. adults use the internet). But see Broadridge Meeting Memo I (citing studies on investor delivery preference for shareholder reports and mandatory disclosures regarding investments, which depending on the particular study, found 43% to 55% of investors preferred paper delivery). Understanding that an investor’s experience when accessing a shareholder report may differ 95 See PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 29165 both current levels and trends in increasing internet access and use—in particular with the significant increase in the use of the internet as a tool for disseminating financial information among all age groups—we believe that it is appropriate to permit the internet availability of shareholder reports to satisfy transmission obligations, subject to certain conditions including protections for investors who continue to prefer reports in paper form.97 We recognize that it is critical for investors to continue to receive disclosure through means that are convenient and accessible for them.98 We believe that the final rule’s conditions include appropriate protections for those who lack internet access or who simply prefer paper reports. Investors who lack internet access or prefer paper reports will be between a mobile device and a laptop, we request comment about investor experiences and preferences for fund disclosures on mobile devices in the Disclosure Request for Comment. See supra note 20. 97 Since the 2011 Investor Testing, third-party studies and surveys indicate access to and use of the internet has continued to increase rapidly, including among demographic groups that have previously been less likely to use the internet. See, e.g., supra notes 41–42 and accompanying text; see also Pew Research Center, Who’s Not Online and Why, at 2 (Sept. 25, 2013), available at https:// pewinternet.org/Reports/2013/Non-internetusers.aspx. The Pew Research Center study, conducted in 2013, found that only 15% of American adults ages 18 and older do not use the internet or email—falling from 26% in 2011, when the Commission’s investor testing was conducted, and from 36% a decade before in 2001. See Pew Research Center, Older Adults and Technology Use, at 1 (Apr. 3, 2014), available at https:// www.pewinternet.org/2014/04/03/older-adults-andtechnology-use/. These researchers also found that in 2016, 67% of adults over the age of 64 used the internet, a 55% increase since 2000. See Pew Research Center, Tech Adoption Climbs Among Older Adults, at 2 (May 17, 2017), available at https://assets.pewresearch.org/wp-content/uploads/ sites/14/2017/05/16170850/PI_2017.05.17_OlderAmericans-Tech_FINAL.pdf; see also Investment Company Institute, 2017 Investment Company Fact Book, available at https://www.ici.org/pdf/2017_ factbook.pdf (‘‘2017 ICI Fact Book’’) at 129 (stating that 92% of U.S. households owning mutual funds had internet access in mid-2016). These trends have also extended to use of the internet for financial purposes. For example, a recent survey by the Investment Company Institute found that in 2017, 95% of U.S. households owning mutual funds had internet access (up from about two-thirds in 2000), with widespread use of the internet among various age groups, education levels and income levels, including access by 86% of mutual fund owning households headed by someone age 65 or older. See Ownership of Mutual Funds, Shareholder Sentiment, and Use of the internet, supra note 96, at 18. 98 Proposing Release, supra note 14, at 33627. In the Proposing Release, we noted concerns that some investors who prefer to receive shareholder reports in paper and some demographic groups of investors that may be less likely to use the internet might not fully understand the actions they would need to take under the proposed rule to continue to receive their reports in paper. See id. E:\FR\FM\22JNR2.SGM 22JNR2 daltland on DSKBBV9HB2PROD with RULES2 29166 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations able to continue to receive them by mail: • First, the final rule provides that investors who prefer to receive reports in paper may continue to do so, either by making a one-time request to receive all future reports in paper, or by requesting individual reports in paper whenever they desire. • Second, as outlined below in Sections II.B.2.f and II.E, we are adopting an extended transition period with staged effective dates. During the extended transition period, the earliest that Notices may be transmitted to investors in lieu of paper reports is January 1, 2021. In general, funds will be required to provide two years of notice to shareholders before relying on the rule. Therefore, funds that begin providing notice at the start of 2019 will complete the two-year notice period, and may begin relying on the rule, on January 1, 2021. In addition, funds that are newly offered during the period of January 1, 2019 through December 31, 2020 may rely on the rule starting January 1, 2021, if they provide notice to shareholders starting with their first public offering. Funds that are newly offered on January 1, 2021 and thereafter would not be subject to the condition and could therefore rely on the rule immediately without providing any advance notice through required statements. All other funds may not rely on the rule until they have completed a full two year notice period or until January 1, 2022, whichever comes first. Although we are eliminating the Initial Statement requirement, we nonetheless believe that it is important that investors receive sufficient notice of the change in transmission method and sufficient opportunity to express their delivery preference. Therefore, the extended transition period is designed to ensure that investors receive disclosures during the extended transition period and to provide funds electing to make use of this optional method and financial intermediaries time to educate investors of the coming change through disclosures on prospectuses and certain other fund documents and through other means. It will also provide funds and financial intermediaries with time to implement any necessary operations and systems changes. Finally, the Commission staff will also use this extended transition period to engage in educational and investor outreach efforts. We believe these protections will mitigate the various concerns raised by commenters regarding this new optional method for funds to satisfy requirements VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 to transmit shareholder reports.99 For example, the additional disclosures on shareholder documents about the forthcoming internet availability of reports, as well as other educational efforts undertaken by funds, financial intermediaries, and Commission staff should decrease the possibility that an investor will be unaware of the change in transmission method and will result in many investors receiving considerably more notice of the change in transmission than they would have under the proposed rule. An investor in a mutual fund, for example, that seeks to begin relying on the rule before January 1, 2022 would be notified about six times compared to the proposal, which did not have an extended transition period and would have required only that one Initial Statement be sent 60 days in advance of a change in transmission method.100 We believe that the required disclosures, which must be made using plain English principles, also mitigate concerns that some investors might not fully understand what they need to do to continue to receive paper reports. To the extent an investor does not prefer or is unable to access shareholder reports via the internet, he or she can request paper copies of shareholder reports, either on a permanent or ad hoc basis. 2. Conditions of Rule 30e–3 New rule 30e–3 provides that a registered management company (and any separate series thereof) or UIT may satisfy its obligation to transmit a report required by rule 30e–1 or rule 30e–2, respectively, if certain conditions set forth in the rule are satisfied.101 These conditions generally relate to: (a) Availability of the report and other materials; (b) notice to investors of the website availability of the report; and (c) delivery of paper copies of materials upon request. Rule 30e–3 also requires transmission of paper reports to investors electing a delivery preference to receive them in that format.102 Finally, rule 30e–3 will also include a 99 See supra notes 54–62 and accompanying text. infra Section II.B.2.d. During the extended transition period, an investor in a mutual fund, for example, that seeks to begin relying on the rule before January 1, 2022 would receive approximately six notices of the upcoming change over a two-year period because each year, investors will receive notice on the summary prospectus or statutory prospectus, as well as the semi-annual and annual report to shareholders. 101 Rule 30e–3(a). The rule could also be used to satisfy any obligation to transmit an amendment to a report required by rule 30e–1 or 30e–2 by satisfying the same conditions. An amendment to a shareholder report could also be transmitted through other permitted means, such as in paper through the mail. 102 Rule 30e–3(f). 100 See PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 temporary condition relating to form amendments applicable during an extended transition period.103 The specific provisions of the rule are discussed in more detail in the sections that follow. These conditions are generally consistent with similar conditions in other rules adopted by the Commission, including its rules regarding the use of a summary prospectus and internet availability of proxy materials.104 For example, funds offering electronic delivery typically send investors an email notifying them of the online availability of the report or other information, along with a link to the website address where the document is available.105 Similarly, the Notice required under rule 30e–3 may satisfy shareholder report transmission obligations in part by containing a link to where the document may be accessed on the internet. Rule 30e–3 provides funds an optional means of satisfying shareholder report transmission obligations under rule 30e–1 and rule 30e–2.106 Some commenters recommended, however, that the rule be clarified as to its application to UITs, as UITs and not the underlying funds held by such UITs are the entities with transmission obligations under rule 30e–2.107 In response to this recommendation, the final rule clarifies, by use of terminology and otherwise, that the operative conditions of rule 30e–3 extend to a UIT seeking to meet its transmission obligations under rule 30e–2.108 103 Rule 30e–3(j); see infra Sections II.B.2.f, II.E. rule 498 under the Securities Act (permitting the use of a summary prospectus) [17 CFR 230.498]; rule 14a–16 under the Exchange Act (internet availability of proxy materials) [17 CFR 240.14a–16]. 105 See 1995 Release, supra note 18. Under rule 498, the requirement to send an electronic copy of a document by email may be satisfied by sending a direct link to the document on the internet; provided that a current version of the document is directly accessible through the link from the time that the email is sent through the date that is six months after the date that the email is sent and the email explains both how long the link will remain useable and that, if the recipient desires to retain a copy of the document, he or she should access and save the document. See rule 498(f)(1) under the Securities Act [17 CFR 230.498(f)(1)]. 106 Rule 30e–3(a). 107 See, e.g., CAI Comment Letter I; ICI Comment Letter II. 108 For example, in a change from the proposal, the rule uses the defined term ‘‘Company’’ to refer collectively to the entities with obligations under rules 30e–1 and 30e–2. See rule 30e–3(h)(1) (defining ‘‘Company’’ to mean a Fund required to transmit a report to shareholders pursuant to rule 30e–1 or a UIT required to transmit a report to shareholders pursuant to rule 30e–2). For purposes of the rule, ‘‘Fund’’ is defined to mean a registered management company and any separate series of the management company. See rule 30e–3(h)(2). 104 See E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations a. Availability of Shareholder Report and Other Materials We are adopting generally as proposed, except as indicated below, certain requirements relating to the availability of the shareholder report and other materials for funds relying on rule 30e–3. Specifically, in order to satisfy transmission obligations under rule 30e–1 or rule 30e–2, the current report to shareholders must be publicly accessible, free of charge, at a specified website address.109 In a change from the proposal, the final rule requires that the report must be accessible from the date the fund transmits the report as required by rule 30e–1 or 30e–2, at least until the date the fund next transmits a shareholder report required by rule 30e– 1 or rule 30e–2.110 This requirement is intended to provide investors with the opportunity for ongoing access to the shareholder report until, at a minimum, the date that the next report is transmitted.111 Funds are not currently required to send first- and third-quarter portfolio holdings information to investors or make that information accessible on their websites. To provide investors with convenient access to the most recent four quarters of portfolio holdings, the rule requires that, in addition to posting the most current shareholder report, the following fund documents must also be posted at the specified website: (1) Any report with respect to the fund for the prior reporting period that was transmitted to shareholders of record pursuant to rule 30e–1 or rule 30e–2, if any; 112 (2) the 109 Rule 30e–3(b)(1). Rules 30e–1 and 30e–2 require that a report be transmitted within 60 days after the close of the period covered by the report. See rule 30e–1(c); rule 30e–2(a). Under the proposal, (1) the report would have been required to be accessible on the website from the date the report was transmitted to investors, and (2) the Notice relating to the report would have been required to be transmitted within 60 days of the close of the related reporting period. See proposed rule 30e–3(b), (d). As discussed below, we have modified the final rule to permit the Notice to be delivered up to 70 days after the close of the reporting period. However, we believe the report should nonetheless be available at the same time that reports are transmitted to investors, either in paper or electronically, in order that reports covering a complete year are available on the website at all times. 111 See 1995 Release, supra note 18 (noting that to satisfy access requirements under the Commission’s electronic delivery guidance, ‘‘as is the case with a paper document, a recipient should have the opportunity to retain the information or have ongoing access equivalent to personal retention’’). 112 Rule 30e–3(b)(1)(ii). If a fund is transmitting a report for its first operational semi-annual period, the fund could rely on rule 30e–3 to transmit that report, despite not having made a prior report publicly accessible, provided that it meets the other required conditions. daltland on DSKBBV9HB2PROD with RULES2 110 Id. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 fund’s complete portfolio holdings as of the close of the period covered by the current or prior report if the report includes a summary schedule of investments; 113 and (3) for funds other than money market funds and small business investment companies (‘‘SBICs’’),114 the complete portfolio holdings as of the close of the fund’s most recent first and third fiscal quarters, if any, after the date on which its registration statement became effective, within 60 days after the close of that period.115 Money market funds and SBICs are expressly excluded from the rule’s posting requirement provisions for fiscal quarter-specific portfolio holdings schedules because money market funds are required currently to post certain portfolio holdings and other information on their websites pursuant to rule 2a–7,116 and because SBICs are not required to file reports on Form N–Q today and are not required to file reports on Form N– PORT.117 The fund’s prior shareholder report and portfolio holdings information for its first and third fiscal quarters are required to be publicly accessible in the same manner and for the same time period as the current shareholder 113 Rule 30e–3(b)(1)(iii). In a change from the proposal, this provision provides that a fund’s complete portfolio holdings for its most recent second and fourth fiscal quarters must be posted at the specified website if a report required to be posted at the specified website (i.e., a current report to be transmitted pursuant to rule 30e–3 or the report for the prior fiscal period) includes a summary schedule of investments. 114 SBICs are unique investment companies that operate differently and are subject to a different regulatory regime than other management companies. They are ‘‘privately owned and managed investment funds, licensed and regulated by the Small Business Administration (‘‘SBA’’), that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.’’ See SBA, SBIC Program Overview, available at https:// www.sba.gov/content/sbic-program-overview. 115 Rule 30e–3(b)(1)(iv). Under this requirement, the portfolio holdings as of the fiscal quarter following the period of the report will be required to be posted at the specified website when available. For example, a fund with a December 31 fiscal year end wishing to rely on rule 30e–3 to transmit its annual report to shareholders will also be required to ensure that its complete portfolio holdings for the first quarter of the next year is made similarly available within 60 days after the end of the first quarter. 116 See rule 2a–7(h)(10). 117 See rule 30b1–9; see also supra note 14. Until they are required to submit reports on Form N– PORT, management companies other than SBICs are required to file portfolio schedules as of the end of the first and third fiscal quarters on Form N–Q. See rule 30b1–5. See also Investment Company Reporting Modernization, Investment Company Act Release No. 32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)] (delaying rescission of Form N–Q and certain other effective dates for final rules and other amendments adopted as part of the Reporting Modernization Adopting Release). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 29167 report.118 We are adopting this requirement to provide investors with easy access to a full year of complete portfolio holdings information in one location (i.e., the website on which the report transmitted under the rule is made accessible), rather than requiring investors to access the fund’s reports on Form N–PORT (or Form N–Q) for those periods separately. To conform the format and content of the portfolio holdings schedules for the first and third quarters to those schedules presented in the fund’s shareholder reports for the second and fourth quarters, the rule requires the schedules for the first and third quarters to be presented in accordance with the schedules set forth in §§ 210.12–12 through 12–14 of Regulation S–X, which need not be audited.119 In a change from the proposal, the final rule requires that if a report required to be posted includes a summary schedule of investments,120 the fund’s complete portfolio holdings as of the close of the period covered by the report must also be posted at the specified website.121 In the Proposing Release, we stated that for funds relying on the proposed rule, use of the summary schedule may be unnecessary,122 and in particular, may be potentially confusing or cumbersome to investors seeking to access the fund’s complete portfolio holdings.123 For 118 Rule 30e–3(b)(1). 30e–3(b)(1)(iii)–(iv); 17 CFR 210.12–12 through 12–14. These materials are required to be filed as exhibits to Form N–PORT, regardless of whether the fund intends to rely on the rule to satisfy its shareholder report transmission obligations. See Part F of Form N–PORT [referenced in 17 CFR 274.150]. 120 In lieu of providing a complete schedule of portfolio investments as part of the financial statements included in its shareholder report, a fund may provide a summary schedule of portfolio investments. See, e.g., Instruction 1 to Item 27(b)(1) of Form N–1A. Pursuant to rule 12–12B of Regulation S–X, the summary schedule generally must list separately the 50 largest issuers and any other issuer the value of which exceeded one percent of the net asset value of the fund at the close of the period. See rule 12–12B, n.3 of Regulation S–X [17 CFR 210.12–12B]. 121 Rule 30e–3(b)(1)(iii). Similarly to the other quarterly portfolio holdings required to be posted to the website, the portfolio holdings for the second and fourth quarters must be presented in accordance with rules 12–12 through 12–14 of Regulation S–X, but need not be audited. 122 We noted, for example, that a fund currently using the summary schedule as a means to reduce fund printing and mailing costs may decide instead to include a complete portfolio schedule in the shareholder report due to more limited cost savings if the report is posted on its website in reliance on the proposed rule. Proposing Release, supra note 14, at 33631. 123 We noted, for example, that under the proposed rule, an investor that wishes to view the complete portfolio holdings would first receive a notice of the availability of the report, then take the 119 Rule E:\FR\FM\22JNR2.SGM Continued 22JNR2 29168 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 these reasons, we proposed amendments to our registration forms that would have restricted funds relying on proposed rule 30e–3 from providing a summary schedule in their shareholder reports in lieu of a complete schedule.124 We requested comment, however, as to whether the final rule should restrict funds relying on the proposed rule from using a summary schedule. One commenter recommended that funds retain the ability to use the summary schedule of investments if they rely on the proposed rule.125 This commenter noted that it understood the Commission’s concern that investors may have to take additional steps to access the complete portfolio schedule, but believed the policy rationale supporting allowing the summary schedule remained the same as when the Commission first implemented the summary schedule.126 We continue to be concerned that use of a summary schedule of investments with rule 30e–3 would be potentially confusing or cumbersome for investors seeking access to the complete portfolio schedule. At the same time, we acknowledge that a fund may choose to use a summary schedule for cost considerations or otherwise, and we continue to believe that the summary schedule can help investors focus on a fund’s principal holdings and thereby better evaluate the fund’s risk profile and investment strategy. The restriction contained in proposed rule 30e–3 effectively would have required a fund using the summary schedule to create and distribute two separate reports to shareholders (i.e., one containing the summary schedule for investors receiving the report in paper, and step to access the report on the fund’s website, only to have to take a subsequent step to request or otherwise access the complete schedule. Proposing Release, supra note 14, at 33631. Currently, for funds using the summary schedule of investments, unless voluntarily posted on the fund’s website, the fund’s complete portfolio holdings are only available by telephonic request, or by accessing the fund’s report on Form N–CSR for that period on the Commission’s EDGAR system. See, e.g., Instruction 1 to Item 27(b) of Form N–1A; Item 6(a) of Form N–CSR. 124 See proposed amendments to Item 27(b) of Form N–1A; Item 24, Instruction 7 of Form N–2; Item 28(a), Instruction 7(i) of Form N–3. 125 See ICI Comment Letter I. 126 See id. The Commission adopted rules permitting the use of a summary schedule of investments in 2004. See Shareholder Reports and Quarterly Portfolio Disclosure of Registered Management Investment Companies, Investment Company Act Release No. 26372 (Feb. 27, 2004) [69 FR 11244 (Mar. 9, 2004)]. In that release, the Commission stated that the summary schedule was ‘‘designed to streamline shareholder reports and help investors to focus on a fund’s principal holdings, and thereby better evaluate the fund’s risk profile and investment strategy.’’ Id. at 11248. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 another containing a complete schedule of portfolio investments for purposes of rule 30e–3). To avoid the related administrative cost and other burdens associated with such a scenario, and at the same time help to provide investors with easy access to the complete portfolio schedule, the final rule requires, in a change from the proposal, that if a report required to be posted at the specified website (i.e., a current report to be transmitted pursuant to rule 30e– 3 or the report for the prior fiscal period) includes a summary schedule of investments, the fund’s complete portfolio holdings as of the close of the period covered by the report must also be posted at the specified website.127 This will provide investors with a year of complete portfolio schedules on the specified website, regardless of whether the fund chooses to utilize a summary schedule of investments in its reports. Like the schedule of investments required to be included with shareholder reports (and filed as part of reports on Form N–CSR), quarterly schedules of portfolio holdings currently required to be reported on Form N–Q, and monthly schedules of portfolio holdings that will be required to be reported on Form N–PORT,128 the portfolio holdings schedules specified by the rule are required to be presented in accordance with schedules set forth under Regulation S–X.129 Accordingly, we anticipate that most funds have established procedures in place to update and monitor the website posting of similar types of portfolio schedule disclosures. These requirements are also intended to provide disclosures that are easily understood and familiar to investors, because these disclosures will contain similar information and be presented in a similar manner as those 127 Rule 30e–3(b)(1)(iii). supra note 117 and accompanying text. The information reported on Form N–PORT for the third month of each fund’s fiscal quarter will be made publicly available 60 days after the end of the fund’s fiscal quarter. The Commission does not intend to make public the information reported on Form N–PORT for the first and second months of each fund’s fiscal quarter that is identifiable to any particular fund or adviser; however, the Commission may use information reported on Form N–PORT in its regulatory programs, including examinations, investigations, and enforcement actions. Form N–Q will be rescinded May 1, 2020. Larger fund groups will begin submitting reports on Form N–PORT by April 30, 2019, and smaller fund groups by April 30, 2020. See Reporting Modernization Adopting Release, supra note 14; Investment Company Reporting Modernization, Investment Company Act Release No. 32936, supra note 117. 129 See Items 1 and 6 of Form N–CSR; Item 1 of Form N–Q; Part F of Form N–PORT. 128 See PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 currently included in shareholder reports. As proposed, the final rule also requires compliance with certain conditions designed to ensure the accessibility of shareholder reports and other required materials.130 First, the website address at which the shareholder reports and other required portfolio information are made accessible may not be the address of the Commission’s electronic filing system.131 Second, the materials required to be posted on the website must be presented in a format or formats convenient for both reading online and printing on paper, and persons accessing the materials must be able to permanently retain (free of charge) an electronic copy of the materials in this format.132 These conditions are designed to ensure that shareholder reports and other information posted on a website pursuant to the rule are userfriendly and allow investors the same ease of reference and retention abilities they would have with paper copies of the information. The rule includes a safe harbor provision that would allow a fund to continue relying on the rule even if it did not satisfy the posting condition of the rule for a temporary period of time.133 In order to rely on this safe harbor, a fund must have reasonable procedures in place to ensure that the required materials are posted on the specified website in the manner required by the rule and take prompt action to correct noncompliance with these posting requirements.134 The rule requires prompt action as soon as 130 These requirements are largely similar to the accessibility requirements of rule 498 under the Securities Act, which allows funds to use a summary prospectus, and rule 14a–16 under the Exchange Act, which requires issuers and other soliciting persons to furnish proxy materials by posting these materials on a public website and notifying shareholders of the availability of these materials and how to access them. See rule 14a–16 under the Exchange Act [17 CFR 240.14a–16]. 131 Rule 30e–3(b)(2). The Commission’s electronic filing system for fund documents is EDGAR. Rule 498 under the Securities Act sets forth a similar requirement. See 17 CFR 230.498(b)(1)(v)(A). 132 Rule 30e–3(b)(3)–(4). 133 See rule 30e–3(b)(5). The rule provides that the conditions in paragraphs (b)(1) through (b)(4) of the rule (i.e., the posting requirements) shall be deemed to be met, notwithstanding the fact that the materials required by paragraph (b)(1) of the rule are not available for a period of time in the manner required by the posting requirements, so long as certain conditions are met. See id. Four commenters supported the safe harbor provision of the proposed rule. See BlackRock Comment Letter; ICI Comment Letter I, Comment Letter of OppenheimerFunds (Aug. 11, 2015) (‘‘OppenheimerFunds Comment Letter’’); State Street Comment Letter. Moreover, we did not receive any comment letters objecting to the safe harbor provision. 134 See rule 30e–3(b)(5)(i) and (ii). E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations practicable following the earlier of the time at which the fund knows or reasonably should have known that the required documents are not available in the manner prescribed by the posting requirements of the rule. We are adopting this safe harbor because, as we explained in the Proposing Release, there may be times when, due to events beyond a fund’s control, such as system outages or other technological issues, natural disasters, acts of terrorism, pandemic illnesses, or other circumstances, a fund may be temporarily not in compliance with the posting requirements of the rule.135 One commenter recommended that the final rule clarify that the materials required to be posted could be posted on a third-party website or landing page, similar to what is allowed under the current process for notice and access for proxy materials.136 The rule as proposed, and as adopted today, does not require that the website be maintained by any particular party. Instead, the rule requires that the required materials be posted at the website specified in the Notice.137 Similar flexibility regarding the website on which required materials must be posted exists in our current rules relating to the use of a summary prospectus.138 daltland on DSKBBV9HB2PROD with RULES2 b. Notice Rule 30e–3 requires funds relying on the rule with respect to an investor to send a paper Notice notifying the investor of the availability of the report.139 The requirements for a Notice largely mirror the notice requirements under the Commission’s rules 135 Compare rule 498(e)(4) under the Securities Act (providing a similar safe harbor under the summary prospectus rule for the same reasons) [17 CFR 230.498(e)(4)], with rule 30e–3(b)(5). Providing for this safe harbor by rule may obviate the need to provide exemptive relief by order from the rule’s conditions under catastrophic circumstances, as from time to time we have done. See, e.g., Exchange Act Release No. 81760 (Sept. 28, 2017) [82 FR 46335 (Oct. 4, 2017)] (exemptive relief for individuals and entities affected by Hurricanes Harvey, Irma, or Maria); Securities Act Release No. 10416 (Sept. 27, 2017) [82 FR 45722 (Oct. 2, 2017)] (Regulation Crowdfunding and Regulation A relief and assistance for individuals and entities affected by Hurricanes Harvey, Irma, or Maria). 136 See SIFMA Comment Letter. 137 See rule 30e–3(b)(1). 138 See rule 498(e)(1) under the Securities Act (requiring in the case of the summary prospectus, that the required documents be available at the website specified on the cover page or beginning of the summary prospectus) [17 CFR 230.498(e)(1)]. 139 See rule 30e–3(c). As discussed above, funds relying on the rule to satisfy delivery obligations with respect to investors who currently receive paper shareholder reports would not have to rely on rule 30e–3 with respect to those shareholders who have elected to receive reports electronically. See supra note 18 and accompanying text. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 mandating the posting of proxy materials online.140 We are adopting the Notice requirement generally as proposed, but with certain modifications in response to issues raised by commenters. In particular, the final rule permits the Notice to include additional content beyond what would have been permitted under the proposed rule. While most commenters focused on technical aspects of the Notice, one commenter encouraged the Commission to consider eliminating the Notice requirement altogether, which the commenter believed would lead to additional cost savings and environmental benefits.141 Another commenter recommended that the Notice be sent annually, rather than semi-annually, and that the final rule permit the Notice to be sent to investors 90 days after the fiscal year end rather than 60 days as proposed.142 A third commenter recommended requiring that the Notice be sent by email.143 Finally, another commenter recommended that the rule allow investors to elect to receive notices by email.144 We continue to believe that it is important for all investors to receive the Notice, as it will contemporaneously alert them to the availability of a shareholder report online and will provide them with information on how to obtain a paper copy of the report. Therefore, we are adopting as proposed the Notice requirements as to format (i.e., the Notice must be paper).145 We are requiring the Notice to be in paper because, even though an investor may have provided an email address (e.g., as part of opening an account), there may be instances where that investor provided his or her email address for certain limited purposes without necessarily opting to receive shareholder reports or notices of reports through email. In a change from the proposal, the final rule extends from 60 days to 70 days the period of time in which the Notice must be sent to investors after the close of the period covered by the related report.146 We proposed a 60-day period because, as we explained in the Proposing Release, that is the period currently required for transmission of reports, whether in paper or 140 See rule 14a–16 under the Exchange Act [17 CFR 240.14a–16]. 141 See BlackRock Comment Letter. 142 See OppenheimerFunds Comment Letter. 143 See State Street Comment Letter. 144 See Simpson Thacher Comment Letter. 145 Rule 30e–3(c). 146 Id. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 29169 electronically.147 After consideration of the comments we received, including comments recommending that we permit the Notice to accompany other important account materials,148 we believe a 70-day period will accommodate such changes to the Notice in the final rule and achieve additional cost savings and operational efficiencies. First, in a change from the proposal and as discussed below, we are permitting the Notice to accompany other materials, including a shareholder’s account statement. Because shareholder reports are generally prepared at or shortly before the end of the 60 days following the close of the reporting period, and account statements (whether monthly, quarterly, or annual) are typically prepared and mailed within a few days after the close of the applicable month end, a Notice would generally not be able to accompany an account statement mailing if the Notice is sent out within 60 days following the close of the reporting period.149 Second, as also discussed below, we are permitting the Notice to include content from the shareholder report, and also requiring any such Notices to be filed with the Commission as part of a fund’s report on Form N–CSR. Extending the time period to 70 days permits funds additional time to prepare Notices after finalizing their related shareholder reports, and matches up with the 70-day filing period for reports on Form N–CSR.150 i. Information That Must Be Included in the Notice As under the proposal, the Notice must be in plain English so that investors can easily understand it.151 The final rule also requires funds to include certain statements and information in the Notice, if applicable, and permits funds to include certain 147 See Proposing Release, supra note 14; rules 30e–1(c), 30e–2(a). 148 See, e.g., Comment Letter of Charles Schwab Investment Management, Inc. (Aug. 12, 2015) (‘‘Schwab Comment Letter’’); Dreyfus Comment Letter. 149 For example, pursuant to rule 30e–1, a fund would be required to transmit a report for a period ended March 31 by May 30. Permitting the fund 70 days to transmit a Notice would enable the fund, if it so chose, to combine it with the investor’s May account statement mailing. 150 Reports on Form N–CSR must be filed within 10 days after the shareholder report is sent to shareholders, and the shareholder report must be sent within 60 days after the close of the period covered by the report. See rule 30b2–1(a) [17 CFR 270.30b2–1(a)]; rule 30e–1(c). 151 Rule 30e–3(c)(1), (d). E:\FR\FM\22JNR2.SGM 22JNR2 29170 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 additional information, generally as follows: • As was proposed, the Notice must contain a prominent legend in bold-face type stating that an important report to shareholders is available online and in paper by request, and in a change from the proposal, the Notice may include information identifying the fund, its sponsor (including any investment adviser or sub-adviser to the fund), a variable annuity or variable life insurance contract or insurance company issuer thereof, or a financial intermediary through which shares of the fund are held; 152 • as was generally proposed (but with certain modifications), the Notice must state that the report contains important information about the fund, including as proposed its portfolio holdings and, in a change from the proposal, its financial statements;153 • in a change from the proposal, the Notice may include a brief listing of other types of information contained in the report; 154 • as was proposed, the Notice must state that the report is available on the internet or, upon request, by mail, and encourage shareholders to access and review the report; 155 • as was proposed, the Notice must include the website address where the shareholder report and other required portfolio information is posted (i.e., the ‘‘landing page’’ to those materials), but in a change from the proposal, the final rule eliminates the proposed requirement that the Notice include the website address for individual reports; 156 • as was generally proposed (with certain modifications), the Notice must include a toll-free (or collect) telephone number to contact the fund or the shareholder’s financial intermediary 157 and (A) provide instructions describing how a shareholder may request, at no charge, a paper or email copy of the shareholder report or other materials required to be made accessible online, 152 Rule 30e–3(c)(1)(i). We have modified this requirement to provide more flexibility to funds in recognition of the fact that investors can acquire interests in funds through a variety of distribution channels. 153 Rule 30e–3(c)(1)(ii). 154 Id. 155 Rule 30e–3(c)(1)(iii). 156 Rule 30e–3(c)(1)(iv). The website address must be specific enough to lead investors directly to the documents that are required to be posted online under the rule. The website address could be a central site with prominent links to each document, but could not be a home page or section of the website other than where the documents are posted. In addition to the website address, the Notice may contain any other equivalent method or means to access the documents. See id. 157 Rule 30e–3(c)(1)(v). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 and an indication that the shareholder will not receive a paper copy of the report unless requested,158 (B) explain that the shareholder can at any time in the future elect to receive paper reports and provide instructions describing how a shareholder may make that election (e.g., by contacting the fund or the shareholder’s financial intermediary),159 and (C) if applicable, include instructions describing how a shareholder can elect to receive shareholder reports or other documents and communications by electronic delivery; 160 • in a change from the proposal, the Notice may include other methods by which a shareholder can contact the fund or the shareholder’s financial intermediary (e.g., by email or through a website) and may include information needed to identify the shareholder; 161 and • in a change from the proposal, the Notice is not required to be accompanied by a reply card.162 We requested comment on whether the proposed disclosures in the Notice, including the required statement that the report contains important information about the fund, were appropriate. One commenter suggested that the content of the Notice be enhanced to require disclosures relating to ‘‘important information, such as [f]und performance and portfolio manager insights,’’ noting that enhanced disclosures could encourage investors to access their shareholder reports.163 We agree that such additional disclosures could encourage investors to access their reports, so we have modified and expanded the proposed required statement in the Notice that the report to shareholders contains important information about the fund, including its portfolio holdings, to add a reference to the fund’s financial statements.164 In addition, the final rule permits the 158 Rule 30e–3(c)(1)(v)(A). 30e–3(c)(1)(v)(B). 160 Rule 30e–3(c)(1)(v)(C). 161 Rule 30e–3(c)(2). For example, this information could include a control number unique to that shareholder. 162 Although the final rule does not require a reply card as a method of communication, a fund could choose to use reply cards. 163 See Comment Letter of Fidelity Investments (Aug. 10, 2015) (‘‘Fidelity Comment Letter I’’); see also Investment Advisory Committee Recommendation; Broadridge Meeting Memo I. 164 Rule 30e–3(c)(1)(ii). Similar statements are required for other documents. For example, Form N–1A requires the back cover page of the statutory prospectus of an open-end fund to include a statement to the effect that the fund’s annual report contains a discussion of the market conditions and investment strategies that significantly affected the fund’s performance during its last fiscal year. See Item 1(b)(1) of Form N–1A. 159 Rule PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 statement to also include a brief listing of other types of information contained in the report. For example, the statement could also note that the report contains fund performance and portfolio manager insights as suggested by the commenter, or other types of information such as expense information.165 Some commenters recommended modifications to the proposed website address requirements. One commenter suggested that the rule not require the Notice to include a specific website address, which would allow the industry more flexibility in implementing the rule.166 Another commenter suggested that the rule not require website addresses for individual reports.167 That commenter stated that: (1) Such a requirement was too complex and costly to administer, as new reports are posted and old ones are taken down; (2) website addresses would be long and difficult to key in from the paper Notice; and (3) such requirement was inconsistent with our rules regarding the internet availability of proxy materials, which only requires a website address for a landing page and with which investors may already be familiar. After consideration of these comments, we have determined to eliminate from the final rule the proposed requirement that the Notice include the website address for individual reports. We agree with those commenters suggesting that such a requirement could result in unnecessary administrative burdens, and believe that limiting the website link to the landing page, where the shareholder report and other required materials are available, meets our objective of directing investors to the shareholder report in an easily accessible manner. The address used must be specific enough to lead investors directly to the documents that are required to be accessible under the rule’s conditions, but may be a central site with prominent links to each document. The website may not be the home page or section of the website other than on which the documents are posted.168 Thus, an investor must be able to navigate from the landing page to each of the required documents with a single click or tap. To access their reports, investors will be required to key in the website address provided in the Notice. Some 165 Rule 30e–3(c)(1)(ii). As discussed below, the final rule separately permits the Notice to include content from the related shareholder report. See infra Section II.B.2.b.ii. 166 See Fidelity Comment Letter I. 167 See SIFMA Comment Letter I. 168 Rule 30e–3(c)(1)(iv). E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations investors could have difficulty accessing their reports if, for example, the address to the landing page is made up of a long string of unrelated or special characters. Short and intuitive website links to the landing page and other innovative solutions could mitigate this problem. In a change from the proposal, the final rule also provides that the Notice may include, in addition to a website address, other equivalent methods or means to facilitate shareholder access to the shareholder report and other required materials.169 Such methods or means could include, for example, inclusion of a Quick Response Code (QR code) or similar means to access the required website address or link.170 We proposed that the Notice not only be required to include a toll-free telephone number that an investor can use to notify the fund that he or she wishes to receive paper reports in the future, but also a reply form that is preaddressed with postage-paid as an alternative means by which the investor can notify the fund of his or her preference.171 Commenters generally opposed the reply card requirement, asserting that reply cards have a low response rate 172 that does not justify their cost.173 Commenters urged that a toll-free telephone number would be an equally effective means for an investor to express his or her preference and would be more cost-effective than a reply card.174 daltland on DSKBBV9HB2PROD with RULES2 169 Id. 170 A QR code is a two-dimensional barcode containing information that is machine-readable. For example, some smartphones could scan a QR code with information of a specific Uniform Resource Locator (‘‘URL’’) and then be directed to that website. Although the final rule eliminates the requirement that the Notice include the direct website address for the report itself, a fund, could, pursuant to this provision, choose to include a link that takes an investor directly to the report. 171 See proposed rule 30e–3(d)(1)(vi). As proposed, the reply card would have been required to include the information that the fund would need to identify the investor. 172 See ICI Comment Letter I (estimating return rates as low as 2%). 173 One commenter indicated that eliminating reply cards would reduce aggregate printing and mailing costs associated with rule 30e–3 from $127 million per mailing (of Notices or Initial Statements) to between $81 million (if funds elect to use postcards) and $118 million (if funds elect to use envelopes), which represents a reduction of 7% to 36%. See ICI Comment Letter I. Another commenter indicated that including a reply form that is pre-addressed with postage paid would cost approximately $1,325,000 in the aggregate per year. See T. Rowe Price Comment Letter I. Another commenter estimated cost savings from the elimination of reply cards to be approximately $10 million. See Broadridge Meeting Memo II. 174 See, e.g., Comment Letter of Dechert LLP (Aug. 12, 2015) (‘‘Dechert Comment Letter’’); ICI Comment Letter I; Comment Letter of Mediant Communications (Aug. 12, 2015) (‘‘Mediant VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 After considering the comments we received, we have determined not to require funds to include a reply card.175 We have been persuaded by commenters that the low response rates experienced from this means of communication coupled with the expense associated with this method do not justify the inclusion of a reply card. However, the final rule permits the Notice to include additional means by which an investor can contact the fund or the investor’s financial intermediary.176 Because funds and financial intermediaries have extensive direct experience with the types of communication methods preferred by their investors, we believe that the rule should provide flexibility to permit additional methods of communication, and we encourage the inclusion of additional means besides the required toll-free (or collect) telephone number, such as email addresses, dedicated web pages, etc. To further facilitate the use of other means of communication, the final rule permits the Notice to include any information needed to identify the shareholder so that shareholders may express their shareholder report transmission preference with ease.177 This information could include, for example, control numbers, account numbers, etc. As noted earlier, if a fund were to choose to include this information in a Notice, the fund should take appropriate measures to protect this information just as funds do today regarding other mailings, like account statements, that may contain sensitive information. In providing the required toll-free (or collect) telephone number and other means, we encourage the use of methods that allow shareholders to express their preference as conveniently as possible, such as by limiting the need for investors to speak with multiple representatives or navigate through multiple telephone menus or web pages, or otherwise minimizing the steps necessary to express a preference. To record investor preferences, a fund might, for example, provide an Comment Letter’’); SIFMA Comment Letter; T. Rowe Price Comment Letter I; Capital Research Comment Letter I. 175 See rule 30e–3(c)(1)(v). 176 See rule 30e–3(c)(2). In lieu of the reply card, some commenters suggested that the rule permit flexibility in how shareholders could express their delivery preference and/or require alternative means of shareholders expressing this preference, such as by email (see, e.g., Dechert Comment Letter; State Street Comment Letter) or fax (see, e.g., State Street Comment Letter). See Dechert Comment Letter; State Street Comment Letter; BlackRock Comment Letter; CAI Comment Letter I, ICI Comment Letter I; MFS Comment Letter; SIFMA Comment Letter. 177 See rule 30e–3(c)(2). PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 29171 automated system, live representatives, a toll-free (or collect) telephone number that is dedicated solely for this purpose, or a prompt for investors when they access their shareholder account information online, such as through the use of a pop-up. In light of the principle that effective rulemaking should not end with rule adoption, the staff will review, and report to the Commission on, the implementation of rule 30e–3 to evaluate whether funds are employing processes that effectively facilitate investor election of delivery preferences, including the ease through which investors may elect delivery preferences, taking into account, among other things, the continued development of delivery mechanisms and the evolving array of retail investor preferences. For example, the staff’s review would include an evaluation of the number of investors who have elected paper delivery, whether such election is on an ad hoc basis or permanent basis, the means through which the election was made (telephone, online or otherwise), and the overall investor experience relating to the election of delivery preferences. The purpose of such review would be to better inform the Commission and the staff on whether funds are implementing processes that effectively facilitate investors making elections consistent with investors’ preferences and on whether any further action should be taken to facilitate investor election of delivery preferences. Some commenters recommended that the final rule permit the Notice to include disclosures informing investors how they can affirmatively consent to electronic delivery of shareholder reports and other documents.178 After further consideration of these comments, we believe that the Notice should provide the recipient investor with information on how to obtain shareholder reports in the investor’s preferred format (i.e., in paper or by email via electronic delivery). Therefore, the final rule requires the Notice to include, if applicable, instructions describing how an investor can elect to receive shareholder reports or other documents or communications by electronic delivery.179 178 See, e.g., ICI Comment Letter I; OppenheimerFunds Comment Letter; SIFMA Comment Letter. 179 See rule 30e–3(c)(1)(v)(C). This provision would require, if applicable, instructions not only on how to elect electronic delivery of regulatory documents like a shareholder report, but on how to elect electronic delivery of other types of communications (e.g., announcements, news E:\FR\FM\22JNR2.SGM Continued 22JNR2 29172 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations Finally, in a change from the proposal, the final rule permits a Notice to include pictures, logos, or similar design elements so long as the design is not misleading and the information is clear.180 A similar provision exists in the rules governing the content of the Notice of internet Availability of Proxy Materials.181 While we did not receive any comments that suggested this modification to the proposal,182 we believe that this provision promotes our general goal of highlighting the Notice for investors’ attention by permitting the addition of content that alerts investors to the Notice itself, and by extension the shareholder report, without obscuring important information contained in the Notice. daltland on DSKBBV9HB2PROD with RULES2 ii. Option To Include Content From Report in Notice The Notice is designed to alert investors to the availability of a shareholder report online and to provide investors with information on how to obtain paper reports if that is their preference. As we noted in the Proposing Release, we believe it is important to limit the total information included in the Notice, in order to ensure that information regarding the availability of a shareholder report does not become obscured. Therefore, we proposed that the rule limit the information contained in the Notice to the information required by the rule, but requested comment on whether we should require that the Notice not contain any additional information other than that specified by the rule.183 In addition to the comments described above regarding types of additional information that should be permitted in the Notice (e.g., instructions on how to elect electronic delivery of documents), we received comments recommending that the final rule should expand the legend in the Notice to include additional information about the fund.184 One commenter recommended that the Notice should require in a standardized format certain articles, and other ‘‘investor relations’’ communications). 180 See rule 30e–3(c). 181 See rule 14a–16(g)(3) under the Exchange Act [17 CFR 240.14a–16(g)(3)]; see also rule 421(d)(3) under the Securities Act [17 CFR 230.421(d)(3)]. 182 While not expressly recommending this modification to the proposal in its comment letters, one commenter designed a sample ‘‘enhanced notice’’ that included design elements such as pictures and logos that would be consistent with this modification. See Broadridge Meeting Memo I. 183 See proposed rule 30e–3(d)(3). 184 See, e.g., Fidelity Comment Letter I (recommending that the legend be expanded to alert shareholders that the report contains information such as fund performance and holdings information and portfolio manager’s insights). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 additional content found in the report (for example, a fund’s top ten holdings, performance line graph, total return performance, expense information, and/ or portfolio composition).185 Other commenters recommended that the Commission should explore the development of a document more akin to a ‘‘summary shareholder report’’ that incorporates layered disclosure principles.186 After consideration of these comments, we believe that permitting— but not requiring as a condition to use this optional method—the inclusion of certain additional information in the Notice is appropriate so long as it is limited to content from the shareholder report for which Notice is being given.187 We have modified the final rule accordingly to permit registered management companies (but not UITs) to include content from the report in a Notice.188 To avoid obscuring the information required to be in the Notice (i.e., the required legends, website address, etc.), under the final rule, additional content from the shareholder report included in the Notice must be placed after the information specified by paragraph (c)(1) of the rule.189 We are persuaded that permitting additional flexibility regarding the 185 See Broadridge Meeting Memo I (recommending an ‘‘enhanced notice,’’ which this commenter suggests could be preceded by a Commission pilot to ‘‘accelerate benefits and be made available to any and all investment companies that wish to use [the enhanced notice]’’); Broadridge Meeting Memo II. 186 See Comment Letter of Consumer Action (Dec. 1, 2017); see also Investment Advisory Committee Recommendation (‘‘[T]he [Investor Advisory Committee] recommends that the Commission explore development of a summary disclosure document for annual shareholder reports that incorporates key information from the report along with prominent notice regarding how to obtain a copy of the full report. The summary document should be designed to be delivered either by mail or by email, depending on the investors’ delivery preferences. It should also incorporate a layered disclosure approach, including the ability of those getting the document electronically to click through to more detailed disclosure on a particular topic.’’). 187 Similarly, in cases where shareholder reports are delivered electronically via email, we note that such emails would not be precluded from including content from the related report under the Commission’s electronic delivery guidance. See 1995 Release, supra note 18; 1996 Release, supra note 18; 2000 Release, supra note 18. 188 See rule 30e–3(c)(3). UITs subject to rule 30e–2 are principally separate accounts offering variable annuities and variable life insurance policies that do not prepare or transmit shareholder reports for the separate accounts themselves. Rather, under rule 30e–2 they are required to transmit the shareholder reports of the underlying funds in which they invest, which may be numerous and in many cases are unaffiliated. Because of this two-tier structure, the final rule limits the provision permitting inclusion of additional content from shareholder reports to reports required by rule 30e–1. 189 Id. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 content of the Notice is appropriate, and may result in funds crafting Notices that convey to investors certain key content from the shareholder report, while also encouraging investors to access the shareholder report for more detailed information.190 Information contained in shareholder reports that we believe may be communicative and appropriate—albeit not required—for inclusion in the Notice could be, for example: One or more graphical representations of holdings; a list of the fund’s top holdings (e.g., top five or ten holdings); performance information; the type of fund; a brief statement of the fund’s investment objectives and strategies; the expense ratio or an expense example; and the name and title of the fund’s portfolio manager(s). Providing funds the flexibility to include in the Notice certain information from the shareholder report is intended to allow them to identify and provide content they believe is particularly informative to their investors. Funds that decide to include additional information from the report in their Notices generally should consider the appropriateness of such information, the benefits to investors, and the cost impacts associated with adding information to the Notice. When including content from the report in a Notice, funds have obligations with respect to the antifraud provisions of the 190 This approach draws from certain aspects of the Investor Advisory Committee Recommendation. For example, the Investor Advisory Committee recommended that ‘‘the Commission explore development of a summary disclosure document for annual shareholder reports that incorporates key information from the report along with prominent notice regarding how to obtain a copy of the full report.’’ See IAC Recommendation, supra note 40. While the final rule does not require a summary disclosure document, and does not mandate any particular content, it permits funds to add to the Notice content from the shareholder report and similarly requires that the Notice include a prominent legend regarding how to obtain a copy of the report. Additionally, the Investor Advisory Committee recommended that ‘‘the Commission engage in investor testing of the proposed [summary document and layered] disclosure, or encourage testing by industry members, to ensure that the proposed approach delivers the expected benefits of reducing costs for funds and distributors without sacrificing disclosure quality.’’ Id. Consistent with the Investor Advisory Committee Recommendation, we note that the Fund Retail Investor Experience and Disclosure Request for Comment, as well as investor testing of disclosure alternatives, are two key initiatives the Commission is using to assess our current disclosure framework for funds and to consider possible changes to that framework. See Disclosure Request for Comment, supra note 20. Regarding this investor testing, the Commission’s Office of the Investor Advocate (‘‘OIAD’’) is engaging in investor testing through its Policy Oriented Stakeholder and Investor Testing for Innovative and Effective Regulation (‘‘POSITIER’’) initiative. See Disclosure Request for Comment, supra note 20. E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations federal securities laws.191 In this regard, inclusion of only certain elements of performance information required to be included in reports raises certain considerations. If a fund chooses to include in the Notice performance information from the report, the content should include all information required with respect to the particular performance item in accordance with applicable presentation requirements.192 While the final rule does not prescribe a specific page limit, funds generally should limit optional content to a relatively brief amount to avoid detracting from the primary purpose of the Notice and to encourage investors to access the shareholder report itself. As discussed further below, we are requiring funds that choose to transmit Notices with additional information from the shareholder report to file such Notices as part of their reports on Form N–CSR.193 As discussed above, we believe it is important that information regarding the availability of a shareholder report does not become obscured, and to address this concern, we are requiring that the information that is required to be in the Notice (i.e., the required legends, website address, etc.) must be presented before any additional content from the shareholder report is included in the Notice to ensure that the required legends and website address are positioned prominently in the Notice. daltland on DSKBBV9HB2PROD with RULES2 iii. Materials That May Be Combined With or Accompany the Notice To further ensure that the information contained in the Notice would not be obscured, the rule as proposed would have prohibited the Notice from being incorporated into or combined with another document,194 or sent along with other shareholder communications (with the exception of the fund’s current summary prospectus, prospectus, statement of additional information, or Notice of internet Availability of Proxy Materials under rule 14a–16 under the Exchange Act).195 We received a number of comments on this aspect of 191 See, e.g., Section 17(a) under the Securities Act [15 U.S.C. 77q]; Section 10(b) under the Exchange Act [15 U.S.C. 78j(b)] and rule 10b–5 thereunder [17 CFR 240.10b–5]; and Section 34(b) of the Investment Company Act [15 U.S.C. 80a– 33(b)]. 192 For example, a fund could include either the complete line graph or complete performance table required by the applicable form (see, e.g., Item 27(b)(7)(ii) of Form N–1A requiring an open-end management company’s report to include (A) a line graph, and (B) annual total returns table). 193 See Item 1(b) of Form N–CSR. 194 See proposed rule 30e–3(d)(2). 195 See proposed rule 30e–3(d)(4). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 the proposed rule, with commenters requesting additional flexibility in what materials or documents could be combined with, or accompany, the Notice. Some commenters recommended that the final rule permit the use of a single, consolidated Notice for funds within the same fund complex or for funds held in the same intermediary contract or account.196 Commenters noted that such an approach would have the benefits of increasing the likelihood of investor review 197 and reductions in costs.198 One commenter recommended that a consolidated Notice be permitted for funds from different fund complexes,199 while another recommended that the final rule permit consolidated Notices for funds held through a variable insurance product.200 Some commenters recommended that the final rule permit the Notice to be incorporated into the summary prospectus and account statements, stating it would provide additional visibility due to investor interest in those documents.201 A number of commenters recommended that other materials should be permitted to accompany the Notice, including account statements,202 new account applications,203 new account welcome kits,204 notices from other funds with the same fiscal year end,205 dividend checks,206 transaction confirmations,207 and in the case of variable insurance products, the variable annuity contract or life insurance policy and the related contract prospectuses or statements of 196 See CAI Comment Letter I; Fidelity Comment Letter I; ICI Comment Letter I; OppenheimerFunds Comment Letter; Schwab Comment Letter. 197 See ICI Comment Letter I. 198 See ICI Comment Letter I; OppenheimerFunds Comment Letter. 199 See Fidelity Comment Letter I. 200 See CAI Comment Letter I. This commenter also recommended that the consolidated Notice be permitted to specify either a single website or multiple websites at which required documents were available for different funds. 201 See, e.g., Capital Research Comment Letter I; State Street Comment Letter. 202 See.,e.g., Dreyfus Comment Letter; ICI Comment Letter I; Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment Letter; Schwab Comment Letter; T. Rowe Price Comment Letter I. 203 See, e.g., ICI Comment Letter I. 204 See, e.g., ICI Comment Letter I; Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment Letter; T. Rowe Price Comment Letter I. 205 See, e.g., Capital Research Comment Letter I; ICI Comment Letter I. 206 See, e.g., ICI Comment Letter I; Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment Letter; T. Rowe Price Comment Letter I. 207 See, e.g., T. Rowe Price Comment Letter I. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 29173 additional information.208 Commenters stated that investors would be more likely to read Notices bundled with other materials,209 and that additional cost savings would result.210 After consideration of the comments, we have modified the final rule to permit the use of consolidated Notices.211 In addition to reduced costs, we believe that a single, consolidated Notice could be effective in alerting a shareholder to the online availability of shareholder reports for multiple funds. We note that if a consolidated Notice is used, a fund must draft the Notice to incorporate all elements required by the rule with respect to each report covered by the Notice. For example, if the website address for one report covered by the Notice does not include the materials required for one or more other funds covered by the Notice, then additional website addresses would be required so that all required materials for the funds covered by the Notice are made appropriately accessible. In such case, we believe it should be clear to investors which website address is associated with each report covered by the consolidated Notice. We have also modified the final rule to permit the Notice to accompany additional materials beyond a current summary prospectus, statutory prospectus, statement of additional information, or Notice of internet Availability of Proxy Materials. As with consolidated Notices, we believe that permitting Notices to accompany other documents not only could result in additional cost savings (i.e., reduced mailing expenses), but could be effective in alerting a shareholder to the Notice if the other documents are likely to be read by investors. Under the final rule, a Notice may accompany one or more Notices for other funds.212 In the case of a fund that is available as an investment option in a variable annuity or variable life insurance contract, the 208 See, e.g., CAI Comment Letter I; ICI Comment Letter I. 209 See, e.g., ICI Comment Letter I; MFS Comment Letter; T. Rowe Price Comment Letter I. 210 See, e.g., Dreyfus Comment Letter; ICI Comment Letter I; T. Rowe Price Comment Letter I. 211 See rule 30e–3(c)(4). 212 See rule 30e–3(c)(5)(i), (ii). Under the final rule, a Notice for a fund may accompany a summary prospectus, statutory prospectus or statement of additional information for other funds because (1) rule 498 under the Securities Act does not prohibit a summary prospectus for one fund from accompanying a summary prospectus, statutory prospectus or statement of additional information for another fund, and (2) the final rule permits the Notice for one fund to accompany a Notice for another fund, and for a Notice to incorporate or combine one or more other Notices. See rule 498 under the Securities Act [17 CFR 230.498]; rule 30e–3(c)(5)(i), (ii). E:\FR\FM\22JNR2.SGM 22JNR2 29174 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations Notice may accompany the contract or the contract’s statutory prospectus and statement of additional information.213 We have also modified the final rule to permit the Notice to accompany the investor’s account statement. Like consolidated Notices, we believe that permitting Notices to accompany account statements could result in additional cost savings. Moreover, we believe that an investor who is likely to read account statements would also be likely to become aware of the accompanying Notice and the content therein.214 We believe that the Notice would not be unduly obscured if accompanied by these materials because it is accompanying materials personalized to the receiver,215 but decline to permit the Notice to accompany other materials suggested by commenters. iv. Householding Similar to the Commission’s rules on householding prospectuses, shareholder reports, and proxy statements and information statements,216 as proposed, final rule 30e–3 allows one Notice to be sent to shareholders who share an address so long as the conditions set forth in rule 30e–1(f), rule 30e–2(b), rule 14a–3(e) under the Exchange Act, or rule 14c–3(c) under the Exchange Act are satisfied.217 We received no daltland on DSKBBV9HB2PROD with RULES2 213 Rule 30e–3(c)(5)(iii). Thus, Notices for underlying funds offered under a contract may (either as individual Notices or as a consolidated Notice) accompany (1) the contract, (2) the contract’s statutory prospectus and statement of additional information, and (3) summary prospectuses, statutory prospectuses, statements of additional information, and Notices of internet Availability of Proxy Materials for one or more underlying funds. See also rule 498(c) under the Securities Act (permitting, under certain conditions, a summary prospectus for a fund that is available as an investment option in a variable annuity or a variable life insurance contract to be bound together with the statutory prospectus for the contract and summary prospectuses and statutory prospectuses for other investment options available in the contract) [17 CFR 230.498(c)]. 214 Rule 30e–3(c)(5)(iv). 215 See, e.g., rule 498(c) under the Securities Act [17 CFR 230.498(c)]. 216 See, e.g., rule 154 under the Securities Act (permitting householding of prospectuses) [17 CFR 230.154]; rules 30e–1(f) and 30e–2(b) (permitting householding of shareholder reports); rules 14a–3(e) and 14c–3(c) under the Exchange Act (permitting householding of annual reports to security holders, proxy statements and information statements, and Notices of internet Availability of Proxy Statements) [17 CFR 240.14a–3(e); 17 CFR 240.14c–3(c)]. See generally Delivery of Disclosure Documents to Households, Investment Company Act Release No. 24123 (Nov. 4, 1999) [64 FR 62540 (Nov. 16, 1999)] (adopting householding rules with respect to prospectuses and shareholder reports); Delivery of Proxy Statements and Information Statements to Households, Investment Company Act Release No. 24715 (Oct. 27, 2000) [65 FR 65736 (Nov. 2, 2000)] (adopting householding rules with respect to proxy statements and information statements). 217 Rule 30e–3(c)(6). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 comments on this requirement, and are adopting the requirement as proposed. of its ongoing disclosure review and other activities. v. Requirement To File Form of Notice c. Delivery of Paper Copy Upon Request As a condition to reliance on the rule, we proposed to require that the fund or UIT (or a financial intermediary through which shares of the fund or UIT may be purchased or sold) must send, at no cost to the requestor and by U.S. first class mail or other reasonably prompt means, a paper copy of the most recent annual and semi-annual reports of the fund (or underlying fund in the case of a UIT), and portfolio holdings of the fund (or underlying fund in the case of a UIT) as of its most recent first and third fiscal quarters, to any person ad hoc requesting copies of any such documents within three business days after receiving a request for a paper copy.223 This requirement is intended to allow investors to receive shareholder reports and portfolio information in paper, if they prefer, even if they are receiving Notices under the rule,224 and we are adopting it generally as proposed. However, we have modified the final rule from the proposal to eliminate the reference in this provision to financial intermediaries given the guidance in this release regarding the operation of the rule in the context of financial intermediaries.225 We proposed to require that a form of the Notice be filed with the Commission not later than 10 days after the Notice is sent to shareholders.218 We anticipated that this filing would have occurred on a new EDGAR submission type that would have been created by the Commission, and stated our belief that the Notice filing requirement would have assisted us in overseeing compliance with the rule. Commenters generally opposed filing the Notice semi-annually as part of a separate filing. Some commenters recommended that the Notice be filed instead as an exhibit to Form N–CEN or Form N–CSR.219 Commenters also recommended eliminating the filing requirement, and indicated that the Commission could ensure compliance in a less costly manner using its examination program.220 After further consideration of these comments, we have modified the final rule as follows. Notices that do not contain content from the report (as permitted by paragraph (c)(3)) would not be required to be filed with the Commission because we do not expect those Notices to change significantly from period to period.221 We also believe that our staff can evaluate for compliance with the Notice provisions of the rule through the Commission’s examination program. On the other hand, Notices that contain content from the report as permitted by paragraph (c)(3) would be required to be filed with the Commission as part of the fund’s report on Form N–CSR.222 We believe it is appropriate for the Commission to review the disclosure in these Notices in conjunction with its overall review of shareholder reports and other disclosure filings. In requiring that they be filed with the Commission, the staff will be able to monitor for compliance with the rule, as well as for general industry trends in the use of these Notices as part 218 See proposed rule 30e–3(d)(6). e.g., Dechert Comment Letter; ICI Comment Letter I; T. Rowe Price Comment Letter I. 220 See, e.g., Dechert Comment Letter; Invesco Comment Letter; SIFMA AMG Comment Letter. 221 We expect this to be the case given the nature of the information required in the Notice, along with the general restriction on including information other than that required by the rule. 222 Item 1(b) of Form N–CSR (requiring the filing of a copy of each notice transmitted to stockholders in reliance on rule 30e–3 that contains disclosures specified by paragraph (c)(3) of that rule). 219 See, PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 d. Investor Elections To Receive Future Reports in Paper While we believe that many investors would prefer internet availability of shareholder reports based on investor 223 Proposed rule 30e–3(f). One commenter questioned fund firm practices regarding delivery of paper shareholder reports upon request. See Broadridge Comment Letter II. A second commenter disputed the premise and sampling methodology conducted by the first commenter, stating that fund firms have ‘‘specific, highly effective processes in place to handle requests under Rule 498.’’ See ICI Comment Letter III. The Commission is not aware of investors having systemic issues related to fund firm practices regarding delivery of paper shareholder reports upon request. 224 See, e.g., 1995 Release, supra note 18 (stating ‘that ‘‘as a matter of policy, where a person has a right to receive a document under the federal securities laws and chooses to receive it electronically, that person should be provided with a paper version of the document if any consent to receive documents electronically were revoked or the person specifically requests a paper copy (regardless of whether any previously provided consent was revoked).’’). A similar requirement is found in rule 498 under the Securities Act governing the use of a summary prospectus. See rule 498(f) [17 CFR 230.498(f)]. 225 See rule 30e–3(e), (i); proposed rule 30e–3(f); infra Section II.C. For clarity, the final paragraph (e) of rule 30e–3 operates independently of final paragraph (f) of rule 30e–3. Compare rule 30e–3(e) (requiring funds to deliver a paper report in response to a shareholder’s ad hoc request) and rule 30e–3(f) (requiring funds to deliver paper reports to a shareholder, who has elected a shareholder preference to receive paper reports). See also infra Section II.B.2.d. E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations testing and internet usage trends, we also acknowledge that there will be investors who continue to prefer receiving shareholder reports in paper.226 In order to maintain the ability of those investors to receive paper copies of their shareholder reports, the final rule prohibits reliance on the rule to transmit a report to a shareholder if such shareholder has notified the fund (or the shareholder’s financial intermediary) that the shareholder wishes to receive paper copies of shareholder reports at any time after the fund has notified the shareholder of its intent to rely on the rule or provided a Notice to the shareholder.227 Under the proposal, rule 30e–3 would have permitted use of the rule as to a particular investor only if the investor either previously affirmatively consented to this method of transmission, or was determined to have provided implied consent (if affirmative consent was not received) by sending an Initial Statement to investors.228 To obtain implied consent, the proposed rule would have required that the Initial Statement inform the investor that future shareholder reports would be made available on a website until the investor provided notification that he or she wished to receive paper copies of the reports in the future.229 If such notification was not received within 60 days after sending the Initial Statement, the rule could be relied upon with respect to that investor provided that 226 See supra notes 96–97 and accompanying text. 30e–3(f)(1). 228 Proposed rule 30e–3(c). These proposed conditions are substantially similar to certain of the conditions relating to the Commission’s rules on ‘‘householding’’ prospectuses, shareholder reports, and proxy statements and information statements to investors who share an address. See, e.g., rule 154 under the Securities Act [17 CFR 230.154]; rules 30e–1 and 30e–2 under the Investment Company Act [17 CFR 270.30e–1; 17 CFR 270.30e–2]; rules 14a–3 and 14c–3 under the Exchange Act [17 CFR 240.14a–3; 17 CFR 240.14c–3]. For purposes of the householding rules, consent may be written or implied. While the householding rules require that consent (other than implied consent) be ‘‘in writing,’’ we did not propose a similar ‘‘in writing’’ requirement because, consistent with the Commission’s guidance on electronic delivery, consent may be provided in a number of ways, including in writing, electronically, or telephonically. See 1995 Release, supra note 18 (noting that one method for satisfying evidence of delivery is to obtain informed consent from an investor to receive information through a particular medium); 1996 Release, supra note 18 (stating that informed consent should be made by written or electronic means); 2000 Release, supra note 18 (stating Commission’s view that an issuer or market intermediary may obtain an informed consent telephonically, as long as a record of that consent is retained). 229 Proposed rule 30e–3(c)(1). The proposed rule defined ‘‘Initial Statement’’ as the statement described in paragraph (c)(1) of the rule. See proposed rule 30e–3(h)(2). daltland on DSKBBV9HB2PROD with RULES2 227 Rule VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 the other conditions of the rule were met.230 Comments were mixed regarding the Initial Statement and the proposal’s use of both affirmative and implied consent. Some commenters recommended removing provisions of the proposed rule that allow affirmative consent and provide solely for implied consent.231 One of these commenters stated that these affirmative consent provisions would add cost and complexity in tracking affirmative consents ‘‘as an additional step separate from the notice’’ and noted that the current ‘‘notice and access’’ system for the delivery of proxy materials does not contain such a feature.232 In contrast, other commenters expressed concerns about permitting internet availability of shareholder reports to be the default method of satisfying transmission obligations to investors for those funds that elect to rely on the rule based on implied consent.233 Some of these commenters suggested that affirmative consent would be a more appropriate means to assess investor preferences for internet availability or paper transmission of shareholder reports.234 One commenter suggested that the final rule eliminate the Initial Statement requirement altogether.235 That commenter argued that the Initial Statement is unnecessary because both the Initial Statement and the Notice serve to inform investors of report availability and the right to receive paper reports. The commenter further argued that elimination of the Initial Statement requirement would streamline customer communications regarding delivery preferences, reduce unnecessary fund and investor expenses, and align the requirements of the rule with the Commission’s rule regarding internet availability of proxy materials (rule 14a–16 under the Exchange Act).236 After considering comments, we have eliminated the proposed Initial Statement from the final rule. Instead, we are adopting an extended transition 230 Proposed rule 30e–3(c)(4). SIFMA Comment Letter (further noting that ‘‘[t]he current system of notice and access for the delivery of proxy materials relies entirely on an implied consent approach, and in our experience that approach has been successful in accurately capturing the preferences of clients, who have the option of requesting paper copies on either a onetime or on-going basis’’); Comment Letter of InveShare, Inc. (Feb. 11, 2016) (‘‘InveShare Comment Letter’’). 232 See SIFMA Comment Letter. 233 See supra notes 54–59 and accompanying text. 234 See, e.g., American Forest and Paper Comment Letter. 235 See Fidelity Comment Letter I. 236 Id. 231 See PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 29175 period. During the extended transition period, an investor in a mutual fund, for example, that seeks to begin relying on the rule before January 1, 2022 would receive approximately six notices of the upcoming change over a two-year period (each year, investors will receive notice on the summary prospectus or prospectus, as well as the semi-annual and annual report to shareholders.). The extended transition period is an appropriate, effective, and cost-efficient method of funds informing shareholders of the change in transmission format in lieu of the proposed Initial Statement provisions.237 In addition, the extended transition period will provide time for funds, financial intermediaries, and Commission staff to undertake efforts to raise investor awareness of the change in transmission method before funds are permitted to begin relying on the rule. These efforts, combined with the requirement that Notices be transmitted in lieu of paper reports informing investors of their ability to receive paper reports, will help ensure that all investors—including those who hold only funds that first choose to rely on the rule on or after January 1, 2022— nonetheless are made aware of the change in transmission method and the option to receive reports in the manner they prefer. We believe that upon the completion of this extended transition period it is appropriate to begin allowing all funds to rely on the rule. Permanent Elections for Paper Reports Although the final rule replaces the proposed provisions relating to the Initial Statement with the extended transition period, the final rule also includes provisions enabling an investor to elect to receive future shareholder reports in paper after making a one-time election. Specifically, the rule provides that a fund may not rely on rule 30e– 3 to satisfy its obligations to transmit a report if at any time after the fund has notified the investor of its intent to rely on the rule or provided a Notice to the investor, the investor has notified the fund (or the investor’s financial intermediary) that the investor wishes to receive paper copies of shareholder reports.238 237 See infra Section II.B.2.f. rule 30e–3(f)(1). In the Proposing Release, we requested comment as to whether funds should be able to re-solicit implied consent for shareholders who had previously elected paper delivery and if we should prescribe a minimum time period for doing so. One commenter believed we should, but did not suggest a particular waiting period. See State Street Comment Letter. Given that the final rule eliminates the Initial Statement requirement to obtain implied consent, we no 238 See E:\FR\FM\22JNR2.SGM Continued 22JNR2 29176 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations Beginning as early as January 1, 2019, funds will track investor preferences for paper copies of reports. We have adopted this date for two reasons. First, this date provides funds, financial intermediaries, and other service providers with a period of time to update systems to begin tracking investor paper preferences for shareholder reports.239 Second, this approach will allow investors who currently receive paper copies of reports to continue to receive them in that format without interruption. Therefore, if a fund intends to rely on the rule to transmit reports before January 1, 2022, the fund’s investors will generally have a two year period to notify their fund of their preference and avoid any interruption of their paper deliveries.240 Funds that newly offer their shares to the public after January 1, 2019, but include the notice in the relevant disclosure documents from the date of their first public offering will be able to rely on the rule beginning January 1, 2021. Although this may result in a shorter notice period to shareholders of these funds, we believe this is appropriate because these funds will have been offered to investors solely with the expectation that the fund will rely on the rule. daltland on DSKBBV9HB2PROD with RULES2 Application of Investor Elections for Paper Reports Across Multiple Positions Under the proposed rule, each fund, including each series of a registrant offering multiple series, would have needed to obtain separate consent as to longer need to consider a minimum waiting period for re-soliciting implied consent. One commenter suggested that the current system of notice and access for the delivery of proxy materials relies entirely on an implied consent approach. See SIFMA Comment Letter. While the commenter is correct that rule 14a–16 under the Exchange Act does not require delivery of a notice similar to the Initial Statement, the rule also does not incorporate the concept of implied consent. See rule 14a–16(j)(4) under the Exchange Act (requiring the registrant to maintain records of security holder requests to receive materials in paper or via email for future solicitations, and to provide copies of the materials to a security holder who has made such a request until the security holder revokes such request rule 30e–1(f)) [17 CFR 240.14a–16(j)(4)]. 239 We discuss these operational considerations and others with respect to financial intermediaries below in Section II.C. 240 For most investors, this period before January 1, 2022 will result in an extended opportunity to notify their fund of their preference for paper reports and receive them in that format without interruption as compared to the proposed rule. Under the proposed rule, there would not have been an extended transition period during which prominent disclosures would have been included in shareholder documents notifying investors of the upcoming change in transmission format. A fund would have been permitted under the proposed rule to send Notices to an investor 60 days after sending an Initial Statement to that investor. See proposed rule 30e–3(c). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 an investor, regardless of whether consent was obtained from that investor by other series offered by that registrant. An investor preferring paper copies also would have needed to deny or revoke consent for each fund, including each series, for which the shareholder preferred to receive paper copies of reports. In the Proposing Release we requested comment on whether consent should be obtained separately as to each fund, or whether consent that is applied to one fund could be inferred as to other funds held by the investor. We also requested comment on whether there were any special considerations relating to investors who invest through intermediaries.241 Commenters who addressed this issue uniformly recommended that consent should be permitted to be inferred with respect to all funds held by an investor within a fund complex 242 or with a financial intermediary,243 including funds held by contract owners through a variable insurance product.244 These commenters noted that requiring consent for each individual fund position could cause investor confusion and possibly overwhelm investors if separate Initial Statements per fund position were required to be sent.245 Another commenter stated that tracking consents on a fund-by-fund basis might be too burdensome for funds, especially in the case of funds offering exchange privileges.246 Some commenters stated that applying investor preferences across all funds held within a fund complex or held in a particular account or financial intermediary would provide regulatory consistency with the Commission’s electronic delivery guidance 247 and with the Commission’s e-proxy rules.248 241 See Proposing Release, supra note 14, at 33632. 242 See, e.g., BlackRock Comment Letter; Schwab Comment Letter; ICI Comment Letter I; Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment Letter; State Street Comment Letter. 243 See, e.g., BlackRock Comment Letter; Schwab Comment Letter; Fidelity Comment Letter I; ICI Comment Letter I; Invesco Comment Letter; Mediant Comment Letter; OppenheimerFunds Comment Letter; SIFMA Comment Letter. 244 See CAI Comment Letter I. 245 See ICI Comment Letter I. 246 See State Street Comment Letter. 247 See MFS Comment Letter. 248 See Fidelity Comment Letter I (recommending that account level preferences, and not fund level preferences, should be adopted in the final rule, noting that ‘‘most funds and broker dealers maintain shareholder delivery preferences at the account level (account or multiple accounts under the same SSN or TIN) and not at the fund level. Delivery preference requirements at the fund level is inconsistent with existing account level preference management requirements under the Proxy Rule, electronic delivery and other account PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 After consideration of the issues raised by commenters, we agree that applying the investor’s election for paper reports at the investor account level,249 rather than the fund position level, is consistent with other delivery preference requirements with which investors, intermediaries, and funds are already familiar. Therefore, the final rule provides that if an investor has notified a fund complex or UIT (or the investor’s financial intermediary) that the investor wishes to receive paper copies of shareholder reports, the investor will be deemed to have requested paper copies with respect to (i) any and all current and future funds held through an account or accounts with (A) the fund’s transfer agent or principal underwriter or agent thereof for the same ‘‘group of related investment companies’’ as such term is defined in rule 0–10 under the Investment Company Act; 250 or (B) a financial intermediary; and (ii) any and all funds held currently and in the future in a separate account funding a variable annuity or variable life insurance contract.251 e. Prospectuses and Statements of Additional Information Transmitted Under Rule 30e–1(d) Rule 30e–1(d) permits an open-end management investment company to transmit a copy of its prospectus or statement of additional information in place of its shareholder report, if it includes all of the information that would otherwise be required to be contained in the shareholder report.252 Under rule 30e–3 as proposed, the rule would not be available to a fund seeking level preferences (e.g., letters and alerts).’’); SIFMA AMG Comment Letter (recommending that consents be permitted at the customer or account level rather than on a fund-by-fund basis in noting that ‘‘[c]urrent consent collection databases used for electronic delivery of disclosure and other documents generally collect information at the account level. For example, an account holder with the same name and address would be solicited to consent to electronic delivery of shareholder reports with respect to all funds held in the account of the account holder. The requirement of sub-section (c) of proposed Rule 30e–3 to collect consents on a fund-by-fund basis would require reprogramming or completely new consent collection techniques and databases. We believe the cost of implementing these changes may be a significant impediment to funds relying on Rule 30e–3 to transmit reports to shareholders who have not yet provided affirmative consent to electronic delivery over the Commission’s existing electronic delivery guidance.’’). 249 The election could be applied, for example, if fund shares are held by an investor in one or more accounts with the same registration (i.e., names, social security numbers, and/or tax identification numbers). 250 17 CFR 270.0–10. 251 Rule 30e–3(f)(2). See also infra Section II.C. 252 See rule 30e–1(d). E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations to transmit a copy of its currently effective statutory prospectus or statement of additional information, or both, as permitted by rule 30e–1(d).253 We received no comments on this aspect of the proposed rule and are adopting it as proposed.254 f. Extended Transition Period Rather than making the rule effective immediately and requiring an Initial Statement, as proposed, we are adopting an extended transition period with staged effective dates.255 During the extended transition period, the earliest that Notices may be transmitted to investors in lieu of paper reports is January 1, 2021. In general, funds will be required to provide two years of notice to shareholders before relying on the rule, if relying on the rule before January 1, 2022.256 Therefore, funds that begin providing notice at the start of 2019 will complete the two-year notice period, and may begin relying on the rule, on January 1, 2021. Funds that are newly offered during the period from January 1, 2019 through December 31, 2020 may rely on the rule starting January 1, 2021, if they provide notice to shareholders starting with their first public offering. Funds that are newly offered beginning January 1, 2021 and thereafter may rely on the rule immediately without providing advance notice. All other funds may not rely on the rule until they have completed the full two year notice period or until January 1, 2022, whichever comes first. The extended transition period is designed so that investors will receive disclosures to alert them to the change in the transmission method and allow them to express their delivery preference while also providing funds and financial intermediaries a period of time to educate investors of the coming change through disclosures on prospectuses and certain other fund documents and through other means. It will also provide funds and financial intermediaries with time to implement any necessary operations and systems changes. Finally, the Commission staff will also use this extended transition period to engage in educational and investor outreach efforts. As discussed above, after consideration of comments received on the proposal, we believe 253 See proposed rule 30e–3(g). 30e–3(g). 255 See rule 30e–1(j). 256 For purposes of paragraph (i) of the rule, a ‘‘required statement’’ means the statement regarding a fund’s intent to rely on rule 30e–3 specified by (i) its applicable registration form, and (ii) in the case of a fund that uses a summary prospectus, rule 498. See rule 30e–3(i)(2). See also infra Section II.B.3 for a discussion of the related disclosure amendments. daltland on DSKBBV9HB2PROD with RULES2 254 Rule VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 that the enhanced disclosure requirements during this extended transition period are a more appropriate and effective method of providing investors with advance notice of a fund’s intent to rely on rule 30e–3 than the proposed Initial Statement requirement.257 Except as specified below, a fund generally may rely on rule 30e–3 to transmit a report to an investor before January 1, 2022, only after providing required statements over a two-year period as follows: Beginning January 1, 2021 • Existing funds with public shareholders prior to January 1, 2019— if the fund includes the required statements on each applicable document required to be delivered or transmitted to shareholders for the period beginning on January 1, 2019 and ending on December 31, 2020.258 • Funds that begin offering shares publicly during period January 1, 2019 through December 31, 2020—if the fund includes the required statements on each applicable document required to be delivered or transmitted to shareholders for the period beginning on the date the fund first publicly offers its shares and ending on December 31, 2020.259 • Funds that begin offering shares publicly January 1, 2021 and thereafter—would not be subject to the condition and could therefore rely on the rule immediately without providing any advance notice through required statements.260 Between January 1, 2021 and January 1, 2022 A fund may otherwise begin to rely on rule 30e–3 before January 1, 2022 if the fund includes the required statement on the applicable disclosure documents for a period of two years prior to beginning to rely on the rule.261 3. Related Amendments In connection with our adoption of rule 30e–3, we are also adopting related amendments to certain of our rules and forms. First, we are adopting, as proposed, amendments to rule 498 under the Securities Act, which concerns the use of a summary 257 See supra Section II.B.2.d. 30e–3(i)(1)(ii). 259 Id. We believe it is appropriate to permit such funds to rely on the rule on January 1, 2021 because investors in such funds will be alerted to the change in transmission method both when they purchased shares in the fund and each time a shareholder report is delivered to them other than in reliance on rule 30e–3. 260 Rule 30e–3(i)(1)(i)(B). 261 Rule 30e–3(i)(1)(ii). 258 Rule PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 29177 prospectus,262 to require funds relying on rule 30e–3 to include as part of the legend on the cover page or beginning of the fund’s summary prospectus the website address required to be included in the Notice.263 We received no comments on this aspect of the proposal. The website address that leads to shareholder report information could be the same as the website address that leads to prospectus information, provided that the other conditions of each rule are met, or different so long as both addresses are provided as part of the legend.264 This requirement is intended to provide investors an additional reminder of the website availability of shareholder reports. Second, in a change from the proposal, the final rule permits a summary prospectus to include instructions describing how a shareholder can elect to receive prospectuses or other documents and communications by electronic delivery.265 We received a number of comments on fund investors’ increasing internet usage and receipt of electronically delivered materials.266 We are persuaded by these comments. Accordingly, the final rule will permit a summary prospectus to include electronic delivery election instructions, consistent with our belief that this provision will promote our general goal of providing investors with their preferred format of materials, and is parallel and consistent with conditions set forth in rule 30e–3 that ensure investors who prefer paper copies have instructions regarding how to communicate that preference.267 Third, we are amending rule 498 under the Securities Act, as proposed, to include a Notice required by rule 30e–3 among the materials that are permitted to have equal or greater prominence when accompanying a summary prospectus prepared in reliance on rule 498.268 Similarly, we are amending rule 14a–16 under the Exchange Act, generally as proposed, to include a Notice required by rule 30e– 3 among the materials that are permitted 262 See rule 498 under the Securities Act [17 CFR 230.498]. 263 See rule 498(b)(1)(v)(A) under the Securities Act [17 CFR 230.498(b)(1)(v)(A)]. 264 See id. 265 See rule 498(b)(1)(vi) under the Securities Act [17 CFR 230.498(b)(1)(vi)]. 266 See supra Section II.A.1. 267 See supra Sections II.B.2.c, II.B.2.d. Similarly, Notices under final rule 30e–3 would include instructions describing how a shareholder can elect to receive shareholder reports or other documents and communications by electronic delivery. See rule 30e–3(c)(1)(v)(C). 268 Rule 498(f)(2) under the Securities Act [17 CFR 230.498(f)(2)]. E:\FR\FM\22JNR2.SGM 22JNR2 29178 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 to accompany a Notice of Internet Availability of Proxy Materials.269 We received no comment on these proposed amendments. Fourth, to notify investors of the upcoming change in transmission format, and in a change from the proposal, we are also amending rule 498 and certain fund registration forms to require that funds intending to rely on rule 30e–3 prior to January 1, 2022 include prominent disclosures on the cover page or beginning of their summary prospectuses; on the front cover page of their statutory prospectuses; and on the front cover page or beginning of their annual and semi-annual reports, for two years during the three-year period between January 1, 2019 and December 31, 2021.270 With the exception of newlyformed funds, funds would generally provide these disclosures as follows: • Open-End Funds. Open-end funds would be required to provide the cover page disclosure on at least six documents sent to investors during this time: One per year on the fund’s summary prospectus or statutory prospectus, at least one per year on the fund’s annual report to shareholders, and one per year on the fund’s semiannual report to shareholders. • Closed-End Funds. Closed-end funds would be required to provide the cover page disclosure on at least four documents during this time: One per year on the fund’s annual report to shareholders and one per year on the fund’s semi-annual report to shareholders, as well as on their prospectuses unless the fund relies on rule 8b–16(b) under the Investment Company Act.271 • Variable Insurance Products. Variable annuity and variable life insurance contracts registered on Forms N–4 and N–6, respectively, would be required to provide the cover page 269 Rule 14a–16(f)(2)(iii) under the Exchange Act [17 CFR 240.14a–16(f)(2)(iii)]. The final amendment to rule 14a–16(f)(2)(iii) excludes the proposed reference to the Initial Statement. See id. See also rule 30e–3(c)(5) (permitting a Notice to accompany a Notice of Internet Availability of Proxy Materials). 270 See new paragraphs (b)(1)(vi) and (b)(1)(vii) of rule 498; new paragraph (a)(5) to Item 1 of Form N–1A; new paragraph (d)(8) to Item 27 of Form N– 1A; new paragraph 1.l to Item 1 of Form N–2; new instruction 6.g to Item 24 of Form N–2; new paragraph (a)(xi) to Item 1 of Form N–3; new instruction 6(vii) to Item 28(a) of Form N–3; new paragraph (a)(x) to Item 1 of Form N–4; new paragraph (a)(6) to Item 1 of Form N–6. 271 17 CFR 270.8b–16(b) (providing an exemption for closed-end funds from the requirement to annually update their registration statement, so long as certain disclosures are included in their annual report to shareholders, or for dividend reinvestment plan descriptions, transmitted as permitted under rule 8b–16). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 disclosure on at least two contract prospectuses during this time.272 In addition to providing advance notice to investors of their fund’s expected use of the rule, these disclosures are intended to provide important information to both current and prospective investors that gives them an overview of the change in delivery format options, including the fact that reports will be made available on a website and that they will be able to retain delivery of their reports in paper if they should so desire. We believe that these disclosure requirements help to mitigate commenters’ concerns regarding the use of the Initial Statements as a condition to reliance on the rule. We encourage the use of graphical indicators such as flags or other design elements to further draw investor attention to these disclosures. Beginning January 1, 2022, these cover page disclosures will no longer be required. C. The Role of Certain Financial Intermediaries 273 As acknowledged in our proposal and stated by commenters, most fund investors are not direct shareholders of record, but instead engage an investment professional and hold their fund investments as beneficial owners 274 through accounts with 272 Most issuers of variable annuities and variable life insurance policies amend their registration statements annually and hence send updated prospectuses to their contract owners at least once per year. Issuers of variable annuity and variable life insurance contracts that no longer amend their registration statements and do not distribute updated prospectuses to contract owners rely on staff no-action letters issued by the Division of Investment Management (see, e.g., Great-West Life & Annuity Insurance Co., SEC Staff No-Action Letter (pub. avail. Oct. 23, 1990)). Consistent with this no-action position, such issuers may rely on rule 30e–3 prior to January 1, 2022 if comparable notice is provided to contract owners during the extended transition period when providing them with prospectuses and shareholder reports for underlying funds in which the separate account invests. In addition, we understand that a small number of issuers of variable life insurance policies continue to register their securities on Form S–6 [17 CFR 239.16]. Such issuers may rely on rule 30e–3 prior to January 1, 2022 if comparable notice is provided on prospectuses (or supplements thereto) delivered to policyholders during the extended transition period. 273 For purposes of this Section II.C., in using the term ‘‘financial intermediaries’’ we are referring to intermediaries such as banks, brokers, and dealers who maintain securities accounts for others. See, e.g., Exchange Act rule 17Ad–20 (defining the term ‘‘securities intermediary’’ to mean a clearing agency registered under Exchange Act Section 17A [15 U.S.C. 78q–1] or a person, including a bank, broker, or dealer, that in the ordinary course of its business maintains securities accounts for others in its capacity as such). 274 The discussion in this section of ‘‘beneficial owners’’ refers to beneficial owners whose names PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 intermediaries such as brokerdealers.275 As a result, today intermediaries commonly assume responsibility for distributing issuer materials to beneficial owners, including shareholder reports. In the case of broker-dealers, distribution of shareholder reports to beneficial owners is generally governed by self-regulatory organization (‘‘SRO’’) rules, which state that broker-dealer member firms are required to distribute annual reports, as well as ‘‘interim reports,’’ to beneficial owners on behalf of issuers, so long as an issuer (i.e., the fund) provides satisfactory assurance that the brokerdealer will be reimbursed for expenses (as defined in SRO rules) incurred by the broker-dealer for distributing the materials.276 Certain commenters expressed concerns regarding potential complexities and costs for brokerdealers to administer proposed rule 30e–3.277 As discussed above and in response to these commenter concerns, and addresses do not appear directly in issuers’ stock registers (e.g., on fund transfer agent recordkeeping systems) because their securities are held in street name accounts registered in the name of the intermediary. ‘‘Street name’’ accounts are also known as ‘‘omnibus accounts.’’ 275 In the Proposing Release, we requested comment on the impact of the proposed rule regarding shareholders holding fund shares through intermediated accounts. See Proposing Release, supra note 14, at Section II.D.6. By one estimate, approximately 75% of accounts are currently held through brokers and other intermediaries, excluding positions held in employer-sponsored plans. See SIFMA Comment Letter (citing estimate provided by Broadridge Financial Services, Inc.). 276 See NYSE rule 465(2); NYSE rule 451(a)(1)– (2); Financial Industry Regulatory Authority (‘‘FINRA’’) rule 2251(e)(1)(C); FINRA rule 2251.01. As discussed above, today we approved amendments to NYSE rules that provide additional clarification with respect to the application of certain processing fees that may be charged in the transmission of shareholder reports, including fees that may be applied for reports provided electronically pursuant to a notice and access rule such as rule 30e–3. See supra notes 32–36 and accompanying text. 277 See e.g., SIFMA Comment Letter (stating that the proposed rule did not address the role and obligations of broker-dealers to administer the notice process for clients, and would present logistical challenges and some components would unnecessarily increase complexity and cost without sufficient benefit to mutual funds and their investors; also recommending that the Commission set an effective date for the new rule that provides sufficient time for broker-dealers to develop new infrastructure and internal procedures, and suggesting a transition period of at least 24 months following the effective date of the new rule); Broadridge Comment Letter I (stating that the proposed rule did not acknowledge the essential role broker-dealers would play in making the rules work in practice and that an additional method of delivery for fund reports would add cost and complexity to processing; further noting that the processing complexities of the proposed rule are similar to those of proxies and opining that the proposal did not appropriately contemplate or measure these extra costs). E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations we have modified the final rule 30e–3(e) to eliminate the proposed reference to financial intermediaries in that provision given the guidance we are providing today regarding the operation of the rule in the context of financial intermediaries.278 Multiple commenters requested that the Commission clarify intermediaries’ role with respect to delivering Initial Statements and Notices under proposed rule 30e–3, as well as their role in delivering paper copies of shareholder reports to fund beneficial owners upon request.279 Commenters also requested clarity on how beneficial owners who hold fund shares through accounts with intermediaries can communicate their election to receive paper copies of shareholder reports.280 With respect to beneficial owners holding fund positions from more than one fund complex in intermediated accounts, commenters further requested whether beneficial owners would be able to communicate their preferences on an account-level basis instead of on a fundby-fund basis.281 Commenters also asked that the Commission clarify how intermediaries will be reimbursed by funds for the services they would provide,282 as well as confirm that an intermediary or other third party service provider could host the website on which the materials would be accessible.283 After consideration of the comments we received, including concerns raised regarding the role of financial intermediaries, we have made several modifications to the rule designed to respond to investor protection concerns, streamline and clarify the operation of the transmission regime, provide additional flexibility, and further increase cost savings for investors. For example, we have eliminated the requirement to send an Initial Statement and reply cards under the final rule. In addition, the final rule permits flexibility with respect to the preparation and mailing of Notices, and requires that elections to receive paper 278 See supra note 225 and accompanying text. e.g., ICI Comment Letters I and II; Broadridge Comment Letter I; CSIM Comment Letter; Fidelity Comment Letter I; Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment Letter; SIFMA Comment Letter. 280 See SIFMA Comment Letter; Schwab Comment Letter; Broadridge Comment Letter I; ICI Comment Letter I. 281 See SIFMA Comment Letter; ICI Comment Letter I. 282 See, e.g., ICI Comment Letter I; Invesco Comment Letter; SIFMA Comment Letter. 283 See, e.g., SIFMA Comment Letter; Broadridge Comment Letter I; InveShare Comment Letter; see also infra note 307 (detailing commenters’ discussion and requests for clarification about intermediary website hosting). daltland on DSKBBV9HB2PROD with RULES2 279 See, VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 reports apply on an account-level basis, instead of a fund by fund basis. In response to commenters’ concerns regarding broker-dealer activities under the new rule 30e–3 framework, below we provide guidance addressing the processes that could be followed by broker-dealers and other intermediaries that deliver shareholder reports to beneficial owners. To remind funds and others of the guidance provided in this release, we have added a note to final rule 30e–3 indicating that this release contains a discussion of how the conditions and requirements of the rule may apply in the context of investors holding fund shares through financial intermediaries.284 Financial intermediaries already perform many functions similar to those outlined in rule 30e–3. For example, intermediaries currently forward to beneficial owners a variety of materials from funds and other issuers of securities, including shareholder reports. Many intermediaries operate websites that host shareholder reports and other materials relating to a beneficial owner’s investments. Intermediaries today also collect and maintain investor preferences as to delivery format (i.e., whether a beneficial owner receives reports or other documents—including materials prepared by the intermediary such as account statements and confirmations— in paper or has elected electronic delivery of some or all of those materials), and monitor for potential householding arrangements and collect related consents for their customers. As a result, we believe many intermediaries generally may be able to leverage existing infrastructure and adapt systems and processes currently used for the delivery of documents and other information to their customers.285 1. Distribution of Notices to Beneficial Owners SRO rules require broker-dealers to distribute shareholder reports to 284 See Note to rule 30e–3. commenters suggested that the framework for rule 30e–3 as proposed was similar to that for the notice and access framework for the delivery of proxy materials. See SIFMA Comment Letter, Broadridge Comment Letter I. Although both frameworks involve a notice and access framework, the proxy framework involves additional complexities relating to the process of voting security holdings—considerations not applicable in the case of rule 30e–3, particularly after the modifications we have made to the final rule as discussed above. Instead, we believe that the existing framework for the delivery of fund documents other than proxy materials (e.g., prospectuses, summary prospectuses, shareholder reports, ad hoc requests for paper documents, etc.) is the more appropriate analogous framework. 285 Two PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 29179 beneficial owners.286 We believe that a broker-dealer, at the fund’s request, could also distribute Notices required under rule 30e–3 if the broker-dealer distributes the materials in a manner consistent with the rule. We understand that today, funds and broker-dealers routinely develop detailed implementation plans and other parameters for fulfillment of paper and electronic delivery of fund materials (such as shareholder reports, prospectuses, and proxy materials) and other shareholder servicing and compliance-related matters for beneficial owners. We believe that such plans and parameters also could provide a basic framework for the delivery of Notices under rule 30e–3.287 The rule permits flexibility in the preparation and delivery of Notices. For example, a Notice could relate solely to an individual fund, or multiple Notices can be combined together to create a consolidated Notice.288 In addition, the rule permits a Notice to be sent with other documents, including other Notices and account statements.289 As with funds, a broker-dealer could likewise forward Notices to beneficial owners in any of the aforementioned scenarios.290 A fund may determine that for cost or other reasons, it would be preferable for the broker-dealer to prepare and distribute a consolidated Notice for beneficial owners who may be invested in multiple funds offered by one or more fund complexes.291 In addition, a 286 See supra note 276 and accompanying text. and broker-dealers could work together to establish or modify their plans and parameters. Such discussions also may prompt changes to existing servicing arrangements and/or compliance and oversight activities, particularly where funds determine that broker-dealers will prepare and transmit consolidated Notices in lieu of those prepared by funds (see infra notes 291–293 and accompanying text) or establish or use their own website in lieu of funds’ (or a third party’s) to provide access to the shareholder materials for their customers (see infra paragraph accompanying note 307). 288 See rule 30e–3(c)(4). 289 See rule 30e–3(c)(5). 290 In the case of fund-generated Notices that do not have a telephone number or other contact information for the broker-dealer, a broker-dealer could include a cover page or other similar communication that provides the beneficial owner with contact and other information for the brokerdealer, as is often done today when annual reports or other fund documents are forwarded to beneficial owner customers. This contact information could be used by the beneficial owner to, for example, elect to receive all future reports in paper or elect electronic delivery of the report and other documents or communications. 291 For example, because the final rule permits a Notice to accompany other materials (e.g., an account statement), a combined mailing could reduce mailing costs relative to sending the Notice in a separate mailing without any accompanying documents. 287 Funds E:\FR\FM\22JNR2.SGM 22JNR2 29180 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations broker-dealer may similarly prefer to prepare such Notices for its customers, given that its customers may have come to expect consolidated communications at the account level rather than the position level.292 Moreover, Notices prepared by a broker-dealer may better generally match fund investors’ expectations because a broker-dealer— and not the fund—typically processes a beneficial owner’s fund-related requests.293 Notices prepared by broker-dealers generally should be consistent with paragraph (c) of rule 30e–3. For example, as discussed in the section below,294 a broker-dealer preparing a Notice may wish to include the brokerdealer’s own toll-free telephone number, as well as instructions about how the beneficial owner could notify the broker-dealer regarding his or her report delivery preferences.295 daltland on DSKBBV9HB2PROD with RULES2 2. Beneficial Owner Elections for Paper Reports The final rule prohibits reliance on the rule if a shareholder has expressed a preference that the shareholder wishes to receive paper copies of shareholder reports.296 Broker-dealer firms generally should track their customer elections to receive paper reports. Consistent with today’s framework under which brokerdealer firms facilitate delivery of shareholder reports to their customers, we believe that broker-dealer firms could provide information to the fund (or fulfillment service provider) regarding the number of paper copies of shareholder reports, and fund-prepared Notices, needed by the broker-dealer to fulfill its customers’ delivery preferences. In response to concerns raised by commenters regarding the burdens and 292 Commenters stated that the ability for brokerdealers to prepare their own Initial Statements, including incorporating their own contact information, may assist beneficial owners in communicating their delivery preferences in the manner in which they are generally accustomed. We believe the same may be true of Notices. See, e.g., ICI Comment Letter I (stating that ‘‘investors are used to receiving consolidated communications from intermediaries’’); SIFMA Comment Letter (‘‘As a practical matter, for accounts held in street name through brokers . . . proposed Rule 30e–3 would necessarily have to be carried out by such brokers.’’); InveShare Comment Letter (‘‘Clients furthermore expect that each brokerage firm will provide a consolidated and uniform source of information and support with respect to multiple securities included in a given client account.’’). 293 See supra notes 274–275 and accompanying text. 294 See infra Section II.C.2. 295 We also believe that a broker-dealer should generally specify that a request to receive paper copies of reports will be deemed to be a request with respect to each fund whose shares are held in the beneficial owner’s account. 296 See rule 30e–3(f)(1). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 costs of tracking elections to receive paper reports on a fund by fund basis,297 and in a change from the proposal, the rule has been modified so that an election to receive paper reports will apply to any and all current and future funds held through an account or accounts with a financial intermediary.298 We believe that tracking paper report elections on an account basis should simplify the operation of the rule, as well as the design and implementation of systems to track shareholder report paper elections for both broker-dealers and funds. Today, paper copies of statutory prospectuses or statements of additional information may be requested by beneficial owners on an ad hoc basis in cases where a fund uses a summary prospectus.299 Paper copies of disclosure documents (including shareholder reports) may also be requested where a client has elected electronic delivery for some, but not all communications. We note that the rule’s approach of delivering Notices, together with the option of permitting shareholders to request paper copies on either an ad hoc or ongoing basis, is generally similar to the operational approach currently used by many broker-dealers (and funds) for the delivery of fund materials, including proxy materials. We believe that existing systems for default electronic delivery could be leveraged by brokerdealers in implementing the final rules in order to establish new processes and procedures for delivery of shareholder reports at a lower cost than would be the case if such systems did not already exist.300 In particular, elimination of the proposed Initial Statement in the final rule reduces the operational complexities with respect to use of the rule, which we believe may make it easier for existing systems to be leveraged. We recognize, however, that some broker-dealers may decide instead to create new systems. To facilitate beneficial owners’ elections to receive future reports in paper, a broker-dealer firm generally 297 See, e.g., State Street Comment Letter. rule 30e–3(f)(2). 299 As discussed above in Section II.B.3., we believe that beneficial owner ad-hoc requests for paper reports or other required materials would continue to be fulfilled by funds when requested (as they are today) or such customer requests could be fulfilled directly by the broker-dealer. 300 See, e.g., SIFMA Comment Letter (describing operation execution of proposed rule 30e–3 in terms of re-tooling established systems or creating new systems); Broadridge Comment Letter I (describing ongoing systems development in light of proposed rule 30e–3 including potentially adding new control number and consent systems). 298 See PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 should provide information on how to contact the firm (or if applicable, the fund) in conjunction with the delivery of Notices. For Notices prepared by the broker-dealer firm, the Notice could contain the toll-free telephone number of the firm and other methods by which beneficial owners could contact the firm. If the broker-dealer firm is delivering Notices prepared by a fund, the firm could include with the Notice information containing the toll-free telephone number of the firm and other methods by which beneficial owners could contact the firm.301 A commenter also requested a transition period of at least 24 months following the effective date of the rule to allow time to address new systems, processes and procedures required to comply with the rule.302 In response to these and other concerns raised by commenters, and other considerations discussed below on the effective date of the rule, we are adopting an extended effective date of January 1, 2019 to provide funds, financial intermediaries, and other service providers with an adequate period of time to modify systems and operations to accommodate the new transmission framework. Broker-dealers generally should track investor elections for paper copies of shareholder reports after first transmitting a notification of a fund’s intent to rely on the rule, beginning as early as January 1, 2019, or the first time a Notice is provided to the shareholder.303 3. Website Availability of Materials The final rule does not require that the website where the required materials are available be maintained by any particular party. Instead, the rule provides that the required materials must be posted at the website specified in the Notice.304 This approach is consistent with similar flexibility provided under the current rules relating to the use of a summary prospectus.305 In addition, electronic 301 For example, this information could be provided on a cover sheet to the delivered Notice, or on an account statement delivered with the Notice. See rule 30e–3(c)(5)(iv) (permitting Notices to accompany a shareholder’s account statement). 302 See SIFMA Comment Letter. 303 See Section II.B.2.d. As discussed, the final rule has been streamlined and simplified, in an effort to reduce complexity and related implementation burdens and costs. Broker-dealers also will have an extended transition period of an additional two years to coordinate with funds on the design and implementation of Notices, which may be transmitted beginning January 1, 2021. 304 See rule 30e–3(b)(1). 305 See rule 498(e)(1) under the Securities Act (requiring in the case of the summary prospectus, that the required documents be available at the E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 delivery elections for shareholder reports and other documents can be fulfilled by making fund reports and other materials accessible on websites hosted by the fund, the broker-dealer firm, or a third-party service provider of the fund or intermediary.306 Thus, a variety of existing infrastructure arrangements for hosting reports and other materials may be leveraged in providing website availability of shareholder reports to beneficial owners under rule 30e–3. Commenters observed that it could be more efficient for a broker-dealer to establish its own website (or utilize a central third-party website) on which shareholder materials would be hosted, and identify this website (as opposed to each fund or fund family’s website) in any Notices prepared by the brokerdealer.307 A fund, as the party ultimately responsible for the content and delivery of shareholder reports under Commission rules, may agree to the use of a broker-dealer or third party website to provide electronic access to shareholder reports and other materials applicable to a beneficial owner’s account if the reports and others materials are posted in a manner consistent with the requirements of rule 30e–3.308 We also acknowledge, as website specified on the cover page or beginning of the summary prospectus) [17 CFR 230.498(e)(1)]. 306 Pursuant to the Commission’s existing electronic delivery guidance, beneficial owner elections for electronic delivery of shareholder reports and other documents continue to grow, with one commenter noting that electronic delivery has grown from 19% of fund report deliveries in 2010 to over 50% as of June, 2018. See supra note 73 and accompanying text. 307 See, e.g., SIFMA Comment Letter (requesting clarification that the use of a single third party website or landing page where investors can access all relevant materials is permitted); Broadridge Comment Letter II, at Attachment B (discussing the ability for an investor to access shareholder reports on a fund’s or a broker’s website and the ability for such website to be customized by the fund or broker to provide an enhanced user experience for the investor); InveShare Comment Letter (noting that investors are used to using a single web page to locate documents, where documents are listed in an orderly manner). 308 For example, if a broker-dealer were to establish its own website, it should generally follow procedures similar to those described in rule 30e– 3(b)(2)–(5). Use of a broker-dealer or third party website may be a more user friendly, efficient, and cost effective way to provide electronic access to reports and other materials. For example, a consolidated Notice prepared by the broker-dealer that directs beneficial owners to their account page through a single website address (rather than multiple website addresses for beneficial owners who own funds from multiple complexes) may make it easier for beneficial owners to access these reports than accessing multiple reports available on separate websites. We note that today, such reports may be accessed from a broker-dealer website, where they reside, or through re-direction to a central website, or the fund’s website. We also note that many broker-dealers provide beneficial owners with links to fund websites for accessing documents VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 noted by commenters, that allowing the use of a control number or QR code (or similar login process) to access a brokerdealer’s website (or other central thirdparty website) could help investors to more efficiently access the fund reports and other materials relevant to them, rather than directing an investor that holds various fund positions to multiple fund complex websites where such documents are publicly available.309 D. Extension of Similar Delivery Framework to Other Documents While rule 30e–3 as proposed would apply only to shareholder reports, we also requested comment in the Proposing Release on whether we should permit a similar framework to satisfy delivery obligations for summary or statutory prospectuses.310 Citing cost reductions and other reasons, a number of commenters recommended that we extend a similar framework to other materials, including prospectuses,311 variable insurance product materials,312 and notices required under rule 19a–1 and related exemptive orders.313 One commenter suggested that the Commission should adopt rules allowing funds to use the internet to satisfy delivery requirements across all investor documents.314 Some commenters also suggested that the Commission amend rule 172 under the Securities Act to apply the rule’s ‘‘access equals delivery’’ framework to funds and variable insurance products.315 While we appreciate these recommendations, we believe that the appropriate incremental step is rule 30e–3, as adopted. As discussed above, we are seeking comment on the content, delivery, and design of fund disclosure as well as the processing fees for delivered via electronic delivery and for otherwise accessing these documents from their online accounts with their broker-dealer as noted above. Thus, in certain circumstances, it may be more cost effective for the shareholder report and other materials to be hosted on the fund’s website or a central third-party website. 309 See supra notes 169–170 and accompanying text. 310 See Proposing Release, supra note 14, at 33633. 311 See, e.g., CAI Comment Letter I; Capital Research Comment Letter I; Fidelity Comment Letter; ICI Comment Letter I; Comment Letter of Independent Directors Council (Aug. 11, 2015); Invesco Comment Letter; OppenheimerFunds Comment Letter; Schwab Comment Letter; SIFMA AMG Comment Letter; State Street Comment Letter; Vanguard Comment Letter. 312 See Allianz Comment Letter; see also CAI Comment Letter I. 313 See Comment Letter of Eaton Vance Investment Managers (Aug. 11, 2015). 314 See Schnase Comment Letter. 315 See Allianz Comment Letter; CAI Comment Letter I. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 29181 delivering fund shareholder reports and other materials to investors, and may consider in the future an electronic or notice and access delivery framework for documents other than shareholder reports.316 E. Effective Dates 1. Rule 30e–3 In the Proposing Release, we stated that because the use of proposed rule 30e–3 would be optional, we believed that a compliance period was unnecessary and expected that funds would be able to rely on the rule immediately after the effective date provided they first transmit an Initial Statement.317 We requested comment on the proposed compliance dates, and a commenter suggested that the Commission set an effective date six months after date of publication in the Federal Register and allow for a transition period of 24 months from the rule’s effective date to allow the conditions of the rule to apply gradually (such as applying the rule first to new accounts, and then to existing accounts).318 After further consideration, we are adopting an extended transition period with staged effective dates for rule 30e–3 and the related amendments we are adopting today. While rule 30e–3 will become effective on January 1, 2019, the rule provides that a fund may only begin transmitting Notices pursuant to the rule beginning January 1, 2021.319 For most funds seeking to rely on the rule before January 1, 2022, a temporary condition will require the funds to prominently disclose information on the cover pages of certain documents prior to their reliance on the rule, as discussed in more detail in this release.320 We are adopting a delayed effective date of January 1, 2019 to provide funds, broker-dealers and other financial intermediaries, and service providers with an adequate period of time to modify systems and operations to accommodate the new transmission framework. Beginning as early as January 1, 2019, however, funds and intermediaries will begin to track investor elections for paper copies of the shareholder report.321 316 See Disclosure Request for Comment, supra note 20; Processing Fees Request for Comment, supra note 21. 317 Proposing Release, supra note 14, at 33654. 318 See SIFMA Comment Letter. 319 See rule 30e–3(i). 320 Id.; see supra Section II.B.2.f; infra Section II.E.2. 321 See rule 30e–3(f). The need to track an investor’s preference would be triggered by the first E:\FR\FM\22JNR2.SGM Continued 22JNR2 29182 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations 2. Disclosure Amendments As discussed above, we are also requiring funds to provide prominent disclosures on the cover page or beginning of their summary prospectuses, and cover pages of their statutory prospectuses, and annual and semi-annual reports, informing investors of the change in delivery format options if the funds intend to rely on the rule prior to January 1, 2022.322 These amendments to rule 498 and Forms N–1A, N–2, N–3, N–4, and N–6 will be effective January 1, 2019 for a temporary period of three years (i.e., between January 1, 2019 and December 31, 2021). Effective January 1, 2022, these disclosures will no longer be required, and the related requirements in rule 498 and Forms N–1A, N–2, N–3, N–4, and N–6 will be removed. Additional amendments to rule 498, including an amendment to permit the inclusion of information about electronic delivery, will become effective January 1, 2019 and will remain effective indefinitely. daltland on DSKBBV9HB2PROD with RULES2 3. Other Amendments As also discussed above, we are permitting funds to include content from the shareholder report in the Notice under rule 30e–3(c)(3), provided that funds that choose to transmit Notices with additional information from the shareholder report file those Notices as part of their reports on Form N–CSR.323 To that end, we are amending Form N–CSR to provide instructions for funds to file such Notices. The amendments to Form N–CSR are effective January 1, 2021. We are also amending rule 14a–16 under the Exchange Act to include a Notice required by rule 30e–3 among the materials that are permitted to accompany a Notice of internet Availability of Proxy Materials.324 The amendments to rule 14a–16 will be effective January 1, 2021. We are amending Section 800 of 17 CFR part 200 to display control numbers assigned to information collection requirements for rule 30e–3 by the Office of Management and Budget pursuant to the Paperwork Reduction notice the fund provides to the investor that it intends to rely upon the rule to transmit shareholder reports. Id. For example, a fund that intends to rely on rule 30e–3 on January 1, 2021 would need to track investor preferences the first time it transmits or delivers a document that includes the required cover page disclosure discussed above. See supra Section II.B.2.f. A fund that will rely on rule 30e–3 on January 1, 2022 or thereafter would need to track investor preferences beginning the first time it transmits a Notice. 322 See supra Section II.B.2.f. 323 See supra Section II.B.2. 324 See id. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 Act. This amendment is effective January 1, 2019. 4. Communications With Investors During the Extended Transition Period As noted earlier, we are persuaded by commenters that the proposed provisions of the rule regarding affirmative and implied consent through use of an Initial Statement would add unnecessary complexity to the implementation of the rule without a corresponding benefit.325 Instead, we believe that the extended transition period provides a less burdensome framework to alert investors to the change in transmission format.326 Although we are requiring most funds, as a condition to relying on rule 30e–3 before January 1, 2022, to include the required disclosures regarding the upcoming change on prospectuses and shareholder reports, we also encourage funds and financial intermediaries (e.g., broker-dealers, insurance companies issuing variable insurance products) to take advantage of the extended transition period to engage with their investors to communicate the forthcoming change through additional appropriate means. Such engagement could further enhance investors’ awareness of the upcoming change in delivery method, and provide additional opportunity for investors to select the delivery method most appropriate for their individual circumstances. We believe that this engagement with investors could build upon funds’ and intermediaries’ existing efforts to ask investors to elect electronic delivery. It is our understanding that funds and intermediaries periodically solicit investors to opt-into electronic delivery of account and fund related documents, including shareholder reports, in lieu of receiving documents in paper. We are aware that some of these efforts have included: • Dedicated electronic delivery website pages that explain the benefits of electronic delivery (for example, electronic delivery is faster, economical, convenient, secure, and environmentally friendly) and provide instructions and website links that facilitate enrolling in electronic delivery (e.g., by obtaining online access and logging into an account held directly with the fund or through an intermediary and selecting communications preferences). These website pages may include frequently asked questions and information on how to contact a service representative (by phone or email) to facilitate 325 See 326 See PO 00000 supra Section II.A.2. supra Section II.B.2.f. Frm 00026 Fmt 4701 Sfmt 4700 enrollment, and may also highlight how to receive paper copies of materials upon request, how to update or cancel enrollment, and the procedures followed when an email address provided is invalid or otherwise fails. • Paper mailing campaigns that provide information similar to the above, including the mailing of inserts that accompany the monthly or quarterly account statement or other regulatory mailings or marketing materials sent to investors. • Email campaigns that are targeted to investors who have not consented to electronic delivery, but have provided email addresses to funds or their intermediaries on account applications or when obtaining online access. • Online account alerts or pop-ups that remind investors who have logged into their account page of the availability of electronic delivery and prompt investors to take action. • Engagement by phone through call scripts which prompt fund or intermediary customer service representatives to highlight electronic delivery options and guide interested investors through the enrollment process. • Elimination of small balance account service fees and other incentives for investors who sign up for electronic delivery of documents, in lieu of receiving paper documents. We believe that the levels of internet access and electronic availability and delivery of financial information will continue to increase 327 as a result of the various efforts described above and general trends in technology and demographic changes. We also continue to believe that electronic delivery and website availability of disclosures are methods that have the potential to significantly improve the communication of information to investors. For example, many fund websites include additional information aside from disclosure documents and other information mandated under our rules such as educational materials, interactive calculators, and investment research tools and materials. Funds and intermediaries will be able to engage with their investors on the benefits of enrolling in electronic delivery and accessing information online, both during the extended transition period and thereafter, and to continue to improve the user-friendliness and content of their websites. 327 See E:\FR\FM\22JNR2.SGM supra notes 39–47 and accompanying text. 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 III. Economic Analysis A. Introduction We are mindful of the importance of assessing the costs and benefits of our rules. Section 2(b) of the Securities Act, Section 3(f) of the Exchange Act, and Section 2(c) of the Investment Company Act require us, when engaging in rulemaking that requires us to consider or determine whether an action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.328 Additionally, Exchange Act Section 23(a)(2) requires us, when adopting rules under the Exchange Act, to consider, among other things, the impact that any new rule would have on competition and not to adopt any rule that would impose a burden on competition that is not necessary or appropriate in furtherance of the Exchange Act.329 At the outset, the Commission notes that, where possible, it has sought to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from new rule 30e–3, the amendments to various rules and registration forms, and their reasonable alternatives. The economic effects of new rule 30e–3 are dependent on a number of factors, including the number of funds that rely on the rule; for those funds that rely on the rule, the number of investors that ultimately select paper transmission; the extent to which funds currently rely on Commission guidance to transmit shareholder reports electronically; the extent to which investors currently have opted into electronic delivery; 330 and the extent to which investors become more aware of the website availability of portfolio investment and other information, view the information, and use the information to make investment decisions. New rule 30e–3 allows funds to satisfy shareholder report transmission requirements by making such reports publicly accessible on a website if they meet certain conditions. This new option is designed to modernize the manner in which periodic information is made available to investors. We believe it will improve the information’s overall accessibility while reducing expenses associated with printing and mailing that are borne by funds, and 328 15 U.S.C. 77b(b), 15 U.S.C. 78c(f), 15 U.S.C. 80a–2(c), and 15 U.S.C. 80b–2(c). 329 15 U.S.C. 78w(a)(2). 330 See supra note 18. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 ultimately, by their investors. The rule also draws on the Commission’s investor testing efforts and other empirical research concerning investors’ preferences about methods of delivery for required disclosure documents and use of the internet for financial and other purposes generally.331 Further, printing and mailing expenses associated with shareholder reports are typically passed on to fund investors through fund expense ratios. Currently, if investors with a preference for electronic delivery do not take the necessary step of affirmatively electing electronic delivery pursuant to the Commission’s current guidance on electronic delivery, the shared costs associated with printing and mailing reports incurred by investors will be higher than if shareholder reports were delivered in paper form only to those investors that have a preference for paper delivery. The new rule, however, creates an optional regulatory structure that eliminates the need for investors to take the step to affirmatively elect electronic delivery and enables funds to make website availability of shareholder reports the default, which will reduce the printing and mailing costs shared by investors while still accommodating the interests of those investors who prefer paper copies.332 331 See supra notes 18, 96, and 97 and accompanying text. 332 We believe that the change from generally requiring investors to ‘‘opt-in’’ if they wish to receive electronic instead of paper copies of shareholder reports, to—as under the new rule— ‘‘opt-out’’ if they wish to receive paper copies instead of electronic copies will increase the ability of funds to deliver shareholder reports electronically. Although the preferences of investors will not change dependent on the form of consent, economic theory and empirical evidence suggest the likelihood that investors receive electronic transmissions of fund reports will be greater under opt-out consent rather than opt-in consent. See, e.g., Richard H. Thaler and Shlomo Bernatzi, Save More TomorrowTM: Using Behavioral Economics to Increase Employee Saving, Journal of Political Economy, Vol. 112:1, S164–S187 (2004); Richard H. Thaler and Cass R. Sunstein, Libertarian Paternalism, The American Economic Review, Vol. 93:2, 175–179 (2003). Thaler and Sunstein argue that a ‘‘status quo’’ bias results in the continuance of existing arrangements even if better options are available. The authors illustrate their argument with higher rates of initial enrollments in employee savings plans when enrollment is automatic as compared to when employees must first complete an enrollment form. The free-riding problem can also contribute to an inefficiently higher rate of paper use under the existing rules. The free-riding problem may arise because while investors must incur effort (albeit small) to switch from paper to electronic delivery under the current rules, those investors that fail to switch from paper still benefit from the aggregate printing and mailing cost savings due to other investors having switched to electronic delivery, thus, an inefficiently low proportion of investors may take the step to switch from paper to electronic delivery. Under the final rule, which makes website availability the default, some investors with a PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 29183 As we discuss in greater detail below, we estimate that aggregate cost savings, net of compliance costs, after the first year of reliance on rule 30e–3 would be approximately $141.4 million per year, or approximately 55% of the annual printing and mailing costs under the existing requirements.333 The share of net cost savings realized by funds that will be actually passed through to investors will affect the net impact of the rule on investors. Given that printing and mailing expenses are fund expenses, we expect that these savings will generally be fully passed along to investors, except perhaps in certain circumstances (e.g., where the fund is operating under an expense limitation arrangement). For purposes of the estimates below, we aggregate printing and mailing costs for positions held directly and positions held in street name. We assume that the printing and mailing costs are incurred, and cost savings realized, by funds. As discussed above, intermediaries and other third parties incur printing and mailing costs on behalf of funds in instances of positions held in street name, and such intermediaries and other third parties are expected to incur a portion of the aggregate costs and cost savings from rule 30e–3.334 By one estimate, approximately 75% of accounts are currently held through brokers and other intermediaries.335 We expect that intermediaries and other third parties will continue to pass through most or all shareholder report printing and mailing costs to funds under rule 30e–3, as currently intermediaries and other third parties who perform these functions on behalf of funds under existing requirements pass through printing and mailing costs incurred. Due to the optional nature of the rule, we expect that, in general, each fund will only rely on the rule if the benefits to that fund exceed the costs. We have provided estimates of the aggregate costs associated with printing and mailing shareholder reports. However, as discussed in further detail below, in certain cases the Commission is unable to quantify other economic effects, such as how the availability of shareholder reports online will affect investors’ use preference for paper reports may fail to request paper because of the ‘‘status quo’’ bias discussed above. See infra Section III.D.2. We lack the data to estimate the number of such investors. There is considerable evidence of investor preferences for enhanced availability of fund information on the internet rather than in paper form. See supra note 19. 333 See infra note 373 and infra Section III.C.1. 334 See supra Section II.C. 335 See supra note 275. E:\FR\FM\22JNR2.SGM 22JNR2 29184 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations of the information, because the Commission lacks the information necessary to provide a reasonable estimate. Where the Commission is unable to quantify the economic effects, the discussion is qualitative in nature and includes, where possible, descriptions of the direction of these effects. daltland on DSKBBV9HB2PROD with RULES2 B. Economic Baseline and Affected Parties The baseline from which we analyze the economic effects of rule 30e–3, as well as the related rule and registration form amendments, is the current set of regulatory requirements under which funds transmit shareholder reports to investors. The baseline also includes the current practice of many funds to make some or all of these reports—or other materials listing portfolio investment information—accessible on their websites. The baseline reflects the fact that some funds transmit these materials electronically today, pursuant to Commission guidance that permits such a transmission method on a shareholder-by-shareholder ‘‘opt-in’’ basis, provided that certain other conditions are met.336 The baseline also reflects the recently adopted rules and forms and rule and form amendments modernizing the reporting and disclosure of information by registered investment companies,337 as well as rules established by exchanges related to the transmission of shareholder reports to investors, including the NYSE rule amendments regarding processing fees paid to financial intermediaries.338 The parties that could be affected by new rule 30e–3 are funds that currently are or would be required to transmit shareholder reports under rule 30e–1 or 30e–2; shareholders of funds; financial intermediaries and other third parties involved in the distribution of shareholder reports to beneficial owners of funds on behalf of funds; and current and future users of fund portfolio investment information, including investors and third-party information providers. Some commenters have also suggested that the rule may have effects on the environment, the paper industry, and mail carriers.339 The assets of all registered investment companies exceeded $19 trillion at yearend 2016, having grown from about $5.8 trillion at the end of 1998.340 Approximately 95.8 million individuals 336 See supra note 25 and accompanying text. Reporting Modernization Adopting Release, supra note 14. 338 See supra notes 32–34 and accompanying text. 339 See supra Section II.A.5. 340 See 2017 ICI Fact Book, supra note 97, at 8. 337 See VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 own shares of registered investment companies, representing 55.9 million or 44.4% of U.S. households.341 Based on industry statistics and staff analysis of Commission filings, we estimate that, as of December 2017, the number of funds that could be affected by rule 30e–3 is 12,630, including 9,360 mutual funds, 1,821 exchange-traded funds (1,829 ETFs less 8 UIT ETFs), 711 closed-end funds, 14 funds that could file registration statements or amendments to registration statements on Form N–3, and 724 UITs.342 For the reasons discussed below, we continue to estimate, as we did in the proposal, that the number of affected funds that will rely on rule 30e–3 comprises 90% of the number of all funds.343 Thus, the number of affected funds reflecting updates to the industry data figures is 11,367.344 Rules 30e–1 and 30e–2 generally require funds to transmit reports to shareholders at least semi-annually, with holdings as of the end of the second and fourth fiscal quarters disclosed in the fund’s semi-annual and annual reports, respectively.345 Holdings as of the end of the first and third fiscal quarters are currently disclosed in reports on Form N–Q filed with the Commission, which are available on EDGAR.346 Funds are not required to send first- and third-quarter portfolio holdings information to investors or make that information accessible on their websites. In addition to providing paper copies of shareholder reports to investors, some funds may voluntarily, or because of other requirements, make some or all of these reports—or other materials listing portfolio holdings at particular times— accessible on websites. For example, rule 498 under the Securities Act, which concerns the use of a summary prospectus, requires that shareholder reports be made publicly available on a website if a summary prospectus is used.347 Under existing Commission guidance, funds can transmit shareholder reports or other documents electronically in lieu of paper delivery if they satisfy certain conditions relating to investor 341 Among mutual fund-owning households, 63% held funds outside employer-sponsored retirement accounts, with 19% owning funds only outside such plans. See 2017 ICI Fact Book, supra note 97, at 121 342 See infra note 476. 343 See Proposing Release, supra note 14, at n.800. See also infra note 477 and accompanying and following text. 344 See infra note 478. 345 See supra note 16. 346 See supra note 117 for a discussion of the changes recently adopted by the Commission. 347 See infra note 474 and accompanying text. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 notice, access, and evidence of delivery. The Commission’s guidance indicates that one way evidence of delivery can be demonstrated as to an investor is if an investor has agreed to electronic transmission on an affirmative ‘‘opt-in’’ basis. Some shareholder reports are currently transmitted electronically under this guidance. One commenter estimated that 43% of reports to street name holders are delivered electronically and projected that 59% of reports to street name holders will be delivered electronically in 2018.348 By one estimate, approximately 75% of accounts are currently held through brokers and other intermediaries.349 While these figures demonstrate that electronic delivery is used for a significant proportion of shareholder reports (which affects the baseline printing and mailing costs across funds under the existing requirements), because a fund is not required to report to the Commission the extent to which it relies on Commission guidance, we lack information to estimate the percentage of funds that solely or predominantly rely on electronic delivery under existing Commission guidance. We recognize, consistent with the comments we have received, that electronic delivery of reports to some investors under existing Commission guidance may continue to reduce printing and mailing costs in the future, regardless of whether rule 30e–3 is adopted.350 In the Proposing Release, we estimated aggregate annual printing and mailing costs under the existing requirements to be approximately $116.4 million.351 Based on the estimates provided by commenters,352 348 See Broadridge Comment Letter I. The commenter also estimated that the rate of electronic delivery of reports held in street name would reach 54% by June 2017 and 59% by June 2018. However, the commenter noted that ‘‘e-delivery rates for direct-sold accounts lag those of the street.’’ See Broadridge Meeting Memo I. Another commenter stated that for accounts held directly, ‘‘an informal sampling of some of our members with direct-at-fund business showed an average e-delivery rate of about 40 percent.’’ See ICI Comment Letter I. 349 See supra note 275. 350 See, e.g., Broadridge Comment Letter I. 351 $116,368,583. See Proposing Release, supra note 14, at n.707. Printing and mailing costs (inclusive of processing fees) were estimated to be approximately $10,354 ($31,061 ÷ 3) per fund, and approximately $6,667 ($20,000 ÷ 3) per UIT. See Proposing Release, supra note 14, nn.777, 790. 352 One commenter estimated aggregate industry printing and mailing costs under the existing requirements, providing an estimate of $344 million. See supra note 70 and accompanying text. Another commenter provided an estimate of $354 million (projected to be $382 million in 2018) for fund positions held in street name, which the E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 we recognize that printing and mailing costs under the existing requirements estimated in the proposal may have been understated and we are doubling our estimated share of printing and mailing costs under existing requirements in the external costs of rules 30e–1 and 30e–2. Based on this change to the assumptions in our estimate and the use of updated industry figures on the number of funds, our revised estimate of aggregate annual printing and mailing costs under the existing requirements is approximately $256.2 million.353 The revised estimate is close to the average of the estimate in the proposal and the average of aggregate cost estimates based on commenter estimates.354 commenter estimated comprised approximately 75% of all fund positions. See supra note 74 and accompanying text. If printing and mailing costs for fund positions held directly are similar to those for funds held in street name, aggregate printing and mailing costs would be $354 million ÷ 0.75 = $472 million. We recognize that average printing and mailing costs for fund positions held directly could be higher if such funds rely less on electronic delivery. See supra note 348. The average of the estimate of aggregate costs provided by the first commenter and the estimate of aggregate costs based on the information provided by the second commenter is ($344 million + $472 million) ÷ 2 = $408 million. Several other commenters provided estimates of their own costs of printing and mailing shareholder reports but did not provide sufficient information to estimate aggregate industry costs. See, e.g., T. Rowe Price Comment Letter I (indicating that its fund group spends approximately $3.8 million annually to print and mail shareholder reports to direct fund investors); Schwab Comment Letter (stating that annual printing and mailing costs to deliver the annual and semi-annual shareholder reports to shareholders of all of its funds are approximately $4 million); MFS Comment Letter (stating that its annual printing and mailing costs were $7.2 million); Capital Research Comment Letter I (stating that its annual printing and mailing costs for semi-annual shareholder reports were approximately $17.7 million and for annual reports—approximately $28 million but clarifying that, since the summary prospectus is included with its annual shareholder reports, the amount attributable to annual shareholder reports is approximately $14.8 million); Capital Research Comment Letter II (estimating the cost for mailing production expense, postage expense, freight expense and print and design expense for semiannual and annual shareholder reports for the period from July 2016 to June 2017 at approximately $28 million); Blackrock Comment Letter (estimating its printing and distribution costs to be approximately $30 million per year). 353 See infra note 544 and accompanying text. Printing and mailing costs (inclusive of processing fees) were estimated to be approximately $10,354 ($31,061 ÷ 3) per fund, and approximately $6,667 ($20,000 ÷ 3) per UIT. See Proposing Release, supra note 14, nn.777, 790. Doubling those estimates results in printing and mailing costs of approximately $20,707.33 ($31,061 × 2⁄3) per fund and approximately $13,333.33 ($20,000 × 2⁄3) per UIT. Using 2017 industry figures, we estimate that there are 11,906 funds and 724 UITs. See infra note 476. Thus, aggregate annual printing and mailing costs under the existing requirements (($31,061 × 2⁄3) × 11,906 + ($20,000 × 2⁄3) × 724) = $256,194,844. 354 ($116.4 million + $408 million) ÷ 2 = $262.2 million. See supra notes 351–352. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 C. Benefits Rule 30e–3, to the extent that it is relied upon by funds, will likely provide benefits to both current and prospective investors. First, the rule is expected to benefit funds and their investors by reducing aggregate expenses related to the delivery of paper shareholder reports. Second, we believe that the rule may facilitate investor review of periodic information by increasing its overall accessibility. We discuss these benefits in greater detail below. The expected benefits described below will not necessarily be distributed uniformly across all funds that choose to rely on rule 30e–3. First, funds that currently have low printing and mailing costs—for example, because they have shorter shareholder reports or lower per-page printing costs—will realize smaller net cost savings from rule 30e–3. Similarly, funds that deliver many of their shareholder reports electronically in reliance on existing Commission guidance will realize smaller net cost savings from rule 30e– 3, although they may still realize net cost savings associated with those investors who do not opt into electronic delivery. Further, even if the net cost savings from rule 30e–3 are small, investors and funds may still realize some benefits from website accessibility of first- and third-quarter portfolio holdings information that currently may be found only on EDGAR. Second, when funds presently rely on rule 498, which among its requirements includes website posting of shareholder reports when using a summary prospectus, the potential benefits to investors of having the shareholder report available in an electronic format alongside other fund information will likely be smaller. However, funds that presently rely on rule 498 may still realize net cost savings from no longer printing and mailing as many shareholder reports. The use of rule 30e–3 by funds that presently rely on rule 498 will also result in the benefits to investors of website accessibility of fund portfolio holdings information for the first and third fiscal quarters. Funds that choose to rely on rule 30e– 3 could be at a competitive advantage if investors choose funds based on their preference for website availability, either because investors prefer to view shareholder reports electronically or because funds that rely on rule 30e–3 could have lower expense ratios due to We are unable to determine how likely it is that the costs would be close to the lower or upper bound of the range, thus, we present the midpoint of the range for reference. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 29185 savings of printing and mailing costs. Additionally, as discussed above, some commenters discussed potential benefits of rule 30e–3 for the environment.355 As discussed in Section II.E above, in a change from the proposal, we are adopting an extended transition period with staggered effective dates for new rule 30e–3 and the other amendments adopted today. This extended transition period would defer the realization of the benefits discussed above. However, it would provide the separate benefit of enabling investors more time to become informed of the potential forthcoming change in the delivery manner of their shareholder reports and also provide funds, financial intermediaries, and service providers with a period of time to modify systems and operations to accommodate the new shareholder report delivery framework. As discussed in Section II.B.3 above, in a change from the proposal, we are also amending rule 498 to permit a summary prospectus to include a description of how a shareholder can elect to receive prospectuses or other documents and communications by electronic delivery.356 This provision is expected to enhance investor awareness of how to request shareholder reports and related fund materials in the investor’s preferred format while enabling additional efficiencies in shareholder report delivery for funds. To the extent that the option to include with a summary prospectus instructions describing how investors may elect electronic delivery will increase the likelihood that investors with a preference for electronic delivery communicate their preference to the fund, this amendment to rule 498 is expected to contribute to increased reliance on electronic delivery under the existing Commission guidance. Consistent with the printing and mailing cost savings, this would result in benefits to funds, and in turn, investors, from the final rules. Further, if electronic delivery facilitates increased investor access to, and review of, fund information, this amendment to rule 498 may result in better informed investor decisions and more efficient allocation of investor capital. If investors increasingly elect electronic delivery as a result of this amendment to rule 498, the magnitude of the benefits incremental to reliance on rule 30e–3 from printing and mailing cost savings and increased investor review will decrease. We lack the information to quantify the increase in electronic delivery use that would be incremental 355 See 356 See E:\FR\FM\22JNR2.SGM supra Section II.A.5. supra note 265 and accompanying text. 22JNR2 29186 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 to this amendment to rule 498 and thus how the magnitude of the benefits expected from this amendment to rule 498 will compare to the reduction in the benefits incremental to the reliance of funds on rule 30e–3. 1. Cost Savings We anticipate that funds relying on rule 30e–3, and their investors, will benefit from gains in the efficiency and a reduction in the expenses related to the distribution of paper shareholder reports. Although the rule will have minimal effect, if any, on the expenses associated with the preparation of reports, we expect that the expenses associated with printing and mailing of shareholder reports will be substantially reduced. By reducing fund expenses, printing and mailing cost savings are expected to increase the portion of investor money that is retained in the fund rather than used to cover expenses, resulting, over time, in a net positive effect on the level of capital invested in funds. Furthermore, to the extent that reductions in fund expenses due to printing and mailing cost savings have a positive effect on fund performance and attract new investors or additional capital from existing investors, the rule may result in further capital formation benefits. We are unable to precisely estimate the magnitude of capital formation effects that may result from our projected cost savings under the rule because the magnitude of such effects may be affected by the extent of pass-through of cost savings and by other factors that affect the flow of investor capital into mutual funds, including other components of fund returns, overall market returns, and returns on investments other than funds. Specifically, because the new rule provides a structure for making website accessibility of shareholder reports and other materials the default delivery method, funds relying on rule 30e–3 will only incur printing and mailing costs as necessary to accommodate those investors opting for paper, and printing and mailing costs associated with Notices delivered to investors who have not made such an election. As we have recognized in the past, affirmative shareholder consent can be difficult to obtain even for practices that many shareholders may prefer,357 resulting, under the existing regime, in more investors receiving paper copies than may be truly reflective of 357 See Investment Company Act Release No. 22884 (Nov. 13, 1997) [62 FR 61933, 61935 (Nov. 20, 1997)] (concerning implied consent to delivery of disclosure documents to households); see also supra note 332. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 preferences and thus higher shared costs associated with that excess paper distribution. While it is still possible under the new rule that some investors may not take the affirmative steps necessary to express their transmission preference—in this case, to request paper delivery—investors in the fund will not share any unnecessary printing and mailing costs for those investors, as the default is website accessibility. Under the new rule, funds relying on rule 30e–3 will only incur costs of distribution of paper reports and other materials for those investors who request delivery in that format. In the Proposing Release, we estimated approximately $105 million in annual (gross) cost savings if the proposed rule were adopted.358 Net of annual costs of compliance with rule 30e–3, which we estimated to be approximately $32 million after the first year,359 annual net savings were estimated to be approximately $73 million in the aggregate, or approximately 63% of printing and mailing costs under the existing requirements, as estimated in the Proposing Release.360 Several commenters provided alternative estimates of potential cost savings associated with the printing and mailing of shareholder reports under the proposed rule.361 For example, one commenter asserted that electronic delivery is already common and thus concluded that fund companies would only save about $18 million 362 in 2018, which would represent approximately a 4.7% net reduction in ongoing printing and mailing costs projected by the commenter under the existing rules.363 Another commenter estimated savings over the first three years after implementation, netting out initial costs, of $140 million.364 This commenter also projected ongoing annual savings after the first year of $89 million, which would represent 358 $104,731,725. See Proposing Release, supra note 14, at n.815. 359 $31,531,880. See Proposing Release, supra note 14, at n.717. 360 $104,731,725 ¥ $31,531,880 = $73,199,845. $73,199,845 ÷ $116,368,583 = 63%. See supra note 351. 361 See also supra note 352 for a discussion of printing and mailing expenses provided by commenters. 362 See Broadridge I Comment Letter. This dollar estimate of cost savings, however, likely understates potential cost savings since it was calculated using processing fees expected to be charged by intermediaries prior to the Commission approval of the NYSE rule that modifies processing fees. 363 Id. The commenter projected costs to be $382 million in fiscal year 2018 under the baseline. $18 million ÷ $382 million = 4.7%. 364 See ICI Comment Letter I; Fidelity Comment Letter II (citing the ICI estimate). PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 approximately a 25.9% reduction in existing costs as estimated by the commenter.365 This commenter also suggested that, should the Commission remove the postage-paid reply form requirement, net savings could reach $465 million over the first three years and ongoing annual savings could reach $182 million after the first year, or approximately a 53% reduction in existing costs as estimated by the commenter.366 Another commenter estimated that the proposed rule would result in savings of up to 50%.367 Another commenter stated that the commenter’s annual printing and mailing costs to deliver the annual and semi-annual shareholder reports to shareholders of all of its funds are approximately $4 million and projected annual cost savings under the proposed rule to be $1.7 million,368 which would amount to a reduction of approximately 43%. We note that commenter methodologies with regard to projected cost savings varied, and thus, commenter estimates may not be directly comparable to each other or to our estimates. After considering the estimates and information provided by commenters about the potential factors that may affect net cost savings on an ongoing basis, and after considering the changes made in the final rule from the proposal, we have revised the estimates of annual gross cost savings and annual costs of relying on rule 30e–3. First, we have revised our estimate of gross annual cost savings for the funds that rely on rule 30e–3, estimated to be $105 million in the proposal.369 We continue to estimate, as we did in the proposal, that 90% of funds will rely on rule 30e–3,370 resulting in gross annual cost savings of 90% of the annual printing and mailing costs under the existing requirements. However, as discussed in greater detail in Section III.B above, after considering commenters’ estimates and updated industry figures on the number of funds, we have revised our estimate of printing and mailing costs under the existing requirements to approximately $256.2 million.371 As a result, we now estimate 365 ICI Comment Letter I. The commenter estimated current costs at $344 million. $89 million ÷ $344 million = 25.9%. 366 ICI Comment Letter I. The commenter estimated current costs at $344 million. $182 million ÷ $344 million = 52.9%. 367 See T. Rowe Price Comment Letter I. 368 See Schwab Comment Letter. 369 See supra note 358 and accompanying text. 370 See supra Section III.B and supra note 353 and accompanying and following text. 371 See supra note 353 and accompanying text. E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations gross annual cost savings to be approximately $230.6 million.372 Second, after considering comments regarding printing and mailing costs for funds that rely on rule 30e–3, and after considering modifications to the final rule from the proposal, we have revised the estimated costs of relying on rule 30e–3. As we discuss in greater detail in Section III.D.1 below, we now estimate that, after the first year of reliance on rule 30e–3, aggregate annual costs of relying on the rule will be approximately $89.2 million, yielding aggregate annual net cost savings of approximately $141.4 million, or approximately 55% of the annual printing and mailing costs under the 29187 existing requirements.373 In addition, prior to the effectiveness of rule 30e–3, we expect funds to incur aggregate costs of compliance with the disclosure amendments of the final rule of approximately $8.2 million in the first year and $4.8 million in the second year.374 POTENTIAL AGGREGATE COST SAVINGS FROM RELIANCE ON RULE 30e–3 Source of cost/cost savings Transition period ($ million) Year 1 ($ million per year) Year 2 + ($ million per year) Gross savings from rule 30e–3 375 .............................................................................................. Costs of complying with rule 30e–3 376 ....................................................................................... Prominent disclosures 377 ............................................................................................................ Website accessibility requirements 378 ........................................................................................ Notice preparation 379 .................................................................................................................. Printing and mailing costs (Notices and paper requests) 380 ...................................................... Net savings from rule 30e–3 381 .................................................................................................. ........................ ¥13.0 ¥13.0 ........................ ........................ ........................ ¥13.0 230.6 ¥93.9 ........................ ¥3.2 ¥14.3 ¥76.3 136.7 230.6 ¥89.2 ........................ ¥2.7 ¥10.2 ¥76.3 141.4 daltland on DSKBBV9HB2PROD with RULES2 If a smaller percentage of funds than the 90% we estimate ultimately rely on rule 30e–3, the aggregate net cost savings from rule 30e–3 will accordingly be lower. Further, as discussed above, some commenters have indicated that funds can presently rely on electronic delivery of shareholder reports pursuant to Commission guidance.382 We note that funds that choose to rely on rule 30e– 3 may continue to use electronic delivery pursuant to Commission guidance for some of their shareholder reports. We estimate cost savings relative to the baseline of the average printing and mailing costs under the requirements that exist today, which factors in the current use of electronic delivery under Commission guidance for reports to some investors. If aggregate printing and mailing costs incurred by funds that do not rely on rule 30e–3 continue to decrease over time, for instance as a result of growth of electronic delivery, either as part of broad industry trends or as a result of the amendments to rule 498 permitting funds to include electronic delivery instructions with a summary prospectus, annual printing and mailing cost savings under rule 30e–3 in future years may be lower than estimated. There likely is variation across individual funds both in existing printing and mailing costs and in cost savings and compliance costs that are expected on an initial or ongoing basis from rule 30e–3, depending on the extent of reliance on electronic delivery under Commission guidance. Although we cannot comprehensively quantify such differences, for instance, because of uncertainty about the future rate of growth in the use of electronic delivery under Commission guidance by funds that choose to rely on rule 30e–3, we recognize that funds that rely on rule 30e–3 may realize smaller net cost savings if they rely to a greater extent on electronic delivery of shareholder reports under existing Commission guidance. To the extent that funds elect to rely on rule 30e–3, the rule will also increase the electronic accessibility to investors of portfolio investment information from the first and third fiscal quarters (or from the second and fourth fiscal quarters if a shareholder report contained a summary schedule of portfolio holdings) that might otherwise be only available on EDGAR, which in turn may result in greater investor review of that information. In addition, because the portfolio information must be publicly available on a website in the same location as the shareholder reports required to be posted on the website, the rule could further increase the likelihood that both existing investors and potential future fund investors review the portfolio information for the first and third quarters when they review the shareholder reports. To the extent that investors seeking information about an individual fund are likely to visit the specified website, having many of a fund’s important shareholder documents in a single location on the fund’s website could increase the visibility of, and facilitate access to, that information for current and future investors. Importantly, the rule will increase website accessibility of shareholder 372 We continue to estimate, as we did in the proposal, that the number of affected funds that will rely on rule 30e–3 comprises 90% of the number of all funds. See supra note 343 and accompanying text. As discussed above, we estimate aggregate annual printing and mailing costs under the existing requirements to be approximately $256.2 million. See supra note 353 and accompanying text. Thus, we estimate gross aggregate annual savings of printing and mailing costs as the aggregate annual printing and mailing costs multiplied by the percentage of funds expected to rely on rule 30e– 3: 90% × $256,194,844 = $230,575,360. We recognize that these cost savings represent a small fraction of assets under management of registered management companies. See supra note 340 and accompanying text. 373 Annual printing and mailing costs under the existing requirements were estimated to be $256,194,844. See supra note 353. We estimated that 90% of funds will rely on rule 30e–3, which would result in an estimated annual gross savings of $230,575,360. See supra note 372. After the first year of reliance on rule 30e–3, the aggregate annual compliance cost of rule 30e–3 is estimated to be $89,202,128. See infra note 393. Annual savings from rule 30e–3, net of compliance costs, as a share of annual printing and mailing costs under the existing requirements are estimated to be: $230,575,360 ¥ $89,202,128 = $141,373,232. $141,373,232 ÷ $256,194,844 = 55%. The revised estimates also reflect revised estimates of the number of funds updated to reflect industry figures and revised requirements of the final rule. 374 See infra notes 419–420. 375 See supra note 372. 376 See infra notes 392 and 393. 377 $13.0 million = $8.2 million + $4.8 million. See infra notes 419–420 and infra Section III.D.1.d. 378 See infra note 396 and infra Section III.D.1.a. 379 See infra note 402 and infra Section III.D.1.b. 380 See infra note 408 and infra Section III.D.1.c 381 $136.7 million = $230.6 million ¥ $93.9 million. $141.4 million = $230.6 million ¥ $89.2 million. Rounding may affect totals. 382 See supra note 348 and accompanying and following text. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 2. Increased Access to and Review of Portfolio Information and Shareholder Reports PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 E:\FR\FM\22JNR2.SGM 22JNR2 daltland on DSKBBV9HB2PROD with RULES2 29188 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations reports to investors. Although among the funds expected to rely on rule 30e– 3, approximately 90% of funds are estimated to make their shareholder reports publicly available online (consistent with the proportion of funds estimated to rely on rule 498, which requires the posting of shareholder reports on the fund’s website), for the remaining funds that do not currently rely on rule 498, relying on rule 30e–3 may make shareholder reports more accessible to the public, to the extent that they do not already post shareholder reports on their websites, which may result in greater investor review of the information contained therein.383 Funds that presently rely on rule 498 will likely experience smaller benefits of increased access and review of fund information by investors. However, such funds may still experience net cost savings from no longer printing and mailing shareholder reports, as well as the benefits of website accessibility of fund portfolio holdings information. Greater use of shareholder reports and portfolio information by current and potential future investors could result in more informed investment decisions and an increase in competition among funds for investor capital. A better understanding of fund investment strategies, portfolio composition, and investment risks could also result in a more efficient allocation of capital across funds and other investments. An increase in the ability of investors to access and review information about different funds also could increase the competition among funds for investor capital. Furthermore, during the extended transition period, funds intending to rely on rule 30e–3 will be required to include prominent disclosures on the cover page or beginning of their summary, and cover pages of their statutory prospectuses, and annual and semi-annual shareholder reports for up to two years before beginning to deliver Notices under the rule.384 These prominent disclosures during the extended transition period are expected to enhance investors’ overall awareness of the upcoming changes in the shareholder report delivery format options under rule 30e–3, including the fact that investors will be able to retain delivery of their reports in paper if they should so desire. The prominent disclosures are also expected to notify 383 See infra note 557 and accompanying text. 11,367 funds estimated to rely on rule 30e–3 ¥ 9,057 funds estimated to rely on rule 498 = 2,310 funds estimated to rely on rule 30e–3 and do not rely on rule 498. 384 See supra Section II.B.2.d. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 investors if their fund intends to rely on the rule and provide investors wishing to continue to receive paper shareholder reports additional opportunities to make that election. Some funds that intend to rely on the rule may decide not to include these temporary prominent disclosures. For example, for existing funds that delay to make the election to rely on rule 30e–3 until 2021, the earliest these funds would be able to rely on the rule would be January 1, 2022. Although such funds would not be required to include prominent disclosures during the last year of the extended transition period as a condition of reliance on the rule, their investors may realize some of the benefit of increased awareness of the changes in the shareholder report delivery regime under rule 30e–3 to the extent that these investors hold positions in other funds, including funds with the same sponsor, that had made such prominent disclosures during the extended transition period. Further, as discussed in Section II.B.3 above, in a change from the proposal, we are permitting funds that elect to rely on rule 30e–3 to incorporate in the Notice, in addition to a website address, other equivalent methods or means to facilitate shareholder access to the website address. Such methods or means could include, for example, a Quick Response Code (QR code) or similar information that leads to the required website address. This change is expected to provide additional optional methods by which investors can access shareholder reports on the website, which, depending on the method, could result in a reduction in the effort and time required for investors to access the shareholder report. Finally, as discussed in Section II.B.3 above, in a change from the proposal, the final rule permits a Notice to include pictures, logos, or similar design elements so long as the design is not misleading and the information is clear, as well as additional information about the fund, so long as it is limited to information contained in the shareholder report for which Notice is being given.385 This provision could facilitate the addition of content by funds that attracts additional investor attention to the Notice, yet by its terms does not obscure important information contained in the Notice. Further, the flexibility provided to funds to include content from the shareholder report in the Notice may result in investors who may otherwise not review the 385 See PO 00000 rule 30e–3(c)(3). Frm 00032 Fmt 4701 Sfmt 4700 shareholder report seeing useful information from such reports. D. Costs Funds that rely on rule 30e–3 will incur costs to comply with the rule’s conditions. These and other costs are discussed below. Because reliance on rule 30e–3 will be optional, a particular fund is not expected to rely on the rule if the costs to the fund to rely on the rule exceed its benefits. Funds that deem the costs of meeting the conditions of rule 30e–3 to exceed the benefits of this optional rule are expected to elect not to rely on the rule and therefore not incur any compliance costs associated with rule 30e–3. Among investors in funds that elect to rely on the rule, investors with a preference for paper delivery that fail to express it may be less likely to review the information in the reports because it is not presented in their preferred format. As we discussed in Section II.E above, we are adopting an extended transition period with staged effective dates. This will defer the time when the costs of compliance with rule 30e–3 discussed in Sections III.D.1.a through III.D.1.c below will be incurred. 1. Compliance Costs Relative to the baseline, funds relying on the new rule will incur compliance costs associated with satisfying the conditions of the rule, as discussed below. To the extent possible, we have attempted to quantify these costs. We have made various modifications to the requirements of the final rule from the proposal, as described in Section II above, in part to address issues raised by commenters. To increase investor awareness of a fund’s intention to rely on rule 30e–3 and to inform investors of the upcoming changes in the transmission method, in a change from the proposal, we are adopting an extended transition period with staged effective dates and a temporary condition requiring funds to include during the extended transition period certain disclosures on summary prospectuses, statutory prospectuses and shareholder reports for up to two years prior to the date a fund would begin sending Notices in reliance on the rule. As a result of this provision, the compliance costs for funds that rely on rule 30e–3 will be higher than the compliance costs that would have been incurred under the proposal, as discussed in Sections III.D.1.c and III.D.1.d below. However, we have also made modifications from the proposal as a result of which the compliance costs will be lower than the compliance costs E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 that would have been incurred under the proposal. In particular, in a change from the proposal, we are no longer requiring funds to provide the Initial Statement. Therefore, the cost estimates are revised from the proposal to reflect the elimination of the burden of preparing the Initial Statement.386 Further, we are permitting the combination of Notices with other Notices, expanding documents that may accompany Notices, and eliminating reply cards with respect to Notices. Permitting Notices to be bundled with additional types of materials under the final rules may result in lower postage costs, compared to the postage costs that would have been incurred under the proposal, by reducing the need for a separate mailing, although other costs associated with the Notice would still be incurred.387 Eliminating reply cards 386 We estimate that requiring an Initial Statement would have resulted in additional preparation, printing, mailing, and processing costs of approximately $41.5 million in the aggregate in the first year and $13.8 million in the aggregate in each subsequent year. In the Proposing Release, preparing one Initial Statement was estimated to require 1.5 burden hours in the first year and 0.5 burden hours in each subsequent year, with 25% of that burden carried by outside counsel. See Proposing Release, supra note 14, at 33679. We retain this estimate. Using updated salary figures, we monetize internal personnel time at $353 per hour and outside counsel time at $401 per hour. See infra notes 404, 509. Using updated salary figures, preparing the Initial Statement would have cost approximately $548 (1.5 × (0.75 × $353 + 0.25 × $401)) in the first year and $183 (0.5 × (0.75 × $353 + 0.25 × $401)) in each subsequent year. In the Proposing Release, we estimated printing and mailing costs for one Notice or Initial Statement to be $1,000. See Proposing Release, supra note 14, at 33680. In light of the comments on the proposal, we have revised our estimate of the printing and mailing costs for one Notice to $3,106. See infra note 525. Thus, we are similarly revising the estimated printing and mailing cost for the first Initial Statement to $3,106. In the Proposing Release, we estimated that the cost in each subsequent year would be one-third of the cost for the first year because Initial Statements would only be sent to new shareholders. See Proposing Release, supra note 14, 33680. We retain this estimate. Based on updated industry figures, we now estimate that 11,367 funds will elect to rely on rule 30e–3. See infra note 478. Thus, the aggregate cost is estimated to be $41,535,018 (11,367 × ($548 + $3,106)) in the first year and $13,848,795 (11,367 × ($183 + $3,106 × 1⁄3)) in each subsequent year. One commenter estimated cost savings from the elimination of the Initial Statement to be approximately $60 million. See Broadridge Meeting Memo II, at 6. 387 Similar to the proposal, the Notice is permitted to accompany a current summary prospectus, statutory prospectus, statement of additional information, or Notice of internet Availability of Proxy Materials under rule 14a–16. As proposed, rule 14a–16 is amended to permit the bundling of Notices with Notices of internet Availability of Proxy Materials. In addition, the final rule also permits the Notice to accompany one or more Notices for other funds; the investor’s account statement; and in the case of a fund that is available as an investment option in a variable VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 for Notices is also expected to result in lower costs compared to the costs that would have been incurred under the proposal.388 As we discuss in Section II.B.3 above, in a modification from the proposal, we are permitting funds to incorporate content from the shareholder report in Notices relating to shareholder reports required to be transmitted under rule 30e–1. However, funds may incur additional costs for incorporating content from the shareholder report into the Notice and filing such Notices with reports on Form N–CSR, as well as potentially increase their printing and mailing costs, depending on the length of the Notice. We expect that funds will only elect to include content from shareholder reports in Notices if they believe the benefits to funds and investors outweigh the increase in their costs of preparing and distributing Notices with additional content. Likewise, funds may choose to deploy certain additional optional methods to facilitate access of shareholder reports (e.g., QR codes) if they believe the benefits to funds and investors outweigh the additional costs to do so. As discussed in Section IV.C below, we have reflected these modifications, as well as commenter input, in the revised burden estimates for the Notice for purposes of the Paperwork Reduction Act of 1995, which we incorporate in the cost analysis below. We have also specified that the schedule of portfolio investment information as of the end of the first and third fiscal quarters must be presented in a manner consistent with the reporting requirements of Regulation S–X. As most funds have established procedures in place to prepare and review such disclosures and familiarity with the disclosure requirements, this provision should not result in significant compliance costs. As we discuss below, we have also revised certain assumptions underlying our estimates. First, we have revised our estimate of the number of funds that will rely on rule 30e–3 upward to 11,367 to reflect updates to the industry data figures that were utilized in the Proposing Release.389 We note that, similar to our discussion of the benefits in Section III.C.1, if a smaller number of funds choose to rely on rule 30e–3 than we estimate, the above estimates would overstate the actual costs incurred in the annuity or variable life insurance contract, the contract, the contract’s statutory prospectus, or the contract’s statement of additional information. 388 See supra note 173 and accompanying text. 389 See supra note 344 and accompanying text; infra note 478. PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 29189 aggregate by the funds that rely on rule 30e–3. Second, where applicable, we have attempted to address comments related to our estimates. Two commenters stated that the proposal underestimated the costs under rule 30e–3 (for instance, processing fees for broker-held accounts) and thus overestimated the net cost savings expected under rule 30e–3.390 However, to be conservative in our estimates, we have revised upward our estimate of the printing and mailing costs that funds will incur under rule 30e–3, as discussed in Sections III.D.1.c and IV.B below. In the Proposing Release, we estimated that compliance costs of rule 30e–3 would be, in the aggregate, approximately $32 million each year, with approximately $16 million in additional one-time costs being incurred in the first year following the effective date (resulting in aggregate compliance costs of approximately $48 million in the first year).391 We now estimate that these compliance costs will be, in the aggregate, approximately $93.9 million in the first year following the effective date 392 and approximately $89.2 million each following year on an ongoing basis.393 Individual components of these aggregate estimated costs are analyzed in Sections III.D.1.a through III.D.1.c below. In addition, as discussed in Section III.D.1.d below, during the approximately two years before the effective date of rule 30e–3, we estimate that the disclosure requirements related to rule 498 and amendments to registration statements will result in aggregate costs to funds that intend to rely upon rule 30e–3 of approximately $8.2 million in the first year 394 and $4.8 million in the second year.395 390 See ICI Comment Letter III; Broadridge Comment Letter I. As noted above, we approved amendments to NYSE rules that clarify the application of certain processing fees paid to financial intermediaries. See supra notes 32 to 36 and accompanying text. 391 See Proposing Release, supra note 14, at nn.717–718. 392 The estimate of $93,867,993 is based upon the following calculations: $3,231,520 associated with website accessibility requirements + $14,341,169 associated with Notice preparation + $76,295,304 in printing, mailing, and processing costs. See infra notes 396, 402, 408. 393 The estimate of $89,202,128 is based upon the following calculations: $2,711,680 associated with website accessibility requirements + $10,195,144 associated with Notice preparation + $76,295,304 in printing, mailing, and processing costs. See infra notes 396, 402, 408. 394 See infra note 419. 395 See infra note 420. E:\FR\FM\22JNR2.SGM 22JNR2 29190 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 a. Website Accessibility of Shareholder Reports and Other Materials Funds that rely on rule 30e–3 in the aggregate are expected to incur costs of approximately $3.2 million in the first year of relying on rule 30e–3 and $2.7 million in each subsequent year to make the shareholder reports and portfolio information publicly accessible at a specified website.396 We estimate that funds that elect to rely on rule 30e–3 will incur, in the aggregate, approximately 9,386 burden hours during the first year of relying on rule 30e–3 and 8,476 burden hours each following year to comply with the website posting requirements of the rule.397 Based on an estimated wage rate of about $320 per hour,398 we estimate the aggregate paperwork related expenses for funds associated with the internal hour burden imposed by the website accessibility conditions of rule 30e–3 to be approximately $3.0 million during the first year and $2.7 million each following year.399 In the aggregate, we estimate that the total external cost for funds to comply with the website posting requirements of the rule will be approximately $228,000 during the first year, with the external cost in subsequent years likely to be negligible.400 With respect to those funds that currently have websites, we estimate that the website posting requirements of the rule will not result in incremental external costs.401 If funds that do not currently have websites incur ongoing external website 396 See infra notes 399, 400. In the first year: $3,003,520 + $228,000 = $3,231,520. In each subsequent year: $2,711,680. 397 See infra notes 488–489. 398 The Commission estimates the wage rate associated with these burden hours based on salary information for the securities industry compiled by the Securities Industry and Financial Markets Association. The estimated wage figure is based on published rates for senior programmers, modified to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, and adjusted to account for the effects of inflation, yielding an effective hourly rate of $320. See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013. 399 $3,003,520 = 9,386 burden hours × $320 per hour. $2,711,680 = 8,476 burden hours × $320 per hour. 400 $228,000 = 114 funds × $2,000 per fund. See infra note 492 (estimating, as we did in the Proposing Release, that each fund that does not currently have a website will incur a one-time external cost of $2,000 to develop a website) and infra note 495 (estimating 114 funds do not currently have websites). In the Proposing Release we also estimated that no cost would be incurred in subsequent years by funds that do not currently have a website. See Proposing Release, supra note 14, at 33678, nn.811–812 and accompanying text. We did not receive comments on these estimates and are therefore retaining these assumptions. 401 See infra note 494 and accompanying text. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 development costs, aggregate costs of website accessibility will be higher than we estimate. b. Notice Preparation We estimate that funds will incur, in the aggregate, approximately $14.3 million in the first year of relying on rule 30e–3 and approximately $10.2 million in each subsequent year in costs to prepare and review Notices and to file Notices with additional content with reports on Form N–CSR.402 We estimate that funds that elect to rely on rule 30e–3 will incur, in the aggregate, an internal hour burden of approximately 25,576 hours in the first year and 17,051 hours each following year in connection with the Notice conditions of the rule.403 Based on an estimated wage rate of about $353 per hour for compliance attorneys,404 we estimate the total paperwork related expenses for funds associated with the internal hour burden imposed by the Notice conditions of rule 30e–3 will be approximately $9.0 million in the first year of relying on rule 30e–3 and $6.0 million each following year.405 These estimates reflect the changes we are making to the Notice requirements relative to the proposal, including eliminating the requirement of including a direct URL to the shareholder report, eliminating the reply card requirement, permitting Notices to be incorporated into or combined with other Notices, expanding the ability to combine Notices with other mailings, as well as removing the filing requirement, except for Notices that contain content from the 402 See infra notes 405–407. In the first year: $14,341,169 ($9,028,328 + $3,421,467 + $1,891,374). In each following year: $10,195,144 ($6,019,003 + $2,284,767 + $1,891,374). 403 See infra notes 504 (estimating 2.25 hours in the first year) and 505 (estimating 1.5 hours for each following year). 2.25 hours in the first year × 11,367 funds = 25,576 hours. 1.5 hours each following year × 11,367 funds = 17,051 hours. 404 In the Proposing Release, we estimated that the internal hour burden required to comply with the requirements concerning preparation of the Initial Statement and Notice would be incurred at the rate of $334 per hour. This estimate was based on the rate for compliance attorneys in SIFMA’s Management and Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Proposing Release, supra note 14, at n.717. We did not receive any comments on our proposed estimate of the proportion of the time required to prepare Initial Statements and Notices that would be carried out by outside counsel, and we are maintaining that estimate today. We are, however, updating our estimate of the hourly rate for the work carried out by compliance attorneys based on updated salary estimates to $353 per hour. 405 25,576 hours × $353 per hour = $9,028,328. 17,051 hours × $353 per hour = $6,019,003. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 shareholder report, and allowing funds to include optional content from the shareholder report in the Notice. The incremental annual costs of filing Notices with additional content with reports on Form N–CSR are estimated to be approximately $1.9 million, using burden estimates for purposes of the PRA.406 Finally, we estimate that external costs related to the Notice requirements of rule 30e–3 will be, in the aggregate, approximately $3.4 million in the first year and $2.3 million each following year.407 c. Printing and Mailing Costs We estimate that funds that rely on rule 30e–3 will incur, in the aggregate, approximately $76.3 million per year in printing and mailing costs for Notices and costs of delivery of shareholder reports in paper form upon shareholder request.408 These estimates are inclusive of processing fee costs, and have been adjusted in response to comments received on these estimates and other considerations.409 In a change from the proposal, funds will not be required to prepare and mail the Initial Statement. Therefore, the cost estimates are revised from the proposal to reflect the elimination of the Initial Statement printing, mailing and processing costs. The cost estimates are further revised to reflect changes we are making to the Notice requirements relative to the proposal, including eliminating the reply card requirement, permitting Notices to be incorporated into or combined with other Notices, as well as expanding the ability to combine Notices with other mailings. The estimates further incorporate certain revisions to the assumptions, relative to the proposal, based on the input we have received from commenters. In particular, we have revised the baseline assumption about the magnitude of printing and mailing costs as a share of the total external cost of compliance with rules 30e–1 and 30e–2, from onethird in the proposal, to two-thirds, as explained below.410 406 The aggregate internal burden is estimated as 5,358 hours. See infra note 579. We monetize it at the rate of $353 for compliance attorneys. See supra note 404. The aggregate cost is estimated to be $1,891,374 (5,358 hours × $353). 407 See infra note 512 (estimating outside counsel costs associated with the Notice of about $301 in the first year and about $201 in subsequent years). $301 in the first year for the Notice × 11,367 funds = $3,421,467 in the first year. $201 each following year for the Notice × 11,367 funds = $2,284,767 each following year. 408 See infra notes 414 and 530. $70,611,804 + $5,683,500 = $76,295,304. 409 See infra Section IV.C. 410 See infra note 544 and accompanying text. E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 Further, in light of the above comments on the estimates in the Proposing Release and the modifications we are making today (including eliminating the reply card requirement for Notices, permitting Notices to accompany other Notices and other types of documents, and permitting funds to include optional content from the shareholder report in the Notice),411 we have determined to increase our estimate of the percentage of annual printing and mailing costs (including processing fees) associated with shareholder reports that will be associated with the printing and mailing of each Notice from 10% in the proposal to 15%, as explained below.412 We now estimate that each fund that relies upon rule 30e–3 will incur an external cost of approximately $6,212 per year for printing and mailing Notices.413 In the aggregate, funds are estimated to incur approximately $70.6 million per year to print and mail Notices.414 In addition, under rule 30e–3, investors will have the option to request shareholder reports and other materials to be delivered in paper form and also to request paper copies for individual documents even if they do not request paper delivery for all documents. Funds that rely on rule 30e–3 will therefore incur expenses related to printing and mailing shareholder reports and other materials for those shareholders. We estimate that funds that elect to rely on rule 30e–3 will incur, in the aggregate, annual external costs of approximately $5.7 million to comply with the rule’s requirements to print and mail shareholder reports upon request.415 In connection with tracking shareholder requests for paper under rule 30e–3, funds and intermediaries may incur costs to implement and maintain systems to record shareholder preferences for paper delivery and requests for paper copies of shareholder reports under rule 30e–3.416 As discussed above, we believe that existing systems for electronic delivery could generally be leveraged in order to establish new processes and procedures for delivery of shareholder reports under rule 30e–3.417 The costs 411 See supra notes 32–36 and accompanying text; infra note 521. 412 See infra note 517 and accompanying and following text and infra Section IV.B. 413 See infra notes 525–526 and accompanying text. 414 Id. $3,106 × 2 Notices per year × 11,367 funds = $70,611,804. 415 See infra note 530. 416 See supra note 239 and accompanying text. 417 See supra Section II.C.2. We note that the rule’s approach to provide shareholders the option VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 associated with implementing these systems may depend on funds’ and intermediaries’ existing systems for tracking investor preferences for electronic delivery. Given this variation, we do not have data on the extent of potential system updates that funds and intermediaries would need to implement. The modifications made from the proposal, including the elimination of the Initial Statement, the tracking of delivery preferences at the account rather than position level, and the permanent nature of the opt-in to paper delivery, are expected to reduce operational complexities and make it easier for existing systems to be leveraged for purposes of tracking investor preferences for paper delivery under rule 30e–3. Further, the extended transition period, added in a change from the proposal, is expected to provide funds and intermediaries additional time to implement the necessary system changes. We recognize that certain changes from the proposal, such as eliminating the requirement to mail the Initial Statement, eliminating the reply card, and adding required prominent disclosures on summary and statutory prospectuses and shareholder reports, may affect the number of investors who elect paper delivery due to changes to investor awareness regarding the option to request paper delivery under rule 30e–3, resulting in different printing and mailing costs under rule 30e–3 than estimated above. However, we are not able to quantify these effects due to uncertainty about the number of investors who may elect paper delivery as a result of these changes. d. Disclosure Amendments to Rule 498 and Registration Forms In a modification from the proposal, we are amending rule 498 and certain fund registration forms setting forth a temporary condition requiring funds to include during the extended transition period certain disclosures on summary prospectuses, statutory prospectuses, and shareholder reports for up to two years prior to the date a fund would begin sending Notices in reliance on the rule. During the extended transition period, funds intending to rely on rule 30e–3 as early as permitted will include prominent disclosures on the cover page to request paper copies is generally similar to the operational approach currently used by many funds and intermediaries for the delivery of other fund materials. For example, paper copies of disclosure documents (including shareholder reports) may currently be requested when some shareholders have elected electronic delivery for some, but not all communications. PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 29191 or beginning of their summary prospectuses, and cover pages of their statutory prospectuses and shareholder reports for a period of up to two years.418 We estimate that these disclosures will result in aggregate incremental costs prior to the effective date of rule 30e–3 of approximately $8.2 million in the first year 419 and approximately $4.8 million in the second year.420 As described above, the condition will take effect on January, 1, 2019 and expire on January 1, 2022.421 Depending on when existing funds make the election to rely on rule 30e–3 and begin incorporating prominent disclosures in their summary and statutory prospectuses and shareholder reports, the number of fund documents on which individual funds will be required to include prominent disclosures, the time when funds are required to begin tracking investor opt-outs, and the associated cost, as well as the time that will elapse before the fund is allowed to begin delivering Notices in reliance on rule 30e–3, will vary, as detailed above.422 Differences in the timing of when funds may begin to realize cost savings under rule 30e–3 may potentially have competitive effects during the extended transition period. However, for existing funds, the application of these provisions during the extended transition period and the associated costs and benefits will be determined by the timing of the fund’s own decision to rely on rule 30e–3 and to begin informing investors of the fund’s intent to rely on rule 30e–3 by including prominent disclosures on fund documents during the extended transition period (e.g., whether to begin informing investors of the fund’s intent to rely on rule 30e–3 immediately after 418 See new paragraph (b)(1)(vii) of rule 498; new paragraph (a)(5) to Item 1 of Form N–1A; new paragraph (d)(8) to Item 27 of Form N–1A; new paragraph 1.l to Item 1 of Form N–2; new instruction 6.g to Item 24 of Form N–2; new paragraph (a)(xi) to Item 1 of Form N–3; new instruction 6(vii) to Item 28(a) of Form N–3; new paragraph (a)(x) to Item 1 of Form N–4; new paragraph (a)(6) to Item 1 of Form N–6. 419 $8,151,936 = $7,144,872 associated with amendments to rule 498 and Form N–1A + $454,400 associated with amendments to Form N–2 + $9,372 associated with amendments to Form N–3 + $422,592 associated with amendments to Form N–4 + $120,700 associated with amendments to Form N–6. See infra notes 430, 437, 442, 445, and 448. 420 $4,837,088 = $4,286,980 associated with amendments to rule 498 and Form N–1A + $272,640 associated with amendments to Form N–2 + $5,680 associated with amendments to Form N–3 + $211,296 associated with amendments to Form N–4 + $60,492 associated with amendments to Form N–6. See infra notes 430, 437, 442, 445, and 448. 421 See supra Sections II.B.2.f and II.B.3. 422 Id. E:\FR\FM\22JNR2.SGM 22JNR2 daltland on DSKBBV9HB2PROD with RULES2 29192 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations the rule becomes effective on January 1, 2019, or for new funds from the date the fund first publicly offers its shares; or whether to postpone relying on rule 30e–3 and informing investors of the fund’s intent to rely on rule 30e–3 through prominent disclosures on fund documents). Similarly, an existing fund’s decision to postpone relying on rule 30e–3 during the extended transition period will reduce the number of prominent disclosures that the fund will need to include on fund documents during the extended transition period before being able to rely on rule 30e–3, thus potentially reducing the cost of related disclosure amendments to the fund. For existing funds, the incremental reduction in the cost of compliance with the requirement to include prominent disclosures on an additional fund document mailing is expected to be small relative to the opportunity cost of delaying the realization of cost savings from reliance on rule 30e–3. Overall, we anticipate that existing funds that are considering whether to rely on rule 30e–3 will weigh the costs and benefits of doing so early versus late during the extended transition period and will select the option that provides the most benefit. The final rule provides funds the flexibility to make the election to rely on rule 30e–3 at the time that is most appropriate for the fund’s specific circumstances while including prominent disclosure requirements during the extended transition period to enhance investor awareness of the upcoming changes in the shareholder report delivery framework. Such flexibility is expected to enable funds to select the most efficient manner of shareholder report delivery and for funds that elect to rely on the rule, the most efficient approach to transition to rule 30e–3. The final rule allows new funds that enter the industry in January 2021 or later to begin relying on rule 30e–3 immediately from the date the fund first publicly offers its shares without having to provide prominent disclosures, which is different from the application of the rule to funds in existence during 2019–2020 that will have had to provide up to two years of prominent disclosures, and incur the associated cost, as a condition of relying on rule 30e–3 beginning on January 1, 2021. In this respect, existing funds wishing to rely on the rule beginning on January 1, 2021 will incur a cost that funds newly formed on or after that date will not. Moreover, those existing funds that delay their decision to rely on the rule (that is, those that decide after January 1, 2019) may incur the opportunity cost VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 due to not being able to begin relying on the rule starting January 1, 2021. Although in that respect, existing and new funds are treated differently, we note that all funds that decide to rely on the rule as early as possible—either before January 1, 2019 or at their inception—will be treated similarly. Rule 498 and Form N–1A Estimates We estimate that there are 11,181 funds that file Form N–1A,423 including 10,063 funds that will rely on rule 30e– 3, of which 9,057 funds also rely on rule 498.424 We estimate that the remaining 1,006 funds do not rely on rule 498.425 We estimate that funds will incur, in the aggregate, 9,057 hours in the first year and 4,529 hours in the second year to satisfy the disclosure requirements associated with the amendments to rule 498.426 We further estimate that the funds that rely on rule 30e–3 but not rule 498 will incur, in the aggregate, 1,006 hours in the first year and 503 hours in the second year to comply with the amendments to Form N–1A relating to prospectuses.427 In addition, we estimate that funds that will rely on rule 30e–3 and that file Form N–1A will incur, in the aggregate, 15,095 hours in the first year and 10,063 in the second year to comply with the amendments to Form N–1A relating to annual and semiannual reports.428 Based on an estimated wage rate of about $284 per hour,429 we estimate the total paperwork related expenses for funds relying upon rule 30e–3 and associated with the amendments to rule 498 and Form N–1A will be approximately $7.1 million in the first year and approximately $4.3 million in the second year.430 Form N–2 Estimates We estimate that there are 711 closedend funds that file Form N–2,431 including 640 funds that will rely on 423 See infra note 556. infra note 557 and accompanying text. 425 See infra note 559 and accompanying text. 426 See infra note 558. 427 See infra note 559. 428 See infra note 560. 429 The estimated wage figure is based on published rates for intermediate accountants and attorneys, modified to account for an 1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, and adjusted to account for the effects of inflation. See supra note 398. Based on adjusted industry data, we estimate a rate of $166 per hour for intermediate accountants and $401 per hour for attorneys. We further estimate that work would be divided equally between intermediate accountants and attorneys, yielding a rate of $284 per hour (($166 + $401) ÷ 2). 430 (9,057 + 1,006 + 15,095) hours × $284 per hour = $7,144,872. (4,529 + 503 + 10,063) hours × $284 per hour = $4,286,980. 431 See infra note 562 and accompanying text. 424 See PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 rule 30e–3.432 We estimate that these funds will incur, in the aggregate, 640 hours in the first year and 320 hours in the second year to satisfy the disclosure requirements associated with the amendments to Form N–2 relating to statutory prospectuses.433 In addition, we estimate these funds will incur, in the aggregate, 960 hours in the first year and 640 hours in the second year to comply with the amendments to Form N–2 relating to annual and semi-annual reports.434 Based on an estimated wage rate of about $284 per hour,435 we estimate the total paperwork related expenses for funds relying upon rule 30e–3 and associated with the amendments to Form N–2 will be approximately $0.5 million in the first year and approximately $0.3 million in the second year.436 Form N–3 Estimates We estimate that there are 14 funds that file Form N–3,437 including 13 funds that will rely on rule 30e–3.438 We estimate that these funds will incur, in the aggregate, 13 hours in the first year and 7 hours in the second year to satisfy the disclosure requirements associated with the amendments to Form N–3 relating to statutory prospectuses.439 In addition, we estimate that these funds will incur, in the aggregate, 20 hours in the first year and 13 hours in the second year to comply with the amendments to Form N–3 relating to annual and semi-annual reports.440 Based on an estimated wage rate of about $284 per hour,441 we estimate the total paperwork related expenses for these funds will be approximately $9,372 in the first year and $5,680 in the second year.442 Form N–4 Estimates As we discuss below, we estimate funds that will rely on rule 30e–3 will make 1,488 filings of Form N–4, with the total annual hour burden associated with the amendments to Form N–4 of 1,488 hours in the first year and 744 hours in the second year.443 Based on an estimated wage rate of about $284 per 432 See infra note 563. infra note 564. 434 See infra note 565. 435 See supra note 429. 436 (640 + 960 hours) × $284 per hour = $454,400. (320 + 640 hours) × $284 per hour = $272,640. 437 See infra note 567 and accompanying text. 438 See infra note 568. 439 See infra note 569. 440 See infra note 570. 441 See supra note 429. 442 (13 + 20 hours) × $284 per hour = $9,372. (7 + 13 hours) × $284 per hour = $5,680. 443 See infra notes 572–573 and accompanying and following text. 433 See E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations hour,444 we estimate the total paperwork related expenses for these funds will be approximately $422,592 in the first year and $211,296 in the second year.445 Form N–6 Estimates As we discuss below, we estimate funds that will rely on rule 30e–3 will make 425 filings of Form N–6, with the total annual hour burden associated with the amendments to Form N–6 of 425 hours in the first year and 213 hours in the second year.446 Based on an estimated wage rate of about $284 per hour,447 we estimate the total paperwork related expenses for these funds will be approximately $120,700 in the first year and $60,492 in the second year.448 2. Other Costs Although we believe that the provisions of the final rule enable investors to receive shareholders reports in the format they prefer, that website availability of shareholder reports and portfolio information is consistent with many investors’ preferences,449 and that the final rule may promote improved access to and consumption of portfolio information, as discussed above,450 we acknowledge that there may be some investors who would prefer to receive paper copies but may not notify their fund of that preference.451 To this end, several commenters pointed out that internet access and use among Americans was not universal.452 Those investors without home internet access, depending on their ability and preference to access shareholder reports and portfolio investment information electronically, might experience a reduction in their ability to access shareholder reports and portfolio investment information if they do not elect to receive paper reports. Further, some commenters have asserted that some investors with internet access may be less likely to review their shareholder reports made available online than 444 See supra note 429. × $284 = $422,592. 744 × $284 = $211,296. 446 See infra notes 574–575 and accompanying and following text. 447 See supra note 429. 448 425 × $284 = $120,700. 213 × $284 = $60,492. 449 See, e.g., supra notes 43, 96, and 97, and accompanying text. 450 See supra Section III.C.2. 451 See supra note 98; supra Section II.A.2. 452 See supra note 49. But see supra notes 41–42 and accompanying text (discussing increasing internet usage, including among previously underserved demographic groups). daltland on DSKBBV9HB2PROD with RULES2 445 1,488 VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 shareholder reports delivered in paper form.453 To the extent that a reduction in the review of shareholder reports by such investors decreases how informed they are about funds, it could potentially decrease their ability to efficiently allocate capital across funds and other investments. A decrease in the ability of investors to access and review information about different funds could also decrease the competition among funds for investor capital. However, these potential effects will be attenuated to the extent that investors rely on other sources of information and disclosures, in addition to shareholder reports, to obtain information about funds. In a change from the proposal, after considering the input from commenters, we are not requiring pre-paid reply cards to be sent together with 453 Commission staff lacks data to assess the extent to which investors review information provided in either paper or electronic format. One commenter provided survey evidence, suggesting that, less than half of the respondents read all of the disclosure but a significant portion of respondents read or skim some of the disclosure. See Broadridge Meeting Memo I, at 9 (citing the 2016 True North Market Insights Study, according to which (1) 21% of respondents reported reading paper reports thoroughly and 53% reported skimming the reports, and (2) 36% of respondents reported always looking at the annual and semiannual reports received in the mail, 31% of respondents reported doing so most of the time, and 26% of respondents reported doing so some of the time; the 2015 FINRA National Financial Capability Study, according to which 28% of respondents reported reading disclosure documents regarding investments and 58% of respondents reported skimming the disclosure documents; the 2015 Forrester Research and Broadridge Custom Survey, according to which 24% of respondents reported looking at shareholder reports always, 26% of respondents most of the time, and 37% of respondents sometimes; and the 2006 ICI Study: Understanding Investor Preferences for Mutual Fund Information, according to which 10% of respondents reported reading all shareholder reports, 17% of respondents reported reading most, 24% of respondents reported reading some, and 26% of respondents reported reading very little of the shareholder reports they receive). However, another commenter suggested that surveys about readership may be unreliable because respondents may misstate their readership, because surveys did not ask respondents specifically about whether they read the reports, and because surveys often have methodological problems that lead to a likely overstatement of the baseline readership. The commenter also expressed skepticism that ‘‘large number[s] of individual investors are avid readers of their paper shareholder reports’’ due to the length and technical nature of the reports, especially when published on a consolidated basis, and argued that it is thus not possible to conclude that fewer investors would read reports online. See ICI Comment Letter III. In another letter, this commenter stated that, based on an investor survey, ‘‘fewer than half of mutual fund shareholders still review some printed materials for information about their fund investments, and over two-thirds of these individuals likewise access online materials to gather information on their fund investments.’’ See Comment Letter of Investment Company Institute (Jul. 8, 2016) (‘‘ICI Comment Letter IV’’). PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 29193 Notices,454 nor are we requiring funds to mail an Initial Statement.455 These changes may reduce the likelihood, compared to the proposal, that investors who prefer to access reports in paper form will elect to receive reports in that form, which in turn would potentially reduce the likelihood that investors will review the information in reports, and similarly may result in less wellinformed investment decisions and potential adverse effects on the efficiency of capital allocation across funds. However, we have sought to mitigate such potential adverse effects in the final rule.456 For example, the final rule contains a Notice requirement and permits the Notice to include multiple means through which an investor can elect paper reports.457 To help ensure that current investors that may be accustomed to receiving shareholder reports in paper through the mail have advance notice of a fund’s intent to rely on rule 30e–3, the final rule also includes an extended transition period with a temporary condition that requires funds to include prominent disclosures during the extended transition period in various fund documents prior to sending Notices pursuant to the rule.458 In addition, to further simplify the process for investors with a preference for paper delivery to make such an election, under the final rule, an investor’s election for paper reports is required to be applied at the investor account level, rather than the fund position level.459 In a change from the proposal, the final rule permits a Notice to include additional information about the fund, so long as it is limited to information contained in the shareholder report for which Notice is being given.460 To the extent that investors only review Notices and to the extent that investors do not find the additional content from the report included in the Notice to be a sufficient description of fund operations, it may result in a less complete investor review of information about the fund. However, the requirement that the Notice describe means by which investors may access the complete shareholder report and the requirement that additional content included in the Notice be limited to information from the shareholder report 454 See supra note 174. supra Section II.B.2.b. 456 See supra Section II.B.2. 457 See supra Section II.B.2.b. 458 See supra Sections II.B.2.f and II.B.3. 459 See supra Section II.B.2.d. 460 See supra Section II.B.2.b.ii. 455 See E:\FR\FM\22JNR2.SGM 22JNR2 29194 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations daltland on DSKBBV9HB2PROD with RULES2 are expected to partly mitigate this concern. In addition, although we expect investors to benefit from a reduction in printing and mailing costs borne by their funds, we recognize that some investors may incur printing costs due to manually printing specific documents of their choosing.461 Investors that print out their own materials would likely incur greater costs than they would otherwise indirectly bear if the printing and mailing costs of those materials were borne collectively by all investors of the fund. We note, however, that investors have the option to request paper copies directly instead of manually printing materials, and we expect investors who regularly print out their own copies of shareholder reports and for whom such printing is burdensome or costly to elect paper delivery. It is possible that funds that choose to rely on rule 30e–3 could be at a competitive disadvantage if investors choose funds based on their preference for the default of paper delivery. Funds for which such competitive effects outweigh the cost savings from reliance on rule 30e–3 can choose not to rely on rule 30e–3. Rule 30e–3 and related rule and form amendments could also potentially have costs extending beyond the asset management industry. Some commenters expressed concern about the long-term effects of rule 30e–3 on other industries, including the paper industry.462 The commenters, however, did not provide specific data on or estimates of the rule’s potential impact on those industries. Even in the absence of rule 30e–3 and related amendments to rule 498 and registration forms, continued future growth of electronic delivery in reliance on existing Commission guidance might result in a 461 See Shareholder Choice Regarding Proxy Materials Release, supra note 18, at 42231, 42234. The Shareholder Choice Regarding Proxy Materials Release estimated that approximately 10% of all shareholders print out proxy materials at home at a unit cost that was approximately 25% higher than the average cost of printing and mailing each copy under the paper delivery regime ($7.05 ÷ $5.64 = 1.25). Printing costs for shareholder reports and proxy materials may differ and printing costs in absolute terms have decreased over time. According to one commenter, the cost to the fund of printing and mailing a shareholder report under the existing requirements is $0.70 per report. See ICI Comment Letter I. However, it remains likely that individual shareholders who manually print reports will incur a higher cost per report relative to the cost incurred by a fund due to the economies of scale. It is not clear how many shareholders will manually print shareholder reports, and thus, what the aggregate incremental cost impact on shareholders will be. 462 See, e.g., Baesman Comment Letter; Sandstrom Comment Letter; Gherman Comment Letter; Snader Comment Letter; Jaffe Comment Letter. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 continued decrease in the number of shareholder reports being delivered in paper form, so the potential future effects on the paper industry may be influenced by factors outside of rule 30e–3 and related rule and form amendments. Furthermore, notwithstanding these potential impacts, we continue to believe that rule 30e–3 will modernize and enhance the manner in which shareholder reports are made available to investors, resulting in savings in printing and mailing costs that are borne by funds, and ultimately, by fund shareholders, and overall greater accessibility of shareholder reports and other related information. Moreover, under rule 30e– 3 investors will have the ability to request delivery of shareholder reports and other materials in paper form. E. Alternatives Commission staff has also examined different ways in which the information that funds provide to investors could be made more accessible while still promoting the ability of investors to receive these important documents via their preferred method. Some of these alternatives are discussed throughout the release to explain why the Commission ultimately chose to adopt the rule in its current state. We discuss below several additional alternatives that the Commission considered. As an alternative, we considered whether we should eliminate the Notice requirement, as suggested by one commenter.463 Eliminating the Notice would provide greater cost savings to funds and their investors than the final rule we are adopting today. We estimate that this alternative would result in additional aggregate savings of Notice preparation, printing, and mailing costs of approximately $86.8 million in the first year and approximately $83.8 million in each subsequent year.464 However, we believe that doing so would reduce investor awareness of the online shareholder reports, which would run counter to our objective of promoting the accessibility of these important fund documents. While funds will necessarily incur costs to distribute Notices, as discussed above,465 we continue to believe that it is important for investors to receive the Notice, as it will alert them to the availability of a shareholder report online and will 463 See supra Section II.B.2.b. supra notes 402 and 408: $86,767,898 ($75,993,264 + $10,774,634) in the first year and $83,797,114 ($75,993,264 + $7,803,850) in each following year. 465 See supra Section III.D.1. provide them with information on how to obtain a paper copy of the report. As another alternative, we could have required or permitted the Notice, which meets the content requirements in the final rule, or alternatively, additional content requirements as described below, to be sent via email, as suggested by some commenters.466 This alternative would result in savings of printing and mailing costs for funds of up to approximately $76.0 million per year if all Notices are sent by email instead of in paper form.467 The email manner of delivery of the Notice under this alternative would not be expected to affect the costs of preparing the Notice content. However, for investors that have not opted into electronic delivery, information on email addresses that a fund can use to deliver Notices may be missing or out of date, and we are unable to estimate the costs to an average fund of updating and compiling email lists under the alternative of email distribution of Notices to all shareholders. We lack data on the percent of fund investors that have not opted into electronic delivery for whom funds have up-to-date email contact information because funds are not required to disclose such information and it is not available to us from other sources. Nevertheless, as discussed above, we continue to believe that it is important for investors to receive the Notice, as it will contemporaneously alert them to the availability of a shareholder report online. A Notice will also provide investors with information on how to obtain a paper copy of the report, which makes it easier for investors with a preference for paper to request shareholder reports in paper. The benefits from requiring the Notice to be in paper form include, for example, that there may be instances where an investor provided his or her email for certain limited purposes without necessarily intending to receive shareholder reports or notices of reports through email.468 In a modification from the proposal, we are permitting funds to incorporate content from their shareholder reports into Notices relating to shareholder reports required to be transmitted under rule 30e–1, as discussed in greater detail in Section II.B.2.b.ii above. As alternatives, we considered, as a condition of reliance on rule 30e–3, either (1) limiting the types of content from the shareholder report that is 464 See PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 466 See supra notes 141–144. supra 408. 468 See supra note 145 and accompanying paragraph. 467 See E:\FR\FM\22JNR2.SGM 22JNR2 daltland on DSKBBV9HB2PROD with RULES2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations permitted to be incorporated into the Notice, or (2) specifying additional types of content from the shareholder report that are required to be incorporated into the Notice.469 Relative to the final rule, both alternatives could result in greater standardization of additional Notice content, potentially facilitating investor review and comparison of information in such Notices across funds and thus potentially enabling better informed investment decisions, to the extent that investors rely on information from shareholder reports relative to other sources of information and disclosures. The second alternative also could make information from shareholder reports more accessible to those investors that may otherwise not review shareholder reports. However, both alternatives would limit the flexibility of funds to tailor Notice content to include the types of information from shareholder reports that may be more relevant and valuable for investors in the specific fund, potentially affecting how useful the Notice content is to those investors. Further, if the additional information required to be included in Notices under the second alternative is more extensive than the information that funds would otherwise elect to include in Notices under the final rule, the second alternative could increase Notice preparation, printing, and mailing costs, which would be passed on to fund investors, relative to the final rule. We also recognize that the number of funds that rely on rule 30e–3 may decrease under this alternative in the event that funds find rule 30e–3 to be less advantageous as a result of increased Notice preparation, printing, and mailing costs. Overall, we believe that the Notice provisions of the final rule permit sufficient flexibility for funds to present additional information from the shareholder report in Notices sent to investors without imposing additional burdens and costs on those funds that would not expect their investors to find such information to be of added value. We are adopting a temporary condition of reliance on rule 30e–3 that requires funds intending to rely on rule 30e–3 to provide prominent disclosures on certain fund documents for up to two years during the extended transition period. As an alternative, we could require all funds, including funds that elect to rely on rule 30e–3 after the temporary condition expires, to provide 469 For an additional discussion of the reasons for the approach chosen for the Notice, see supra Section II.B.2.b.ii. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 two years of prominent disclosures on certain fund documents prior to being able to rely on rule 30e–3. This alternative may benefit some investors in funds that elect to rely on rule 30e–3 in the future by increasing their awareness of the fund’s intent to rely on rule 30e–3. However, this benefit is likely to decrease as time elapses since the rule’s effective date and an increasing number of investors becomes aware of the industry-wide changes in the shareholder report delivery framework under rule 30e–3, including as a result of receiving prominent disclosures on fund documents and Notices under rule 30e–3 sent by other funds in which investors hold positions. This alternative likely would reduce the benefits to funds, and in turn, to fund investors, relative to the final rule, by retaining on an indefinite basis a twoyear delay in the ability of funds to realize printing and mailing cost savings from rule 30e–3. This alternative also would result in higher costs of prominent disclosures being incurred by funds, and in turn, fund investors, beyond the end of the extended transition period. IV. Paperwork Reduction Act New rule 30e–3 contains a ‘‘collection of information’’ within the meaning of the Paperwork Reduction Act of 1995 (the ‘‘PRA’’).470 In addition, the new rule and other amendments will impact the collections of information under rules 30e–1 and 30e–2, rule 498 under the Securities Act, and Forms N–1A, N–2, N–3, N–4, N–6, and N–CSR. The titles for the existing collections of information are: ‘‘Rule 30e–1 under the Investment Company Act of 1940, Reports to Stockholders of Management Companies’’ (OMB Control No. 3235– 0025); ‘‘Rule 30e–2 (17 CFR 270.30e–2) pursuant to Section 30(e) of the Investment Company Act of 1940 (15 U.S.C. 80a–29(e)), Reports to Shareholders of Unit Investment Trusts’’ (OMB Control No. 3235–0494); ‘‘Rule 498 under the Securities Act of 1933, Summary Prospectuses for Open-End Management Investment Companies’’ (OMB Control No. 3235–0648); ‘‘Form N–1A under the Securities Act of 1933 and under the Investment Company Act of 1940, Registration Statement of OpenEnd Management Investment Companies’’ (OMB Control No. 3235– 0307); ‘‘Form N–2 under the Investment Company Act of 1940 and Securities Act of 1933, Registration Statement of Closed-End Management Investment Companies’’ (OMB Control No. 3235– 0026); ‘‘Form N–3 under the Securities 470 44 PO 00000 U.S.C. 3501–3521. Frm 00039 Fmt 4701 Act of 1933 and under the Investment Company Act of 1940, Registration Statement of Separate Accounts Organized as Management Investment Companies’’ (OMB Control No. 3235– 0316); ‘‘Form N–4 under the Securities Act of 1933 and under the Investment Company Act of 1940, Registration Statement of Separate Accounts Organized as Unit Investment Trust’’ (OMB Control No. 3235–0318); ‘‘Form N–6 under the Securities Act of 1933 and under the Investment Company Act of 1940, Registration Statement of Separate Accounts Organized as Unit Investment Trust’’ (OMB Control No. 3235–0503); and ‘‘Form N–CSR under the Securities Exchange Act of 1934 and under the Investment Company Act of 1940, Certified Shareholder Report of Registered Management Investment Companies’’ (OMB Control No. 3235– 0570). The title for the new collection of information is: ‘‘Rule 30e–3 under the Investment Company Act of 1940, internet Availability of Reports to Shareholders’’ (OMB Control No. 3235– 0758). We published notice soliciting comments on the collection of information requirements in the Proposing Release and submitted the proposed collection of information to the Office of Management and Budget (‘‘OMB’’) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The Commission is adopting new rule 30e–3 under the Investment Company Act and certain related amendments. This reform is designed to modernize the manner in which periodic information is transmitted to investors, which we believe will improve investors’ experience while reducing expenses associated with printing and mailing shareholder reports that are borne by investment companies and ultimately their investors. We discuss below the collection of information burdens associated with this reform. New rule 30e–3 will provide certain funds with an optional method to satisfy requirements to transmit shareholder reports by making such reports and certain other materials publicly accessible on a website, provided that certain other conditions are satisfied.471 Reliance on the rule is voluntary; however, compliance with the rule’s conditions is mandatory for funds relying on the rule. Responses to the 471 See Sfmt 4700 29195 E:\FR\FM\22JNR2.SGM rule 30e–3. 22JNR2 29196 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations information collections will not be kept confidential. A. Availability of Shareholder Report and Other Materials Rule 30e–3 provides that a fund may satisfy its obligations to transmit a report to shareholders if certain conditions set forth in the rule are satisfied. Among these conditions are the requirements that the fund’s shareholder report, any report with respect to the fund for the prior reporting period that was transmitted to shareholders of record pursuant to rule 30e–1 or rule 30e–2, and in the case of a report relating to a fund other than a money market fund or an SBIC, the fund’s complete portfolio holdings as of the close of its most recent first and third fiscal quarters, be publicly accessible, free of charge, at a specified website address.472 daltland on DSKBBV9HB2PROD with RULES2 Internal Hours Burden In the Proposing Release, we estimated that 11,957 funds could rely on proposed new rule 30e–3.473 Of these funds, we estimated that 90% of these entities (or 10,761 funds) would rely on proposed rule 30e–3.474 Of these 10,761, we estimated that approximately 90% of these entities (or 9,634 funds) are currently posting shareholder reports on their websites (similar to the approximate proportion of funds expected to rely on rule 30e–3 that rely on the summary prospectus rules and thus already post shareholder reports on their websites). With respect to these entities, we estimated that annual compliance with the posting requirements of proposed rule 30e–3 would require a half hour burden per entity.475 472 Rule 30e–3(b)(1)(i)–(iii). While we are modifying Exchange Act rule 14a–16 to include the Notice with respect to fund documents that may accompany the Notice of Internet Availability of Proxy Materials, the incidental burden that this may impose is covered under the existing Paperwork Reduction Act for ‘‘Proxy Statements—Regulation 14(A) (Commission Rules 14a–1 through 14a–21 and Schedule 14A)’’ (OMB Control No. 3235-0059). Accordingly, we are not modifying those estimates at this time. 473 Proposing Release, supra note 14, at 33678. This estimate included 9,259 mutual funds (including money market funds), 1,403 ETFs (1,411 ETFs less 8 UIT ETFs), 568 closed-end funds, and 727 UITs (including UIT ETFs) based on Investment Company Institute (‘‘ICI’’) statistics, Form N–SAR filings, and internal SEC data as of December 31, 2014. See ICI statistics available at https:// www.ici.org/research/stats. 474 Proposing Release, supra note 14, at 33678. Open-end funds relying on the summary prospectus rule, rule 498 under the Securities Act, are required to post their annual and semi-annual reports online. See rule 498(e)(1) [17 CFR 230.498(e)(1)]. 475 Because each of these funds was already required to have a website and to post its annual and semi-annual shareholder reports on this VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 We have revised our estimate of the number of funds that may rely on rule 30e–3 upward from 11,957 to 12,630 to reflect updates to the industry data figures that were utilized in the Proposing Release.476 We did not receive any comments on our proposed estimate of the proportion of funds that would rely on the new rule, or on our proposed estimate of the burden hours associated with the posting requirements of rule 30e–3 for funds that already post shareholder reports on their websites. We received one comment consistent with our proposed estimate that 90% of funds currently post shareholder reports on their websites.477 Therefore, we are maintaining those estimates today, with adjustments to reflect the updated industry data figures since the Proposing Release. Thus, we estimate that 11,367 funds will rely on rule 30e– 3,478 and, of those, 10,230 are funds that already post shareholder reports on their websites.479 Accordingly, with respect to these 10,230 funds, we estimate that annual compliance with the posting requirements of rule 30e–3 will require a half hour burden per fund. In the Proposing Release, of the remaining funds estimated to rely on proposed rule 30e–3, we further estimated that approximately 90% of those funds (or 1,014 funds) already had a website.480 With respect to these funds, we estimated that the posting requirements of proposed rule 30e–3 would require a burden of one and a half hours per fund to post the required website, we estimated that proposed rule 30e–3 would only result in each of these funds incurring a half hour burden per year to post their first and third quarter portfolio holdings on their websites, including in the first year of compliance with the rule. 476 We estimate that there are 9,360 mutual funds, 1,821 exchange-traded funds (1,829 ETFs less 8 UIT ETFs), 711 closed-end funds, 14 funds that could file registration statements or amendments to registration statements on Form N–3, and 724 UITs. This estimate is based on data reported on Form N– SAR filed with the Commission as well as Investment Company Institute statistics as of December 31, 2017, available at https://www.ici.org/ research/stats. 9,360 + 1,821 + 711 + 14 + 724 = 12,630. 477 Generally consistent with this estimate, one commenter stated that Summary Prospectuses were used in 2014 by over 82% of the fund CUSIPs for distributions comprising over 90% of the mailed volume. See Broadridge Comment Letter I. 478 See supra note 476. We continue to estimate, similar to the proposal, that 90% of funds will rely on the final rule. 12,630 funds that could rely × 0.90 proportion estimated to rely = 11,367 funds estimated to rely. 479 11,367 funds relying on the rule × 0.90 = 10,230 funds that are estimated to rely on rule 30e– 3 and already post shareholder reports on their websites. 480 Proposing Release, supra note 14, at 33678. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 documents online, both in the first year and annually thereafter.481 For the remaining 10% of funds (or 113 funds) that we estimated would rely on the proposed rule but that do not have a website,482 we estimated initial compliance with the posting requirements would require approximately 24 hours per fund of internal staff time to develop a web page and post the required documents on the web page.483 In addition, we estimated that each of these funds would spend approximately four hours of professional time to maintain and update a web page with the required information on a quarterly basis.484 We did not receive any comments on our estimates in the Proposing Release of the proportion of those funds that would rely on the proposed rule and already have a website but that do not rely on the summary prospectus rule today, the burden of the website posting requirements for funds not relying on the summary prospectus rule that have a website, and the burden of the website posting requirements for funds that do not have a website, and we are maintaining those estimates today, with adjustments to reflect the updated industry figures since the Proposing Release. Thus, we estimate that, of the 1,137 funds estimated to rely on the new rule but that do not rely on the summary prospectus rule,485 1,023 funds already have a website and each such fund will incur 1.5 burden hours per year as a result of the posting requirement,486 and that 114 do not have a website and each such fund will incur 24 burden hours as a result of the posting requirement.487 Accordingly, we estimate that the posting requirements will result in an average annual hour burden of about 0.83 hours per fund in the first year of compliance 488 and about 0.75 hours per 481 Id. 482 This estimate is based on the following calculation: (10,761 funds and ¥ 9,634 open-end funds relying on the summary prospectus rule) × 10% = 113 funds. 483 Id. 484 Id. 485 11,367 funds relying on the rule ¥ 10,230 funds using a summary prospectus that are estimated to rely on rule 30e–3 = 1,137 funds. 486 (11,367 funds estimated to rely ¥ 10,230 funds relying on summary prospectus rule) × 0.90 proportion estimated to have a website = 1,023 funds. 487 11,367 funds estimated to rely ¥ 10,230 funds relying on summary prospectus rule ¥ 1,023 funds with a website = 114 funds. 488 ((10,230 funds relying on the summary prospectus rule × 0.5 hours per fund per year) + (1,023 funds with a website but not relying on the summary prospectus rule × 1.5 hours per fund or UIT per year) + (114 funds without a website × 24 hours in the first year)) ÷ (11,367 funds estimated E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations fund for each of the next two years.489 Amortized over three years, the average annual hour burden will be about 0. 78 hours per fund.490 In sum, we estimate that the posting requirements of rule 30e–3 will impose an average total annual hour burden of about 8,866 hours on applicable funds.491 External Cost Burden daltland on DSKBBV9HB2PROD with RULES2 In the Proposing Release, we estimated that certain funds would bear an external cost burden in complying with the rule. The external cost burden is the cost of goods and services purchased in connection with complying with the rule, which, with respect to the posting requirements, will include costs associated with development of a website. With respect to those funds that would rely on proposed rule 30e–3 but that do not currently have a website, we estimated that the posting requirements of the proposed rule would result in an external cost burden of $2,000 per fund in the first year to develop a website but no cost burden in subsequent years.492 We further estimated that the amortized annual external cost burden associated with developing a website would be $667.493 With respect to those funds that currently have websites, we estimated that the posting requirements of the proposed rule would not result in any external costs.494 We did not receive any comments on these proposed estimates, and we are maintaining them today, with adjustments to reflect the updated industry data figures since the Proposing Release. Accordingly, in the aggregate, we estimate that the annual to rely) = (5,115 hours for funds relying on the summary prospectus rule + 1,535 hours for funds with a website but not relying on the summary prospectus rule + 2,728 hours for funds without a website) ÷ (11,367 funds estimated to rely) = 9,378 total hours ÷ 11,367 funds estimated to rely = 0.83 hours per fund. 489 ((10,230 funds relying on the summary prospectus rule × 0.5 hours per fund per year) + (1,023 funds with a website but not relying on the summary prospectus rule × 1.5 hours per fund or UIT per year) + (114 funds without a website × 4 hours per fund per quarter × 4 quarters per year)) ÷ (11,367 funds estimated to rely) = (5,115 hours for funds relying on the summary prospectus rule + 1,534 hours for funds with a website but not relying on the summary prospectus rule + 1,818 hours for funds without a website) ÷ (11,367 funds estimated to rely) = 8,468 total hours ÷ 11,367 funds estimated to rely = 0.75 hours per fund. 490 (0.83 hours per fund in the first year + (0.75 hours per fund each year thereafter × 2 years)) ÷ 3 years = 0.78 hours per fund per year. 491 0.78 hours per fund per year × 11,367 funds estimated to rely = 8,866 hours. 492 Proposing Release, supra note 14, at 33678. 493 Id. 494 Id. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 29197 total external cost burden with respect to these funds will be $76,038.495 (or 11,367 funds) will choose to rely on new rule 30e–3.501 B. Proposed Initial Statement Internal Hours Burden For those funds relying on the rule, in the Proposing Release we estimated that each fund will require two hours to prepare and file the first Notice in the first year and an hour for each subsequent notice.502 Of this time, we estimated that 75% of the preparation time required would be incurred by the fund internally and that 25% of the burden would be carried out by outside counsel retained by the fund.503 We did not receive any comments on our proposed estimates of the time required to prepare Notices, or on the estimated proportion of the preparation time required to prepare Notices that would be carried out internally or by outside counsel. As discussed above, the requirements regarding the Notice in the final rule, including removing the direct URL to the shareholder report and the reply card requirement, permitting Notices to be incorporated into or combined with other Notices, expanding the ability to combine Notices with other mailings, as well as removing the filing requirement (other than for Notices that include content from the report to which it relates as discussed in Section IV.F below), will collectively affect the estimated burden associated with the preparation of Notices. We are maintaining our estimate of the 75% preparation time that would be incurred by the fund internally, the first Notice in the first year required hours of two hours, and our estimate of subsequent Notice required hours of one hour to account for an increase in some funds that may include content from the shareholder report in the Notice. Accordingly, we estimate that the Notice will result in an average annual hour burden of about 2.25 hours per fund in the first year 504 and about 1.5 hours per fund in each subsequent year.505 Amortized over three years, the average annual hour burden associated with the Notice would be about 1.75 hours per fund.506 We have also made adjustments to these estimates to reflect the updated industry data figures since As proposed, rule 30e–3 would have permitted an optional method to satisfy requirements to transmit shareholder reports by posting reports online with respect to a particular investor only if either the investor previously consented to this optional method of website availability or the investor’s consent could be inferred under certain conditions specified in the rule.496 One of the proposed conditions for inferring consent would have provided that an Initial Statement be transmitted to an investor at least 60 days before reliance on the rule with respect to that investor informing the investor that future shareholder reports available on a website until the investor provides notification that he or she wished to receive paper copies of reports in the future. As discussed above, we have modified the proposed rule to eliminate the Initial Statement requirement, which will affect the aggregate estimated burdens associated with rule 30e–3. In the Proposing Release, we estimated that the Initial Statement would result in 0.69 average annual burden hours per fund and $555 in average annual cost burden per fund,497 which is eliminated by the modification in the final rule to not adopt the proposed Initial Statement requirement. C. Notice Proposed rule 30e–3 would have required a Notice be sent to investors within 60 days of the close of the reporting period covered by the related report. Under the final rule, a Notice is required to be sent to investors within 70 days of the close of the reporting period to which the report relates.498 The proposed rule would have also required that the form of the Notice be filed with the Commission not later than 10 days after the Notice is sent to investors.499 However, the final rule will require that only if a fund’s Notice includes any content from the report to which it relates, a copy of the Notice must be filed as part of the fund’s report on Form N–CSR.500 As discussed in Section IV.A above and as we estimated in the proposal, we estimate that 90% of all eligible funds 495 114 funds without a website × $667 per fund = $76,038. 496 See proposed rule 30e–3(c). 497 Proposing Release, supra note 14, at 33679–80. 498 See proposed rule 30e–3(d); rule 30e–3(c). 499 See proposed rule 30e–3(d)(7). 500 Item 1(b) of Form N–CSR; see also infra Section IV.G. PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 501 See supra note 478 and accompanying text. Release, supra note 14, at 33679. 502 Proposing 503 Id. 504 (2 hours per first Notice + 1 hour per subsequent Notice × 1 subsequent Notice in the first year) × 0.75 proportion internal hour burden = 2.25 hours per fund. 505 (1 hour per subsequent Notice × 2 subsequent Notices in subsequent years) × 0.75 proportion internal hour burden = 1.5 hours per fund. 506 (2.25 hours per fund in the first year + (1.5 hours each year thereafter × 2 years)) ÷ 3 years = 1.75 hours per fund. E:\FR\FM\22JNR2.SGM 22JNR2 29198 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations the Proposing Release. In sum, we estimate that the Notice requirements of rule 30e–3 will impose an average total annual hour burden of about 19,892 hours on applicable funds.507 daltland on DSKBBV9HB2PROD with RULES2 External Cost Burden In addition, we estimate that funds will incur external costs if they rely on rule 30e–3. The external cost burden is the cost of goods and services purchased in connection with complying with the rule, which, with respect to the Notice, we have estimated would include the costs associated with outside counsel and printing and mailing costs. In the Proposing Release, we estimated that 25% of the time required to comply with the requirements concerning preparation of the Notice would be carried out by outside counsel retained by the fund at a rate of $380 per hour.508 We did not receive any comments on our proposed estimate of the proportion of the time required to prepare Notices that would be carried out by outside counsel, and we are maintaining that estimate today. We are, however, updating our estimate of the hourly rate for the work carried out by outside counsel based on updated industry data to $401 per hour.509 Accordingly, we estimate that outside counsel costs associated with the Notice will result in an average cost burden per fund of about $301 in the first year,510 about $201 in subsequent years,511 and amortized over three years, about $234.512 In sum, we estimate that the outside counsel costs related to the 507 1.75 hours per fund per year for the Notice × 11,367 funds estimated to rely = 19,892 hours per year. 508 Proposing Release, supra note 14, at 33679. This estimate was based on the rate for attorneys in SIFMA’s Management and Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1,800-hour work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. We note that, in the Proposing Release, we considered the external cost burden of the notice and initial statement requirements jointly. See Proposing Release, supra note 14, at 33679–80. In this release, we have discussed the effect of the eliminated initial statement requirement on the burden estimates separately above. See supra Part IV.B. 509 This estimate is from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by the Commission staff to account for an 1,800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. 510 (2 hours per first Notice + 1 hour per subsequent Notice × 1 subsequent Notice in the first year) × 0.25 proportion external cost × $401 per hour = $301 per fund in the first year. 511 (1 hour per subsequent Notice × 2 subsequent Notices in subsequent years) × 0.25 proportion external cost × $401 per hour = $201 per fund in subsequent years. 512 ($301 per fund in the first year + ($201 per fund in subsequent years × 2 years)) ÷ 3 years = $234 per fund. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 Notice requirements of rule 30e–3 will impose an annual average total cost burden of about $2,659,878 on applicable funds.513 We estimated in the Proposing Release that the external costs associated with rules 30e–1 and 30e–2 (the rules relating to shareholder reports) would be $31,061 and $20,000, respectively.514 These costs account for preparation and transmission of shareholder reports twice a year in paper to investors. We also estimated that one-third of these external costs would be attributed to printing and mailing shareholder reports.515 Although commenters did not opine on the estimated proportion of total external costs associated with rules 30e– 1 and 30e–2 associated with printing and mailing expenses, as discussed below, some did provide estimates of the total costs of print and mail delivery that suggest that our estimated proportion of those costs may have been understated. Therefore, we have determined to revise our estimate upwards to two-thirds, which yields overall printing and mailing expenses that are more similar to those estimated by commenters compared to the estimates in the Proposing Release.516 We estimated in the Proposing Release that the Notice would require lower printing and mailing costs given the significantly smaller size of the documents. Specifically, we estimated that each Notice would require 10% of the annual printing and mailing costs associated with paper shareholder reports.517 We note that some commenters specifically discussed the processing fees for broker-held accounts separately from other printing and mailing costs, while, in the Proposing Release, our estimates for printing and mailing were meant to encompass all of those costs more broadly.518 Some commenters indicated that the total reduction in external cost burden may depend on the amount of processing fees incurred by funds in connection with the print and mail delivery costs associated with the conditions of rule 30e–3. As discussed above, NYSE rule amendments clarify the processing fees applicable to transmission of Notices under rule 30e– 3.519 Some commenters also suggested that the costs associated with the proposed 513 $234 per fund per year for the Notice × 11,367 funds estimated to rely = $2,659,878 per year. 514 Proposing Release, supra note 14, at 33680. 515 Id. 516 See infra note 544 and accompanying text. 517 Proposing Release, supra note 14, at 33680. 518 See, e.g., ICI Comment Letter II. 519 See supra notes 32–36 and accompanying text. PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 reply card requirements may have been understated.520 The final rule reflects modifications from the proposed rule to eliminate the reply card requirement for Notices and have made other modifications in light of public comments—such as permitting Notices to accompany other Notices and other types of documents—that we believe will reduce the printing and mailing costs of the final rule’s conditions relative to the proposal. The final rule also reflects modifications from the proposal to permit the inclusion of content from the shareholder report in the Notice and eliminated the Notice filing requirement except when the Notice includes such content.521 In light of the above comments on the estimates in the Proposing Release and the modifications we are making today, we have determined to increase our estimate of the percentage of annual printing and mailing costs (including processing fees) associated with shareholder reports that will be associated with the printing and mailing of each Notice from the 10% that we had originally proposed to 15%. We also estimate, as we did in the Proposing Release, that there would be no other external costs attributable to the Notice.522 As we explained in the Proposing Release, in estimating the external costs, we took a conservative approach by using 10% of the $10,000 estimated costs for printing and mailing shareholder reports 523 (which, as discussed above is approximately onethird of the estimated external costs associated with management companies’ shareholder reports) to calculate the external cost of preparing and mailing a Notice as compared to a shareholder report. As noted in the Proposing Release, these estimated costs for fund shareholder reports are higher than the estimated external costs associated with UITs’ shareholder reports.524 We did not receive any comments on this proposed estimate, and we are maintaining it today, except that we are revising the share of expenses upward from one-third to two-thirds. Thus, we estimate that the external cost burden associated with each Notice will be about $3,106.525 520 See, e.g., ICI Comment Letter II. supra notes 221–222 and accompanying text. If the Notice includes content from the report to which it relates, a copy of the Notice must be filed as an exhibit to Form N–CSR, as discussed below. See infra Section IV.F. 522 Proposing Release, supra note 14, at 33680. 523 $31,061 ÷ 3 = $10,354. 524 Proposing Release, supra note 14, at 33680. 525 $31,061 external costs per shareholder report × 2⁄3 share of external costs attributable to printing 521 See E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations Because each fund relying on rule 30e–3 will be required, in the final rule, to send two Notices in the first year, we estimate that the external costs for the first year on a per fund will be $6,212.526 Likewise, we estimate that in subsequent years, annual external costs on a per fund will be $6,212 as each fund will continue to be required to send two Notices per year. As such, amortized over three years, we estimate that the Notice will be $6,212 annual cost burden per fund. In sum, we estimate that the printing and mailing costs related to the Notice requirements of rule 30e–3 will impose an average annual total cost burden of $70,611,804 on applicable funds.527 Accordingly, together with the costs associated with outside counsel, we estimate that the Notice requirements of the rule will impose an average annual total cost burden of $73,271,682.528 D. Delivery Upon Request daltland on DSKBBV9HB2PROD with RULES2 We estimated in the Proposing Release that funds may incur external costs in connection with the requirement to provide a shareholder report upon request of an investor. We estimated that the annual costs associated with printing and mailing these reports would be $500 per fund.529 We did not receive any comments on this proposed estimate, and we are maintaining it today, with adjustments to reflect the updated industry data figures since the Proposing Release. Accordingly, we estimate that the aggregate annual external costs associated with printing and mailing shareholder reports upon request will be $5,683,500.530 In total, rule 30e–3 will impose an average total annual hour burden of 28,610 hours on applicable funds 531 and a total annual external cost burden of $79,031,220 on applicable funds.532 and mailing (including processing fees) × 0.15 proportion of complete report printing and mailing costs (including processing fees) applicable to Notices = $3,106 external costs per Notice. 526 $3,106 external costs per Notice × 2 Notices in the first year = $6,212 per fund in external costs in the first year. 527 $6,212 per year per fund for the Notice × 11,367 funds expected to rely = $70,611,804 per year. 528 $2,659,878 outside counsel expenses + $70,611,804 per year printing and mailing expenses (including processing fees) = $73,271,682 per year. 529 Proposing Release, supra note 14, at 33678. 530 $500 per fund × 11,367 funds estimated to rely = $5,683,500. 531 8,718 hours for the posting requirements + 19,892 hours for the Notice requirements = 28,610 hours. 532 $76,038 for posting + $73,271,682 for the Notice requirements + $5,683,500 for the printing and mailing upon request requirements = $79,031,220. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 E. Impact on Information Collections for Rules 30e–1 and 30e–2 We estimate, as we did in the Proposing Release, that rule 30e–3 will have the effect of reducing the external cost burden associated with rules 30e– 1 and 30e–2. Rule 30e–1 requires a fund to transmit shareholder reports to its investors.533 Rule 30e–2 requires UITs that invest substantially all of their assets in shares of a fund to send their investors shareholder reports containing applicable information and financial statements required to be included in reports for the underlying fund.534 In the Proposing Release, we estimated, with respect to rule 30e–1, that each fund currently incurs an annual hourly burden of 84 hours and an annual external cost burden of $31,061 per fund.535 Additionally, with respect to rule 30e–2, we estimated that each UIT currently incurs an annual hourly burden of 121 hours per UIT and an annual external cost burden of $20,000 per UIT.536 In connection with recent amendments to Regulation S–X, which prescribes the form and content of fund financial statements, we estimated that each fund would incur 2.5 additional burden hours per year after the first year to comply with rule 30e–1.537 In connection with those amendments to Regulation S–X, we also estimated that each UIT to which the amendments apply would incur 2.5 additional burden hours per year after the first year to comply with rule 30e–2.538 As discussed above, we continue to estimate that 90% of all funds will rely on rule 30e–3.539 In the Proposing Release, we estimated that the hourly burden associated with rule 30e–1 or rule 30e–2 would not change as a result of proposed rule 30e–3.540 We did not receive any comments on this proposed estimate, and we are maintaining it today. However, in the Proposing Release we estimated that, for those funds that rely on proposed rule 30e–3, the external cost burden would decrease.541 Specifically, we estimated that for funds relying on rule 30e–3, one-third of the external costs currently attributed to rule 30e–1 relate to 533 Rule 30e–1(a). 30e–2(a). 535 Proposing Release, supra note 14, at 33680. 536 Id. 537 Reporting Modernization Adopting Release, supra note 14, at text following n.1562. We did not estimate any changes to the external cost burden in connection with those amendments. Id. 538 Reporting Modernization Adopting Release, supra note 14, at text accompanying n.1579. 539 See supra note 501 and accompanying text. 540 Proposing Release, supra note 14, at 33680. 541 Id. 534 Rule PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 29199 printing and mailing costs, which would not be applicable to funds (excluding UITs) relying on the rule, and thus their annual cost burden related to rule 30e–1 would decrease from $31,061 to about $20,707.542 Additionally, we similarly estimated that for UITs relying on the rule, onethird of the external costs currently attributed to rule 30e–2 relate to printing and mailing costs, which would not be applicable to UITs relying on proposed rule 30e–3, and thus their annual cost burden related to rule 30e– 2 would decrease from $20,000 to about $13,333.543 Although commenters did not opine on the proposed estimate of the proportion of total external costs associated with rules 30e–1 and 30e–2 associated with printing and mailing expenses, some did provide estimates of the current total costs of print and mail delivery that suggest that our estimated proportion of those costs may have been understated, and we have determined to revise our estimate upwards to twothirds, which yields overall printing and mailing expenses that are more similar to those estimated by commenters compared to the estimates in the Proposing Release.544 Therefore, we estimate that, for the 90% of funds estimated to rely on rule 30e–3, the annual external burden associated with rule 30e–1 will decrease from $31,061 to $10,354 per fund (excluding UITs),545 and the annual external burden associated with rule 30e–2 will decrease from $20,000 to $6,667 per UIT.546 We have also made adjustments to these estimates to reflect updated industry data since the Proposing Release regarding the number of funds. Accordingly, we estimate that for the 90% of funds estimated to rely on rule 30e–3 the total annual external cost burden for rule 30e–1 will be $110,943,110,547 and the total annual external cost burden for all funds under 542 $31,061 per fund (excluding UITs) per year in external costs × 2⁄3 proportion not attributable to printing and mailing expenses = $20,707 per fund per year in external costs. 543 $20,000 per UIT per year in external costs × 2⁄3 proportion not attributable to printing and mailing expenses = $13,333. 544 See, e.g., ICI Comment Letter I. 545 $31,061 per fund (excluding UITs) per year in external costs × 1⁄3 proportion not attributable to printing and mailing expenses = $10,354 per fund (excluding UITs) per year in external costs. 546 $20,000 per UIT per year in external costs × 1⁄3 proportion not attributable to printing and mailing expenses = $6,667 per UIT per year in external costs. 547 10,715 funds expected to rely × $10,354 external costs per fund expected to rely = $110,943,110 in external costs for funds expected to rely. E:\FR\FM\22JNR2.SGM 22JNR2 29200 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations rule 30e–1 will be $147,936,761.548 Additionally, we estimate that for the 90% of UITs estimated to rely on rule 30e–3 the total annual external cost burden for rule 30e–2 will be $4,346,884,549 and the total annual external cost burden for all UITs under rule 30e–2 will be $5,786,884.550 daltland on DSKBBV9HB2PROD with RULES2 F. Related Disclosure Amendments In a change from the proposal, as discussed above, we are amending rule 498 under the Securities Act and certain fund registration forms to require that funds intending to rely on rule 30e–3 prior to January 1, 2022 include prominent disclosures on the cover page or beginning of their summary prospectuses, and cover pages of their statutory prospectuses, and annual and semi-annual reports, for two years during the three-year period between January 1, 2019 and December 31, 2021.551 With the exception of newlyformed funds, funds would generally provide these disclosures as described above.552 We believe that these disclosures will provide important information to both current and prospective investors in advance of the rule’s effective date that not only notifies them of the intent of their fund to rely on the rule, but will also provide them with an overview of the rule’s operation, including the fact that reports will be made available on a website and that they will be able to retain delivery of their reports in paper if they should so desire. Beginning January 1, 2022, these cover page disclosures will no longer be required. Currently, we estimate that funds have the following total annual burdens for compliance with: Rule 498 (15,798 hours), Form N–1A (1,596,749 hours), Form N–2 (73,250 hours), Form N–3 (2,500 hours), Form N–4 (343,117 hours), and Form N–6 (85,269 hours). Based on updated industry data figures 548 ((11,906 total funds ¥ 10,715 funds expected to rely) × $31,061 in external costs for funds not expected to rely) + $110,943,110 in external costs for funds expected to rely = $147,936,761 in external costs. 549 652 UITs expected to rely × $6,667 external costs per UIT expected to rely = $4,346,884 in external costs for UITs expected to rely. 550 ((724 total UITs ¥ 652 UITs expected to rely) × $20,000 in external costs for UITs not expected to rely) + $4,346,884 in external costs for UITs expected to rely = $5,786,884 in external costs. 551 See new paragraphs (b)(1)(vi) and (b)(1)(vii) of rule 498. Similar statements will be required in other shareholder materials. See new paragraph (a)(5) to Item 1 of Form N–1A; new paragraph (d)(8) to Item 27 of Form N–1A; new paragraph 1.l to Item 1 of Form N–2; new instruction 6.g to Item 24 of Form N–2; new paragraph (a)(xi) to Item 1 of Form N–3; new instruction 6(vii) to Item 28(a) of Form N–3; new paragraph (a)(x) to Item 1 of Form N–4; new paragraph (a)(6) to Item 1 of Form N–6. 552 See supra Section II.B.2.f. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 and the amendments to rule 498 and the registration statements being adopted today, we have revised these estimates as follows. As discussed above, we estimate that there are 12,630 funds that could rely on rule 30e–3.553 Of this group, we estimate that 11,367 funds will rely on rule 30e–3 and, of those, 10,230 are funds relying on the summary prospectus rule (rule 498 under the Securities Act).554 Pursuant to the amendments being adopted today, we further estimate that these funds will incur 1 burden hour for the first summary prospectus, statutory prospectus, or shareholder report reflecting these requirements and 0.5 hours for each additional summary prospectus, statutory prospectus, or annual and semi-annual report reflecting these requirements. These related disclosure requirements will only apply during the extended transition period, as described above. In light of the short period during which these additional requirements will be effective and the modest impact they are likely to have on external service providers such as website hosting services, outside counsel and auditors, and printing and mailing services, we do not expect them to result in additional expenses passed on to funds by their service providers in the form of additional external cost burden. Thus, we do not estimate there will be any external costs to comply with these disclosure requirements. In total, as discussed in more detail below, we estimate that the aggregate hour burden for all funds to comply with these disclosure requirements will be 14,272 hours per year.555 Form N–1A and Rule 498 We estimate that there are 11,181 funds that could file registration statements or amendments to registration statements on Form N–1A.556 Of this group, we estimate that 553 This estimate of 12,630 funds includes 9,360 mutual funds, 1,821 exchange-traded funds (1,829 ETFs less 8 UIT ETFs), 711 closed-end funds, 14 funds that could file registration statements or amendments to registration statements on Form N–3, and 724 UITs and is based on data from Commission filings as well as Investment Company Institute statistics as of December 31, 2017, available at https://www.ici.org/research/stats. 554 See supra note 478 and accompanying and following text (estimating that 90% of funds that could rely on rule 30e–3 will do so). 11,367 funds = 12,630 funds × 0.90. 555 14,272 hours = 13,401 hours for amendments to rule 498 and Form N–1A + 853 hours for amendments to Form N–2 + 18 hours for amendments to Form N–3. See infra notes 561, 566, 571. 556 11,181 funds = 9,360 mutual funds + 1,821 ETFs (1,829 ETFs less 8 UIT ETFs). See supra note 553. PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 10,063 funds will rely on rule 30e–3, and, of those, 9,057 are funds relying on the summary prospectus rule.557 Consequently, we estimate that the amortized aggregate annual hour burden associated with the amendments to rule 498 is 4,529 hours.558 We further estimate that 1,006 funds will rely on rule 30e–3 but not the summary prospectus rule, and thus the amortized aggregate annual hour burden associated with the amendments to Form N–1A and relating to prospectuses is 503 hours.559 In addition, we estimate that the total annual hour burden associated with the amendments to Form N–1A and relating to shareholder reports is 8,386 hours.560 In total, we estimate that the aggregate annual hour burden associated with the amendments to rule 498 will be 4,529 hours, while the aggregate annual hour burden associated with the amendments to Form N–1A will be 8,889 hours per year.561 Form N–2 We estimate that there are 711 funds that could file registration statements or amendments to registration statements on Form N–2.562 Of this group, we estimate that 640 funds will rely on rule 30e–3.563 Consequently, we estimate that the total annual hour burden associated with the amendments to Form N–2 and relating to prospectuses is 320 hours.564 In addition, we estimate 557 See supra note 478 and accompanying and following text. 10,063 funds × 0.9 = 9,057 funds. We estimate that for funds that would rely on rule 30e–3 and rely upon rule 498, that the incremental burden hours associated with relying on rule 30e–3 in preparing and filing on Form N–1A would also include any burden change associated with rule 498. 558 9,057 funds × 1 hour in the first year = 9,057 hours. 9,057 funds × 0.5 hours in the second year = 4,529 hours. 9,057 funds × 0 hours in the third year = 0 hours. (9,057 + 4,529 + 0 hours) ÷ 3 years = 4,529 hours per year on an amortized basis. 559 10,063 funds ¥ 9,057 funds = 1,006 funds. 1,006 funds × 1 hour in the first year = 1,006 hours. 1,006 funds × 0.5 hours in the second year = 503 hours. 503 funds × 0 hours in the third year = 0 hours. (1,006 + 503 + 0 hours) ÷ 3 years = 503 hours per year on an amortized basis. 560 10,063 funds × (1 hour for the first report in the first year + 0.5 hours for the second report in the first year) = 15,095 hours. 10,063 funds × 0.5 hours × 2 reports in the second year = 10,063 hours. 10,063 funds × 0 hours in the third year = 0 hours. (15,095 + 10,063 + 0 hours) ÷ 3 years = 8,386 hours per year on an amortized basis. 561 8,889 hours = 503 hours + 8,386 hours. 562 See supra note 553. 563 See supra note 478 and accompanying and following text. 711 funds × 0.9 = 640 funds. 564 640 funds × 1 hour in the first year = 640 hours. 640 funds × 0.5 hours in the second year = 320 hours. 640 funds × 0 hours in the third year = 0 hours. (640 + 320 + 0) ÷ 3 years = 320 hours per year on an amortized basis. The Commission notes that this is a conservative estimate because funds registered on Form N–2, in reliance of Investment Company Act rule 8b–16(b), on average E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations that the total annual hour burden associated with the amendments to Form N–2 and relating to annual and semi-annual reports is 533 hours.565 In total, we estimate that the aggregate annual hour burden associated with the amendments to Form N–2 will be 853 hours per year.566 Form N–3 We estimate that there are 14 funds that could file registration statements or amendments to registration statements on Form N–3.567 Of this group, we estimate that 13 funds will rely on rule 30e–3.568 Consequently, we estimate that the total annual hour burden associated with the amendments to Form N–3 and relating to statutory prospectuses is 7 hours.569 In addition, we estimate that the total annual hour burden associated with the amendments to Form N–3 and relating to annual and semi-annual reports is 12 hours.570 In total, we estimate that the aggregate annual hour burden associated with the amendments to Form N–3 will be 18 hours per year.571 Form N–4 daltland on DSKBBV9HB2PROD with RULES2 We estimate that there are 1,653 responses on Form N–4 each year. Of this group, we estimate that 1,488 of the responses will be made by funds that will rely on rule 30e–3.572 Consequently, we estimate that the total annual hour burden associated with the amendments to Form N–4 and relating to statutory prospectuses is 744 hours.573 prepare and file prospectuses less frequently than funds registered on Form N–1A. 565 640 funds × (1 hour for the first report in the first year + 0.5 hours for the second report in the first year) = 960 hours. 640 funds × 0.5 hours × 2 reports in the second year = 640 hours. 640 funds × 0 hours in the third year = 0 hours. (960 + 640 + 0 hours) ÷ 3 years = 533 hours per year on an amortized basis. 566 853 hours = 320 hours + 533 hours. 567 See supra note 553. 568 See supra note 478 and accompanying and following text. 14 funds × 0.9 = 13 funds. 569 13 funds × 1 hour in the first year = 13 hours. 13 funds × 0.5 hours in the second year = 7 hours. 13 funds × 0 hours in the third year = 0 hours. (13 + 7 + 0 hours) ÷ 3 years = 7 hours per year on an amortized basis. 570 13 funds × (1 hour for the first report in the first year + 0.5 hours for the second report in the first year) = 20 hours. 13 funds × 0.5 hours × 2 reports in the second year = 13 hours. 13 funds × 0 hours in the third year = 0 hours. (20 + 13 + 0 hours) ÷ 3 years = 11 hours per year on an amortized basis. 571 18 hours = 7 hours + 11 hours. 572 See supra note 478 and accompanying and following text. 1,653 responses × 0.9 = 1,488 responses. 573 1,488 responses × 1 hour in the first year = 1,488 hours. 1,488 responses × 0.5 hours in the second year = 744 hours. 1,488 responses × 0 hours in the third year = 0 hours. (1,488 + 744 + 0 hours) VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 Form N–6 We estimate that there are 472 responses on Form N–6 each year. Of this group, we estimate that 425 of the responses will be made by funds that will rely on rule 30e–3.574 Consequently, we estimate that the total annual hour burden associated with the amendments to Form N–6 and relating to statutory prospectuses is 213 hours.575 G. Form N–CSR In a modification from the proposal, as discussed above, we are amending Form N–CSR to require that for fund Notices that include content from the report to which it relates, a copy of the Notice must be filed as part of the fund’s report on Form N–CSR.576 Under the existing collection of information, we estimate 172,899 aggregate annual burden hours to comply with Form N–CSR. Based on updated industry data figures and the amendments to Form N– CSR being adopted today, we have revised this estimate as follows. We estimate that there are 10,715 funds that will rely on rule 30e–3 and could prepare Notices that include content from the report to which it relates.577 The decision to include content from the report in the Notice is optional, and at the fund’s election, but if the fund decides to include such content, then the Notice must be filed with the Commission in reports on Form N–CSR. We believe that many funds—we estimate about half of those relying on rule 30e–3—will wish to include content from the shareholder report in the Notice that they believe is particularly informative to their investors. However, we also believe that many funds—we estimate about half— will wish to preserve the maximum cost savings allowed under the rule and will therefore wish to include in the Notice only that information that is required by the rule. We therefore estimate that 50% of fund Notices will include content from the shareholder report. Pursuant to ÷ 3 years = 744 hours per year on an amortized basis. 574 See supra note 478 and accompanying and following text. 472 responses × 0.9 = 425 responses. 575 425 responses × 1 hour in the first year = 425 hours. 425 responses × 0.5 hours in the second year = 213 hours. 425 responses × 0 hours in the third year = 0 hours. (425 + 213 + 0 hours) ÷ 3 years = 213 hours per year on an amortized basis. 576 See supra Section II.B.2.b.ii. 577 11,906 funds = 9,360 mutual funds + 1,821 ETFs (1,829 ETFs less 8 UIT ETFs) + 711 closedend funds + 14 funds that could file registration statements or amendments to registration statements on Form N–3. See supra note 553. 11,906 funds relying on the rule × 0.90 = 10,715 funds estimated to rely on rule 30e-3. See supra note 478 and accompanying and following text. PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 29201 the amendment being adopted today, we estimate that each of these funds would incur one annual burden hour to file the Notice as part of their reports on Form N–CSR (not including preparation of the Notice). We estimate that of the 10,715 funds to rely on rule 30e–3 that could add content to the Notice from the report to which it relates, that 5,358 funds would add content from the shareholder Report to the Notice and would therefore be required to file such Notices with reports on Form N–CSR.578 Consequently, we estimate that the aggregate annual hour burden associated with the amendments to Form N–CSR is 5,358 hours.579 V. Final Regulatory Flexibility Analysis This Final Regulatory Flexibility Analysis (‘‘FRFA’’) has been prepared in accordance with Section 4(a) of the Regulatory Flexibility Act (‘‘RFA’’).580 It relates to new rule 30e–3, amendments to Forms N–1A, N–2, N–3, N–4, N–6, and N–CSR, amendments to rule 498 under the Securities Act, and amendments to rule 14a–16 under the Exchange Act. An Initial Regulatory Flexibility Analysis (‘‘IRFA’’) was prepared in accordance with the RFA and included in the Proposing Release.581 The Proposing Release included, and solicited comment on, the IRFA. A. Need For and Objectives of the Rule, Rule Amendments and Form Amendments Rule 30e–3 is designed to modernize the manner in which periodic information is transmitted to investors. Rule 30e–3 will provide certain funds with an optional method to satisfy shareholder transmission requirements by making the reports and other materials publicly accessible on a website, provided that certain other conditions are satisfied. We believe the rule will improve investors’ experience while reducing expenses associated with printing and mailing shareholder reports that are borne by investment companies and ultimately their investors. In connection with our adoption of rule 30e–3, we are also adopting related amendments to certain of our rules and forms. We are amending rule 498 and certain fund registration forms to require that funds intending to rely on rule 30e–3 include during the extended funds × 0.5 = 5,358 funds. funds × 1 hour per year = 5,358 hours. 580 5 U.S.C. 604(a). 581 See Proposing Release, supra note 14, at Section VI. 578 10,715 579 5,358 E:\FR\FM\22JNR2.SGM 22JNR2 29202 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations transition period prominent disclosures on the cover page or beginning of their summary prospectuses and cover pages of their statutory prospectuses and shareholder reports as discussed above.582 We believe that these disclosures will provide important information to both current and prospective investors in advance of the rule’s effective date that not only notifies them of the intent of their fund to rely on the rule, but will also provide them with an overview of the rule’s operation, including the fact that reports will be made available on a website and that they will be able to retain delivery of their reports in paper if they should so desire. Beginning January 1, 2022, these cover page and other prominent disclosures will no longer be required. We are also amending Form N–CSR to require the filing of fund Notices that include content from the shareholder report to enable Commission review of disclosure in the Notices in conjunction with its overall review of shareholder reports and other disclosure filings. B. Significant Issues Raised by Public Comments In the Proposing Release, we requested comment on each aspect of the IRFA, including the number of small entities that would be affected by the proposed amendments, the existence or nature of the potential impact of the proposals on small entities discussed in the analysis and how to quantify the impact of the proposed rules. As discussed above, we received extensive comments regarding the potential costs and benefits of the proposals.583 However, we did not receive comments specifically addressing the impact of proposed rule 30e–3 and related amendments on small entities subject to the rule. C. Small Entities Subject to the Rule An investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year.584 Commission staff estimates that, as of December 31, 2017, approximately 88 registered investment companies, daltland on DSKBBV9HB2PROD with RULES2 582 See new paragraph (b)(1)(vii) of rule 498; new paragraph (a)(5) to Item 1 of Form N–1A; new paragraph (d)(8) to Item 27 of Form N–1A; new paragraph 1.l to Item 1 of Form N–2; new instruction 6.g to Item 24 of Form N–2; new paragraph (a)(xi) to Item 1 of Form N–3; new instruction 6(vii) to Item 28(a) of Form N–3; new paragraph (a)(x) to Item 1 of Form N–4; new paragraph (a)(6) to Item 1 of Form N–6. See also supra Section II.B.2.f. 583 See supra Section II.A.1. 584 17 CFR 270.0–10(a). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 including 54 open- and 34 closed-end funds and 6 UITs are small entities.585 D. Projected Reporting, Recordkeeping, and Other Compliance Requirements The amendments will create, amend, and eliminate current reporting, recordkeeping and other compliance requirements for small entities. Rule 30e–3 is designed to provide funds with an optional method to satisfy requirements to transmit shareholder reports by posting reports online if they meet certain conditions.586 Funds that do not maintain websites or that otherwise wish to transmit shareholder reports in paper or pursuant to the Commission’s existing electronic delivery guidance would continue to be able to satisfy their transmission requirements by those transmission methods. We estimate that approximately 88 registered investment companies are small entities that will rely on the rule.587 Because funds generally already maintain websites and send materials to shareholders, for most funds, no additional professional skills beyond those currently possessed by funds are generally needed to comply with the rule’s conditions. However, some funds, including funds that are small entities, that do not currently have a website, would require professional skills to develop a web page and post the required documents, and as discussed above, we estimate for such funds an external burden cost of $2,000 per fund in the first year to develop a website and an initial 24 hours internal burden for staff to develop a web page and post the required documents on the web page. To the extent possible, we have attempted to quantify the costs and savings that will be experienced by small entities relying upon rule 30e–3. However, we note that the average costs and savings incurred by such small entities may in some cases be lower or higher than the costs and savings incurred by the average fund relying upon rule 30e–3. As discussed above, we estimate that reliance on rule 30e–3 will result in certain costs and benefits related to the website availability of shareholder reports for each fund, including small entities, with savings of approximately $20,285 per year for each fund with 585 This estimate is derived from an analysis of data obtained from Morningstar Direct as well as data reported on Form N–SAR filed with the Commission for the period ending December 31, 2017. 586 See supra Sections II.A and II.B.2. 587 The Commission’s estimate is based on data obtained from registrants’ filings with the Commission on Form N–SAR. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 respect to their regulatory obligation to deliver shareholder reports to investors in savings related to printing and mailing costs for shareholder reports, and costs of $7,847 per year for each fund to implement new rule 30e–3 in costs related to website accessibility requirements, Notice preparation, and printing, mailing, and processing fees for the Notices.588 We received no direct comments on the IRFA analysis of rule 30e–3 but as discussed above, we received comments on the rule and projected expense savings from the rule. We have discussed these comments in our discussion of the final rule and our cost/ benefit and PRA estimates above.589 We are amending rule 498 under the Securities Act and certain fund registration forms to require that funds intending to rely on rule 30e–3 include prominent disclosures on the cover page (or beginning) of their summary prospectuses, statutory prospectuses, and shareholder reports in advance of the date on which funds could begin to rely upon the rule.590 We believe that these disclosures will provide important information to both current and prospective investors in advance of a fund’s use of the rule that not only notifies them of the intent of their fund to rely on the rule, but also provides an overview of the rule’s operation, including the fact that reports will be made available on a website and that they will be able to preserve delivery of their reports in paper if they should so desire. Beginning January 1, 2022, these cover page disclosures will no longer be required. Similarly, we are amending rule 14a–16 under the Exchange Act, as proposed, to include a Notice required by rule 30e–3 among the materials that are permitted to accompany a Notice of internet Availability of Proxy Materials.591 We estimate that the costs of these related disclosures will be $284–$721 in the first year and $142–$437 in each of the second and third years for each fund that relies upon rule 30e–3 and that could file registration statements or amendments to registration statements on Form N–1A (including funds that rely upon rule 498), Form N–2, Form 588 See supra notes 372 (estimating aggregate annual gross savings to funds relying on rule 30e–3 of $230,575,360), 393 (estimating aggregate annual gross costs of $89,202,128), 344 (estimating 11,367 funds will rely upon rule 30e–3) and accompanying text. See generally Sections III.C and III.D. $230,575,360 ÷ 11,367 funds = $20,285 per fund. $89,202,128 ÷ 11,367 funds = $7,847 per fund. 589 See generally Sections II, III.B–D, IV.C, and IV.E. 590 See supra Section II.B.2.f. 591 See id. E:\FR\FM\22JNR2.SGM 22JNR2 29203 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations N–3, Form N–4, and Form N–6 (including 88 small entities).592 We are amending Form N–CSR to require that for fund Notices that include content from the shareholder report to which it relates, a copy of the Notice must be filed as part of the fund’s report on Form N–CSR.593 We estimate that the costs for each such report that is filed (including those by 88 small entities) will be $2,677 in the first year and $1,903 in each subsequent year.594 daltland on DSKBBV9HB2PROD with RULES2 E. Agency Action To Minimize Effect on Small Entities The RFA directs the Commission to consider significant alternatives that would accomplish our stated objective, while minimizing any significant economic impact on small entities. The Commission considered the following alternatives for small entities in relation to our forms and form amendments and rules and rule amendments: (i) Establishing different reporting requirements or timetables that take into account resources available to small entities; (ii) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; 592 See supra notes 425 (estimating 10,063 funds that could file registration statements or amendments to registration statements on Form N–1A and that will rely upon rule 30e–3), 430 (estimating disclosure costs related to rule 30e–3 in the first year of $7,144,872 and in the each of the second and third years of $4,286,980). $7,144,872 ÷ 10,063 funds = $710. $4,286,980 ÷ 10,063 funds = $426; see supra notes 432 (estimating 640 funds that could file registration statements or amendments to registration statements on Form N–2 and that will rely upon rule 30e–3), 436 (estimating disclosure costs related to rule 30e–3 in the first year of $454,400 and in each of the second and third years of $272,640. $454,400 ÷ 640 funds = $710. $272,640 ÷ 640 funds = $426; supra note 438 (estimating 13 funds that could file registration statements or amendments to registration statements on Form N–3 and that will rely upon rule 30e–3), 442 (estimating disclosure costs related to rule 30e–3 in the first year of $9,372 and in each of the second and third years of $5,680). $9,372 ÷ 13 funds = $721. $5,680 ÷ 13 funds = $437; 443 (estimating 1,488 funds that could file registration statements or amendments to registration statements on Form N–4 and that will rely upon rule 30e–3), 445 (estimating disclosure costs related to rule 30e–3 in the first year of $422,592 and in the each of the second and third years of $211,296). $422,592 ÷ 1,488 funds = $284. $211,296 ÷ 1,488 funds = $142; 446 (estimating 425 funds that could file registration statements or amendments to registration statements on Form N–6 and that will rely upon rule 30e–3), 448 (estimating disclosure costs related to rule 30e–3 in the first year of $120,700 and in the each of the second and third years of $60,492). $120,700 ÷ 425 funds = $284. $60,492 ÷ 425 funds = $142. 593 See supra Section II.B.2.b.ii. 594 See supra notes 578 (estimating 5,358 funds that will file a Notice with content from the report it relates), 402 (estimating Form N–CSR preparation and filing costs related to rule 30e–3 in the first year of $14,341,169 and each following year of $10,195,144). $14,341,169 ÷ 5,358 funds = $2,677. $10,195,144 ÷ 5,358 funds = $1,903. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 (iii) using performance rather than design standards; and (iv) exempting small entities from all or part of the proposal. Regarding the first alternative, we note that small entities currently follow the same requirements that larger entities do when delivering reports to shareholders. The Commission believes that establishing different reporting requirements or timetables for small entities to deliver reports to shareholders would not be consistent with the Commission’s overarching goal of industry oversight and investor protection. We note that, because reliance on rule 30e–3 will be optional, similar to the proposal, a particular fund is not expected to rely on the rule if the costs to the fund to rely on the rule to that fund exceeds its benefits. Funds that do not rely on the rule will therefore not incur compliance costs. Regarding the second and third alternatives, we do not believe that clarification, consolidation, or simplification of compliance and reporting requirements, or performance rather than design standards, are appropriate in this context. In order to promote comparability and transparency, we believe that shareholder reports should be delivered to shareholders in a manner that will allow investors to better review and compare their investments across funds, including small entities. Therefore, we believe that it is appropriate in this context for shareholder reports to be delivered pursuant to uniform design, compliance, and reporting standards and requirements designed by the Commission. Further regarding clarification of compliance and reporting requirements for small entities, we note that we will publish a small entity compliance guide that will be posted on our website following adoption of rule 30e–3. Regarding the fourth alternative, we note that in addition to providing funds with an optional method to satisfy their obligations to deliver shareholder reports by posting reports online if they meet certain conditions, rule 30e–3 is designed with certain safeguards to respond to investor protection concerns. For example, the rule requires that the shareholder reports and other required materials are publicly accessible free of charge at a website address specified in the Notice, and includes provisions designed to preserve the ability of investors to elect to receive paper reports free of charge. Therefore, we believe that exempting small entities from all or part of the proposal would not be consistent with the Commission’s PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 overarching goal of industry oversight and investor protection. VI. Statutory Authority We are adopting the rule and rule and form amendments contained in this document under the authority set forth in the Securities Act, particularly Sections 5, 6, 7, 10, and 19 thereof [15 U.S.C. 77a et seq.], the Exchange Act, particularly, Sections 3(b), 10, 13, 14, 15, and 36 thereof [15 U.S.C. 78a et seq.], the Investment Company Act, particularly, Sections 6, 8, 20, 24, 30, and 38 thereof [15 U.S.C. 80a et seq.], and 44 U.S.C. 3506, 3507. List of Subjects 17 CFR Part 200 Administrative practice and procedure, Organization and functions (Government agencies). 17 CFR Parts 230, 239, 240, 249, 270, and 274 Investment companies, Reporting and recordkeeping requirements, Securities. For reasons set forth in the preamble, title 17, chapter II of the Code of Federal Regulations is amended as follows: PART 200—ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS Subpart N—Commission Information Collection Requirements Under the Paperwork Reduction Act: OMB Control Numbers 1. The authority citation for subpart N of part 200 continues to read as follows: ■ Authority: 44 U.S.C. 3506; 44 U.S.C. 3507. 2. Effective January 1, 2019, amend § 200.800 in paragraph (b) by adding an entry in numerical order by part and section number for ‘‘Rule 30e–3’’, to read as follows: ■ § 200.800 OMB control numbers assigned pursuant to the Paperwork Reduction Act. * * * (b) * * * Information collection requirement * * Rule 30e–3 ....... * E:\FR\FM\22JNR2.SGM * 22JNR2 * * 17 CFR part or section where identified and described Current OMB control No. * * * 270.30e–3 3235–0758 * * * 29204 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 3. The authority citation for part 230 continues to read, in part, as follows: ■ Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 28, 80a–29, 80a–30, and 80a–37, and Pub. L. 112–106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless otherwise noted. * * * * * 4. Effective January 1, 2019, amend § 230.498 by revising paragraph (b)(1)(v) and adding paragraphs (b)(1)(vi) and (vii) to read as follows. ■ § 230.498 Summary Prospectuses for open-end management investment companies. daltland on DSKBBV9HB2PROD with RULES2 * * * * * (b) * * * (1) * * * (v) The following legend: 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, reports to shareholders, and other information about the Fund online at [lll]. You can also get this information at no cost by calling [lll] or by sending an email request to [lll]. (A) The legend must provide a website address, other than the address of the Commission’s electronic filing system; toll free (or collect) telephone number; and email address that investors can use to obtain the Statutory Prospectus and other information. The website address must be specific enough to lead investors directly to the Statutory Prospectus and other materials that are required to be accessible under paragraph (e)(1) of this section, rather than to the home page or other section of the website on which the materials are posted. The website could be a central site with prominent links to each document. The legend may indicate, if applicable, that the Statutory Prospectus and other information are available from a financial intermediary (such as a broker-dealer or bank) through which shares of the Fund may be purchased or sold. (B) If a Fund incorporates any information by reference into the Summary Prospectus, the legend must identify the type of document (e.g., Statutory Prospectus) from which the information is incorporated and the date of the document. If a Fund incorporates by reference a part of a document, the legend must clearly identify the part by page, paragraph, caption, or otherwise. VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 If information is incorporated from a source other than the Statutory Prospectus, the legend must explain that the incorporated information may be obtained, free of charge, in the same manner as the Statutory Prospectus. A Fund may modify the legend to include a statement to the effect that the Summary Prospectus is intended for use in connection with a defined contribution plan that meets the requirements for qualification under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)), a tax-deferred arrangement under section 403(b) or 457 of the Internal Revenue Code (26 U.S.C. 403(b) or 457), or a variable contract as defined in section 817(d) of the Internal Revenue Code (26 U.S.C. 817(d)), as applicable, and is not intended for use by other investors. (vi) The Summary Prospectus may provide instructions describing how a shareholder can elect to receive prospectuses or other documents and communications by electronic delivery. (vii) A statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund [or from your financial intermediary, such as a brokerdealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Fund [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * ■ 5. Effective January 1, 2021, amend § 230.498 by: ■ a. Adding a sentence to the end of paragraph (b)(1)(v)(A); and ■ b. In paragraph (f)(2), adding the phrase ‘‘a Notice under § 270.30e–3 of this chapter,’’ after ‘‘Statutory Prospectuses,’’. PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 The addition reads as follows: § 230.498 Summary Prospectuses for open-end management investment companies. * * * * * (b) * * * (1) * * * (v) * * * (A) * * * If a Fund relies on § 270.30e–3 of this chapter to transmit a report, the legend must also include the website address required by § 270.30e– 3(c)(1)(iii) of this chapter if different from the website address required by this paragraph (b)(1)(v)(A). * * * * * § 230.498 [Amended] 6. Effective January 1, 2022, amend § 230.498 by removing paragraph (b)(1)(vii). ■ PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 7. The authority citation for part 239 continues to read, in part, as follows: ■ Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, and 80a–37; and sec. 107, Pub. L. 112–106, 126 Stat. 312, unless otherwise noted. * * * * * PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 8. The authority citation for part 240 continues to read, in part, as follows: ■ Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111–203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112–106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. * * * § 240.14a–16 * * [Amended] 9. Effective January 1, 2019, amend § 240.14a–16 paragraph (f)(2)(iii) by adding the phrase ‘‘a Notice under § 270.30e–3 of this chapter,’’ after ‘‘§ 230.498(b) of this chapter,’’. ■ PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934 10. The authority citation for part 249 continues to read, in part, as follows: ■ E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 (2012); Sec. 107, Pub. L. 112–106, 126 Stat. 313 (2012), and Sec. 72001, Pub. L. 114–94, 129 Stat. 1312 (2015), unless otherwise noted. * * * * * PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 11. The authority citation for part 270 continues to read, in part, as follows: ■ Authority: 15 U.S.C. 80a–1 et seq., 80a– 34(d), 80a–37, 80a–39, and Pub. L. 111–203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. * * * * * 12. Effective January 1, 2019, add § 270.30e–3 to read as follows: ■ daltland on DSKBBV9HB2PROD with RULES2 § 270.30e–3 Internet availability of reports to shareholders. (a) General. A Company may satisfy its obligation to transmit a report required by § 270.30e–1 or § 270.30e–2 (‘‘Report’’) to a shareholder of record if all of the conditions set forth in paragraphs (b) through (e), and (i) of this section are satisfied. (b) Availability of report to shareholders and other materials. (1) The following materials are publicly accessible, free of charge, at the website address specified in the Notice from the date the Company transmits the Report as required by § 270.30e–1 or § 270.30e– 2 until the Company next transmits a report required by § 270.30e–1 or § 270.30e–2 with respect to the Fund: (i) Current report to shareholders. The Report. (ii) Prior report to shareholders. Any report with respect to the Fund for the prior reporting period that was transmitted to shareholders of record pursuant to § 270.30e–1 or § 270.30e–2. (iii) Complete portfolio holdings from reports containing a summary schedule of investments. If a report specified in paragraph (b)(1)(i) or (b)(1)(ii) of this section includes a summary schedule of investments (§ 210.12–12B of this chapter) in lieu of Schedule I— Investments in securities of unaffiliated issuers (§ 210.12–12 of this chapter), the Fund’s complete portfolio holdings as of the close of the period covered by the report, presented in accordance with the schedules set forth in §§ 210.12–12 through 210.12–14 of Regulation S–X (§§ 210.12–12 through 210.12–14 of this chapter), which need not be audited. (iv) Portfolio holdings for most recent first and third fiscal quarters. For a Fund other than a Fund that is regulated as a money market fund under § 270.2a– VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 7 or a small business investment company registered on Form N–5 (§§ 239.24 and 274.5 of this chapter), the Fund’s complete portfolio holdings as of the close of the Fund’s most recent first and third fiscal quarters, if any, after the date on which the Fund’s registration statement became effective, presented in accordance with the schedules set forth in §§ 210.12–12 through 210.12–14 of Regulation S–X [§§ 210.12–12 through 210.12–14 of this chapter], which need not be audited. The complete portfolio holdings required by this paragraph (b)(1)(iv) must be made publicly available not later than 60 days after the close of the fiscal quarter. (2) The website address relied upon for compliance with this section may not be the address of the Commission’s electronic filing system. (3) The materials that are accessible in accordance with paragraph (b)(1) of this section must be presented on the website in a format, or formats, that are convenient for both reading online and printing on paper. (4) Persons accessing the materials specified in paragraph (b)(1) of this section must be able to permanently retain, free of charge, an electronic version of such materials in a format, or formats, that meet the conditions of paragraph (b)(3) of this section. (5) The conditions set forth in paragraphs (b)(1) through (b)(4) of this section shall be deemed to be met, notwithstanding the fact that the materials specified in paragraph (b)(1) of this section are not available for a time in the manner required by paragraphs (b)(1) through (b)(4) of this section, provided that: (i) The Company has reasonable procedures in place to ensure that the specified materials are available in the manner required by paragraphs (b)(1) through (b)(4) of this section; and (ii) The Company takes prompt action to ensure that the specified documents become available in the manner required by paragraphs (b)(1) through (b)(4) of this section, as soon as practicable following the earlier of the time at which it knows or reasonably should have known that the documents are not available in the manner required by paragraphs (b)(1) through (b)(4) of this section. (c) Notice. A paper notice (‘‘Notice’’) meeting the conditions of this paragraph (c) must be sent to the shareholder within 70 days after the close of the period for which the Report is being made. The Notice may contain only the information specified by paragraphs (c)(1), (2), and (3) of this section, and may include pictures, logos, or similar design elements so long as the design is PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 29205 not misleading and the information is clear. (1) The Notice must be written using plain English principles pursuant to paragraph (d) of this section and: (i) Contain a prominent legend in bold-face type that states ‘‘[An] Important Report[s] to [Shareholders] of [Fund] [is/are] Now Available Online and In Print by Request.’’ The Notice may also include information identifying the Fund, the Fund’s sponsor (including any investment adviser or sub-adviser to the Fund), a variable annuity or variable life insurance contract or insurance company issuer thereof, or a financial intermediary through which shares of the Fund are held. (ii) State that the Report contains important information about the Fund, including its portfolio holdings and financial statements. The statement may also include a brief listing of other types of information contained in the Report. (iii) State that the Report is available at the website address specified in the Notice or, upon request, by mail, and encourage the shareholder to access and review the Report. (iv) Include a website address where the Report and other materials specified in paragraph (b)(1) of this section are available. The website address must be specific enough to lead investors directly to the documents that are required to be accessible under paragraph (b)(1) of this section, rather than to the home page or section of the website other than on which the documents are posted. The website may be a central site with prominent links to each document. In addition to the website address, the Notice may contain any other equivalent method or means to access the Report or other materials specified in paragraph (b)(1) of this section. (v) Provide a toll-free (or collect) telephone number to contact the Company or the shareholder’s financial intermediary, and: (A) Provide instructions describing how a shareholder may request a paper or email copy of the Report and other materials specified in paragraph (b)(1) of this section at no charge, and an indication that he/she will not otherwise receive a paper or email copy; (B) Explain that the shareholder can at any time elect to receive print reports in the future and provide instructions describing how a shareholder may make that election (e.g., by contacting the Company or by contacting the shareholder’s financial intermediary); and (C) If applicable, provide instructions describing how a shareholder can elect E:\FR\FM\22JNR2.SGM 22JNR2 daltland on DSKBBV9HB2PROD with RULES2 29206 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations to receive shareholder reports or other documents and communications by electronic delivery. (2) The Notice may include additional methods by which a shareholder can contact the Company or the shareholder’s financial intermediary (e.g., by email or through a website), which may include any information needed to identify the shareholder. (3) A Notice relating to a Report required by § 270.30e–1 may include content from the Report if such content is set forth after the information required by paragraph (c)(1) of this section. (4) The Notice may not be incorporated into, or combined with, another document, except that the Notice may incorporate or combine one or more other Notices. (5) The Notice must be sent separately from other types of shareholder communications and may not accompany any other document or materials; provided, however, that the Notice may accompany: (i) One or more other Notices; (ii) A current Summary Prospectus, Statutory Prospectus, Statement of Additional Information, or Notice of Internet Availability of Proxy Materials under § 240.14a–16 of this chapter; (iii) In the case of a Fund held in a separate account funding a variable annuity or variable life insurance contract, such contract or the Statutory Prospectus and Statement of Additional Information for such contract; or (iv) The shareholder’s account statement. (6) A Notice required by this paragraph (c) will be considered transmitted to a shareholder of record if the conditions set forth in § 270.30e– 1(f), § 270.30e–2(b), § 240.14a–3(e), or § 240.14c–3(c) of this chapter are satisfied with respect to that shareholder. (d) Plain English requirements. (1) To enhance the readability of the Notice, plain English principles must be used in the organization, language, and design of the Notice. (2) The Notice must be drafted so that, at a minimum, it substantially complies with each of the following plain English writing principles: (i) Short sentences; (ii) Definite, concrete, everyday words; (iii) Active voice; (iv) Tabular presentation or bullet lists for complex material, whenever possible; (v) No legal jargon or highly technical business terms; and (vi) No multiple negatives. (e) Delivery of paper copy upon request. A paper copy of any of the VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 materials specified in paragraph (b)(1) of this section must be transmitted to any person requesting such a copy, at no cost to the requestor and by U.S. first class mail or other reasonably prompt means, within three business days after a request for a paper copy is received. (f) Investor elections to receive future reports in paper. (1) This section may not be relied upon to transmit a Report to a shareholder if the shareholder has notified the Company (or the shareholder’s financial intermediary) that the shareholder wishes to receive paper copies of shareholder reports at any time after the Company has first notified the shareholder of its intent to rely on the rule or provided a Notice to the shareholder. (2) A shareholder who has notified the Company (or the shareholder’s financial intermediary) that the shareholder wishes to receive paper copies of shareholder reports with respect to a Fund will be deemed to have requested paper copies of shareholder reports with respect to: (i) Any and all current and future Funds held through an account or accounts with: (A) The Fund’s transfer agent or principal underwriter or agent thereof for the same ‘‘group of related investment companies’’ as such term is defined in § 270.0–10; or (B) A financial intermediary; and (ii) Any and all Funds held currently and in the future in a separate account funding a variable annuity or variable life insurance contract. (g) Delivery of other documents. This section may not be relied upon to transmit a copy of a Fund’s currently effective Statutory Prospectus or Statement of Additional Information, or both, under the Securities Act of 1933 (15 U.S.C. 77a et seq.) as otherwise permitted by paragraph (d) of § 270.30e– 1. (h) Definitions. For purposes of this section: (1) Company means a Fund required to transmit a report to shareholders pursuant to § 270.30e–1 or a unit investment trust required to transmit a report to shareholders pursuant to § 270.30e–2. (2) Fund means a registered management company and any separate series of the management company. (3) Statement of Additional Information means the statement of additional information required by Part B of the applicable registration form. (4) Statutory Prospectus means a prospectus that satisfies the requirements of section 10(a) of the Securities Act of 1933 (15 U.S.C. 77(j)(a)). PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 (5) Summary Prospectus means the summary prospectus described in paragraph (b) of § 230.498 of this chapter. (i) Transition period. (1) A Company may rely on this section to first transmit a Report to a shareholder: (i) Beginning on January 1, 2021, if: (A) The Company has included the required statement on each prospectus, summary prospectus, annual report to shareholders, and semi-annual report to shareholders, as applicable, required to be delivered or transmitted to shareholders for the period beginning on the date the Company first publicly offers its shares, and ending on December 31, 2020; or (B) The Company first publicly offers its shares on or after January 1, 2021; or (ii) In all other cases, after the Company has included the required statement on each prospectus, summary prospectus, annual report to shareholders, and semi-annual report to shareholders, as applicable, required to be delivered or transmitted to shareholders for a period of two years or January 1, 2022, whichever comes first. (2) For purposes of this paragraph (i), a ‘‘required statement’’ means the statement regarding the Company’s intent to rely on this section specified by: (i) Its applicable registration form, and (ii) In the case of a Fund that uses a summary prospectus, § 230.498 of this chapter. Note to § 270.30e–3: For a discussion of how the conditions and requirements of this rule may apply in the context of investors holding Fund shares through financial intermediaries, see Investment Company Release No. 33115 (June 5, 2018). 13. Effective January 1, 2022, amend § 270.30e–3 by: ■ a. In paragraph (a), removing ‘‘, and (i)’’; and ■ b. Removing paragraph (i). ■ PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940 14. The authority citation for part 274 continues to read, in part, as follows: ■ Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 80a–24, 80a–26, 80a–29, and Pub. L. 111–203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. * * * * * 15. Effective January 1, 2019, Form N– 1A (referenced in §§ 239.15A and 274.11A) is amended by: ■ a. In Item 1, adding paragraph (a)(5); and ■ b. In Item 27, adding paragraph (d)(8). ■ E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations The additions read as follows: Note: The text of Form N–1A does not, and this amendment will not, appear in the Code of Federal Regulations. Form N–1A * * * * * Item 27. Financial Statements * daltland on DSKBBV9HB2PROD with RULES2 Note: The text of Form N–2 does not, and this amendment will not, appear in the Code of Federal Regulations. * (a) * * * (5) If applicable, the statement required by rule 498(b)(1)(vii) under the Securities Act. * * * * * * * * * (d) * * * (8) Front Cover Page or beginning of Annual and Semi-Annual Report. Include on the front cover page or at the beginning of the annual or semi-annual report a statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund [or from the your financial intermediary, such as a broker-dealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Fund [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * ■ 16. Effective January 1, 2022, Form N– 1A (referenced in §§ 239.15A and 274.11A) is further amended by: ■ a. In Item 1, removing paragraph (a)(5); and ■ b. In Item 27, removing paragraph (d)(8). 17. Effective January 1, 2019, Form N– 2 (referenced in §§ 239.14 and 274.11a– 1) is amended by: ■ 17:35 Jun 21, 2018 a. In Item 1, adding paragraph 1.l; and b. In Item 24, adding Instruction 6.g. The additions read as follows: Form N–2 Item 1. Front and Back Cover Pages VerDate Sep<11>2014 ■ ■ Jkt 244001 * * * * Item 1. Outside Front Cover 1. * * * l. A statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Registrant’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary, such as a broker-dealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * Item 24. Financial Statements * * * * * Instructions * * * * * 6. * * * g. Include on the front cover page or at the beginning of the annual or semiannual report a statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Registrant’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary, such as a broker-dealer or PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 29207 bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * ■ 18. Effective January 1, 2022, Form N– 2 (referenced in §§ 239.14 and 274.11a– 1) is further amended by: ■ a. In Item 1, removing paragraph 1.l; and ■ b. In Item 24, removing Instruction 6.g. ■ 19. Effective January 1, 2019, Form N– 3 (referenced in §§ 239.17a and 274.11b) is amended by: ■ a. In Item 1, adding new paragraph (a)(xi); and ■ b. In Item 28(a), adding new Instruction 6(vii). The additions read as follows: Note: The text of Form N–3 does not, and these amendments will not, appear in the Code of Federal Regulations. Form N–3 * * * * * Item 1. Cover Pages (a) * * * (xi) A statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Registrant’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary, such as a broker-dealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and E:\FR\FM\22JNR2.SGM 22JNR2 29208 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * Item 28. Financial Statements (a) * * * Instructions daltland on DSKBBV9HB2PROD with RULES2 * * * * * 6. * * * (vii) Include on the front cover page or at the beginning of the annual or semi-annual report a statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Registrant’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary, such as a broker-dealer or bank]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all funds held with [the fund complex/your financial intermediary]. * * * * * ■ 20. Effective January 1, 2022, Form N– 3 (referenced in §§ 239.17a and 274.11b) is amended by: ■ a. In Item 1, removing paragraph (a)(xi); and ■ b. In Item 28(a), removing Instruction 6(vii). VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 21. Effective January 1, 2019, Form N– 4 (referenced in §§ 239.17b and 17 CFR 274.11c) is amended by adding new paragraph (a)(x) to Item 1. The additions read as follows: ■ Note: The text of Form N–4 does not, and these amendments will not, appear in the Code of Federal Regulations. Form N–4 * * * * * Item 1. Cover Page (a) * * * (x) A statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the shareholder reports for portfolio companies [available under your contract] will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all portfolio companies [available under your contract]. * * * * * ■ 22. Effective January 1, 2022, Form N– 4 (referenced in §§ 239.17b and 274.11c) is amended by removing paragraph (a)(x) of Item 1. ■ 23. Effective January 1, 2019, Form N– 6 (referenced in 17 CFR 239.17c and 17 CFR 274.11d) is amended by adding new paragraph (a)(6) to Item 1. The additions read as follows: Note: The text of Form N–6 does not, and these amendments will not, appear in the Code of Federal Regulations. Form N–6 * * * * * Item 1. Front and Back Cover Pages (a) * * * PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 (6) A statement to the following effect, if applicable: Beginning on [date], as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the shareholder reports for portfolio companies [available under your contract] will no longer be sent by mail, unless you specifically request paper copies of the reports from the Registrant [or from your financial intermediary]. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Registrant [or your financial intermediary] electronically by [insert instructions]. You may elect to receive all future reports in paper free of charge. You can inform the Registrant [or your financial intermediary] that you wish to continue receiving paper copies of your shareholder reports by [insert instructions]. Your election to receive reports in paper will apply to all portfolio companies [available under your contract]. * * * * * ■ 24. Effective January 1, 2022, Form N– 6 (referenced in §§ 239.17c and 274.11d) is further amended by removing paragraph (a)(6) of Item 1. ■ 25. Effective January 1, 2021, Form N– CSR (referenced in §§ 249.331 and 274.128) is amended by: ■ a. In Item 1, designating as paragraph (a) ‘‘Include a copy of the report transmitted to stockholders pursuant to Rule 30e–1 under the Act (17 CFR 270.30e–1).’’ ■ b. In Item 1, adding new paragraph (b). The designation and addition read as follows: Note: The text of Form N–CSR does not, and these amendments will not, appear in the Code of Federal Regulations. Form N–CSR * * * * * Item 1. Reports to Stockholders. (a) Include a copy of the report transmitted to stockholders pursuant to Rule 30e–1 under the Act (17 CFR 270.30e–1). (b) Include a copy of each notice transmitted to stockholders in reliance on Rule 30e–3 under the Act (17 CFR 270.30e–3) that contains disclosures E:\FR\FM\22JNR2.SGM 22JNR2 Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Rules and Regulations specified by paragraph (c)(3) of that rule. By the Commission. 29209 Dated: June 5, 2018. Brent J. Fields, Secretary. [FR Doc. 2018–12423 Filed 6–21–18; 8:45 am] daltland on DSKBBV9HB2PROD with RULES2 BILLING CODE 8011–01–P VerDate Sep<11>2014 17:35 Jun 21, 2018 Jkt 244001 PO 00000 Frm 00053 Fmt 4701 Sfmt 9990 E:\FR\FM\22JNR2.SGM 22JNR2

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 121 (Friday, June 22, 2018)]
[Rules and Regulations]
[Pages 29158-29209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12423]



[[Page 29157]]

Vol. 83

Friday,

No. 121

June 22, 2018

Part II





Securities and Exchange Commission





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17 CFR Parts 200, 230, 239, et al.





Optional Internet Availability of Investment Company Shareholder 
Reports; Final Rule

Federal Register / Vol. 83 , No. 121 / Friday, June 22, 2018 / Rules 
and Regulations

[[Page 29158]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 230, 239, 240, 249, 270, and 274

[Release Nos. 33-10506; 34-83380; IC-33115; File No. S7-08-15]
RIN 3235-AL42


Optional Internet Availability of Investment Company Shareholder 
Reports

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission is adopting new rule 
30e-3 under the Investment Company Act of 1940. Subject to conditions, 
new rule 30e-3 will provide certain registered investment companies 
with an optional method to satisfy their obligations to transmit 
shareholder reports by making such reports and other materials 
accessible at a website address specified in a notice to investors. We 
are also adopting amendments to rule 498 under the Securities Act of 
1933 and our fund registration forms to require that during a certain 
transition period funds that choose to implement the new delivery 
method for shareholder reports provide prominent disclosures in 
prospectuses and certain other shareholder documents that will notify 
investors of the upcoming change in transmission format for a period of 
two years. New rule 30e-3 and the amendments to rule 498 and our 
registration forms address the fact that some investors may wish to 
receive shareholder reports in paper. As such, the new rule 
incorporates a set of protections so that investors who prefer to 
receive reports in paper will continue to receive them in that format. 
These protections include, among others, a minimum length phase-in 
period that ends no earlier than December 31, 2020 and notice 
requirements that must be implemented and followed beginning January 1, 
2019, or the date shares are first publicly offered, if a registered 
investment company would want to use new rule 30e-3 as of January 1, 
2021. The rule requires that a paper notice be sent to an investor each 
time a current shareholder report is accessible online. The notice must 
include instructions for how an investor can elect--at any time--to 
receive all future reports in paper, or request to receive particular 
reports in paper on an ad hoc basis. We are also adopting related 
amendments to certain other rules and forms. This optional method is 
intended to modernize the manner in which periodic information is made 
available to investors, which we believe will improve investors' 
experience while reducing expenses associated with printing and mailing 
shareholder reports that are borne by investment companies and 
ultimately their investors.

DATES: This rule is effective January 1, 2019, except:
     Amendatory Instructions 5 and 25 to 17 CFR 230.498 and 
Form N-CSR (referenced in 17 CFR 249.331 and 274.128), which are 
effective January 1, 2021; and
     Amendatory Instructions 6, 13, 16, 18, 20, 22, and 24 to 
17 CFR 230.498, 17 CFR 270.30e-3, Form N-1A (referenced in 17 CFR 
239.15A and 274.11A), Form N-2 (referenced in 17 CFR 239.14 and 
274.11a-1), Form N-3 (referenced in 17 CFR 239.17a and 274.11b), Form 
N-4 (referenced in 17 CFR 239.17b and 274.11c), and Form N-6 
(referenced in 17 CFR 239.17c and 274.11d), which are effective January 
1, 2022.

FOR FURTHER INFORMATION CONTACT: 
    J. Matthew DeLesDernier and John Lee, Senior Counsels; or Michael 
C. Pawluk, Senior Special Counsel, at (202) 551-6792, Investment 
Company Regulation Office, Division of Investment Management, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the 
``Commission'') is adopting: New rule 30e-3 \1\ under the Investment 
Company Act of 1940 (``Investment Company Act''); \2\ amendments to 
Forms N-1A,\3\ N-2,\4\ N-3,\5\ N-4,\6\ and N-6 \7\ under the Investment 
Company Act and the Securities Act of 1933 (``Securities Act''); \8\ 
amendments to Form N-CSR \9\ under the Investment Company Act and the 
Securities Exchange Act of 1934 (``Exchange Act''); \10\ amendments to 
rule 498 \11\ under the Securities Act; amendments to rule 14a-16 \12\ 
under the Exchange Act; and amendments to Section 800 of 17 CFR part 
200.\13\
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    \1\ 17 CFR 270.30e-3.
    \2\ 15 U.S.C. 80a-1 et seq. Unless otherwise noted, all 
references to statutory sections are to the Investment Company Act, 
and all references to rules under the Investment Company Act are to 
Title 17, Part 270 of the Code of Federal Regulations [17 CFR part 
270].
    \3\ 17 CFR 239.15A and 17 CFR 274.11A.
    \4\ 17 CFR 239.14 and 17 CFR 274.11a-1.
    \5\ 17 CFR 239.17a and 17 CFR 274.11b.
    \6\ 17 CFR 239.17b and 17 CFR 274.11c.
    \7\ 17 CFR 239.17c and 17 CFR 274.11d.
    \8\ 15 U.S.C. 77a et seq.
    \9\ 17 CFR 249.331 and 17 CFR 274.128.
    \10\ 15 U.S.C. 78a et seq.
    \11\ 17 CFR 230.498.
    \12\ 17 CFR 240.14a-16.
    \13\ 17 CFR 200.800.
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Table of Contents

I. Introduction
    A. Public Comment
    B. Overview of Final Rule and Transmission Framework Generally
    C. Other Actions
II. Discussion
    A. General Comments Regarding Rule 30e-3
    1. Increased Internet Usage
    2. Use of ``Implied Consent''
    3. Cost Savings
    4. Regulatory Consistency
    5. Environmental Benefits
    6. Reliability and Security Concerns
    7. Investor Advisory Committee
    B. Adoption of Rule 30e-3 and Related Amendments
    1. Overview
    2. Conditions of Rule 30e-3
    3. Related Amendments
    C. The Role of Certain Financial Intermediaries
    1. Distribution of Notices to Beneficial Owners
    2. Beneficial Owner Elections for Paper Reports
    3. Website Availability of Materials
    D. Extension of Similar Delivery Framework to Other Documents
    E. Effective Dates
    1. Rule 30e-3
    2. Disclosure Amendments
    3. Other Amendments
    4. Communications With Investors During the Extended Transition 
Period
III. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
    C. Benefits
    1. Cost Savings
    2. Increased Access to and Review of Portfolio Information and 
Shareholder Reports
    D. Costs
    1. Compliance Costs
    2. Other Costs
    E. Alternatives
IV. Paperwork Reduction Act
    A. Availability of Shareholder Report and Other Materials
    B. Proposed Initial Statement
    C. Notice
    D. Delivery Upon Request
    E. Impact on Information Collections for Rules 30e-1 and 30e-2
    F. Related Disclosure Amendments
    G. Form N-CSR
V. Final Regulatory Flexibility Analysis
    A. Need for and Objectives of the Rule, Rule Amendments and Form 
Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Rule
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Agency Action To Minimize Effect on Small Entities
VI. Statutory Authority

[[Page 29159]]

I. Introduction

    Today we are adopting rule 30e-3 under the Investment Company 
Act,\14\ a rule that provides registered management companies and any 
separate series thereof and certain registered unit investment trusts 
(``UITs'') \15\ with an optional method to satisfy requirements to 
transmit shareholder reports by posting those reports online if they 
meet certain conditions.\16\ In order to rely on the rule, funds will 
be required to make their reports and other required materials publicly 
accessible, free of charge, at a website address specified in a notice 
to shareholders,\17\ and meet certain other conditions specified in the 
rule. In recognition of the fact that some investors may wish to 
receive their shareholder reports in paper, the rule incorporates a set 
of protections designed to preserve the ability of these investors to 
do so. Thus, the rule accommodates the preferences of all investors 
regarding their preferred means of communication--whether they wish to 
receive reports in paper or electronically, or simply to be notified 
that the reports are available online. To that end, we are also 
adopting an extended transition period with staged effective dates, and 
the earliest that a fund could rely on the rule to satisfy shareholder 
report transmittal requirements is January 1, 2021.
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    \14\ Rule 30e-3 was proposed in May 2015 as part of the 
Commission's broader Investment Company Reporting Modernization 
proposal. See Investment Company Reporting Modernization, Investment 
Company Act Release No. 31610 (May 20, 2015) [80 FR 33590 (June 12, 
2015)] (``Proposing Release''). As part of the proposal, we also 
proposed new forms (Form N-CEN and Form N-PORT), amendments to 
Regulation S-X, and other amendments to modernize the reporting and 
disclosure of information by registered investment companies. In 
October 2016, the Commission adopted final rules related to the 
proposal, with the exception of rule 30e-3. See Investment Company 
Reporting Modernization, Investment Company Act Release No. 32314 
(Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (``Reporting 
Modernization Adopting Release'').
    \15\ Unless the context otherwise requires, for ease of 
reference, throughout this release ``fund'' or ``funds,'' 
individually or collectively, refers to registered management 
companies (and any separate series thereof) and UITs.
    \16\ The final rule applies to reports required by rule 30e-1 
(reports of registered management companies) and reports required by 
rule 30e-2 (reports to shareholders of registered UITs, 
substantially all of the assets of which consist of securities 
issued by a management company). See rule 30e-3(a); rule 30e-1(a); 
rule 30e-2(a).
    \17\ Interests in securities issued by insurance company 
separate accounts organized as UITs are typically referred to as 
accumulation units, not shares. For convenience, however, in this 
release owners of interests in securities issued by UITs, whether 
the issuer is a separate account or otherwise, are referred to as 
shareholders, and accumulation units are referred to as shares.
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    This new option is intended to modernize the manner in which funds 
deliver periodic information to investors. We believe it will improve 
investors' ability to access and use this information (for example, by 
providing investors with access to at least a full year of complete 
portfolio holdings information in one location), while reducing 
expenses associated with printing and mailing that are borne by funds, 
and ultimately, by their investors. The rule draws on the Commission's 
experience of more than twenty years with use of the internet as a 
medium to provide documents and other information to investors.\18\ The 
rule also draws on the Commission's investor testing efforts and other 
empirical research concerning investors' preferences about methods of 
delivery for required disclosure documents and use of the internet for 
financial and other purposes generally.\19\
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    \18\ See, e.g., Use of Electronic Media for Delivery Purposes, 
Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 
(Oct. 13, 1995)] (``1995 Release'') (providing Commission views on 
the use of electronic media to deliver information to investors, 
with a focus on electronic delivery of prospectuses, annual reports, 
and proxy solicitation materials); Use of Electronic Media by 
Broker-Dealers, Transfer Agents, and Investment Advisers for 
Delivery of Information, Investment Company Act Release No. 21945 
(May 9, 1996) [61 FR 24644 (May 15, 1996)] (``1996 Release'') 
(providing Commission views on electronic delivery of required 
information by broker-dealers, transfer agents, and investment 
advisers); Use of Electronic Media, Investment Company Act Release 
No. 24426 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (``2000 
Release'') (providing updated interpretive guidance on the use of 
electronic media to deliver documents on matters such as telephonic 
and global consent, issuer liability for website content, and legal 
principles that should be considered in conducting online 
offerings).
    See also Securities Offering Reform, Securities Act Release No. 
8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (``Securities 
Offering Reform'') (adopting rule 172 under the Securities Act 
providing an ``access equals delivery'' framework under which 
issuers and intermediaries can satisfy their final prospectus 
delivery obligations); Shareholder Choice Regarding Proxy Materials, 
Investment Company Act Release No. 27911 (July 26, 2007) [72 FR 
42222 (Aug. 1, 2007)] (``Shareholder Choice Regarding Proxy 
Materials Release'') (adopting rule amendments requiring issuers to 
post their proxy materials on a specified website and provide 
shareholders with a notice of internet availability of the 
materials); Enhanced Disclosure and New Prospectus Delivery Option 
for Registered Open-End Management Investment Companies, Investment 
Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 
2009)] (``Summary Prospectus Release'') (permitting the use of a 
summary prospectus by registered open-end management investment 
companies); Interactive Data for Mutual Fund Risk/Return Summary, 
Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748 
(Feb. 19, 2009)] (``XBRL Release'') (requiring open-end funds to 
provide the risk/return section of their prospectus in interactive 
data format using eXtensible Business Reporting Language 
(``XBRL'')); Amendments to Rules Requiring Internet Availability of 
Proxy Materials, Securities Act Release No. 9073 (Feb. 22, 2010) [75 
FR 9073 (Feb. 26, 2010)] (``Internet Availability of Proxy Materials 
Release'') (providing additional flexibility regarding the format of 
the notice of internet availability of proxy materials); Reporting 
Modernization Adopting Release, supra note 14; Inline XBRL Filing of 
Tagged Data, Securities Act Release No. 10323 (Mar. 1, 2017) [82 FR 
14282 (Mar. 17, 2017)] (``Inline XBRL Release'') (proposing the use 
of the Inline XBRL format for the submission of operating company 
financial statement information and mutual fund risk/return 
summaries); Exhibit Hyperlinks and HTML Format, Securities Act 
Release No. 10322 (Mar. 1, 2017) [82 FR 14130 (Mar. 17, 2017)] 
(``Exhibit Hyperlinks and HTML Format Release'') (requiring exhibit 
hyperlinks and filings in HTML format); FAST Act Modernization and 
Simplification of Regulation S-K, Securities Act Release No. 10425 
(Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (``FAST Act Regulation 
S-K Release'') (proposing amendments to modernize and simplify 
certain disclosure requirements in Regulation S-K, and related rules 
and forms).
    \19\ For example, in 2011, the Commission engaged a consultant 
to conduct investor testing regarding shareholder reports. The 
consultant's report concerning that testing (``Investor Testing of 
Mutual Fund Shareholder Reports'') is in the comment file for this 
rule (available at www.sec.gov/comments/s7-08-15/s70815.shtml). 
Separately, Commission staff prepared a study of investor financial 
literacy pursuant to Section 917 of the Dodd-Frank Act. Materials 
relating to this study, including the staff's report, are available 
at https://www.investor.gov/publications-research-studies/sec-research.
    In addition, in 2007, the Commission engaged a consultant to 
conduct focus group interviews and a telephone survey concerning 
investors' views and opinions about various disclosure documents 
filed by companies, including mutual funds. The consultant's report 
concerning the focus group testing and related transcripts are in 
the comment file for this rule (available at www.sec.gov/comments/s7-08-15/s70815.shtml). The consultant's report concerning the 
telephone survey is available at https://www.sec.gov/pdf/disclosuredocs.pdf.
---------------------------------------------------------------------------

    We continue to search for better ways of providing investors with 
the disclosure that they need to evaluate funds in which they are 
considering investing or currently hold shares. As part of these 
general efforts, we are also issuing a Request for Comment directed at 
investors regarding ways in which fund disclosure, including 
shareholder reports, may be improved.\20\ We are also issuing a second 
Request for Comment on the processing fees charged by intermediaries 
for distributing fund shareholder reports and other materials to 
investors.\21\
---------------------------------------------------------------------------

    \20\ Fund Retail Investor Experience and Disclosure Request for 
Comment, Investment Company Act Release No. 33113 (June 5, 2018) 
(``Disclosure Request for Comment''). Comments are requested by 
October 31, 2018; see infra Section I.C.
    \21\ Request for Comments on the Processing Fees Charged by 
Intermediaries for Distributing Materials Other Than Proxy Materials 
to Fund Investors, Investment Company Act Release No. 33114 (June 5, 
2018) (``Processing Fee Request for Comment''). Comments are 
requested by October 31, 2018; see infra Section I.C.
---------------------------------------------------------------------------

A. Public Comment

    We received over 1,000 comments on the Proposing Release, the vast 
majority of which specifically commented on

[[Page 29160]]

proposed rule 30e-3.\22\ While some commenters provided comments on 
specific aspects of the proposal, most focused on whether the 
Commission should adopt the rule at all. Commenters supporting the 
proposed rule cited benefits including those related to website 
transmission generally, the proposed rule's consistency with internet 
usage trends, savings to funds and ultimately investors from the 
reduction in printing and mailing costs, and environmental benefits. In 
many cases, these commenters recommended modifications to the proposed 
rule to increase cost savings and other benefits under the rule and to 
provide clarity regarding how the rule would operate in certain 
contexts.\23\
---------------------------------------------------------------------------

    \22\ See infra Section II.A. The comment letters on the 
Proposing Release (File No. S7-08-15) are available at https://www.sec.gov/comments/s7-08-15/s70815.shtml.
    \23\ See infra Sections II.B.2 (application to UITs with 
transmission obligations under rule 30e-2), II.C (shares held 
through certain financial intermediaries).
---------------------------------------------------------------------------

    Commenters opposed to the proposed rule focused on concerns such as 
the impact on certain demographic groups that may have limited access 
to the internet, the proposed rule's use of implied consent, the extent 
to which cost savings under the proposed rule would not be as great as 
anticipated by the Commission, and the adverse impact on certain third 
parties such as the paper industry and mail carriers.

B. Overview of Final Rule and Transmission Framework Generally

    After consideration of the comments we received, we are adopting 
rule 30e-3 with several modifications designed to respond to investor 
protection concerns, provide additional flexibility and clarity in the 
operation of this transmission regime, and further increase cost 
savings for investors. Some key elements of the new transmission 
framework under rule 30e-3 include:
     Use of Rule is Optional. We note that this new method of 
transmission is optional--funds that wish to transmit shareholder 
reports in paper or pursuant to the Commission's existing electronic 
delivery guidance \24\ will continue to be able to satisfy their 
regulatory obligations by those methods.
---------------------------------------------------------------------------

    \24\ See 1995 Release, supra note 18; 1996 Release, supra note 
18; 2000 Release, supra note 18.
---------------------------------------------------------------------------

     Use of Rule With Respect to Investors Who Have Opted Into 
Electronic Delivery. The rule will not require changes to existing 
methods of delivering shareholder reports electronically. The rule does 
not supercede or modify the Commission's existing guidance regarding 
electronic delivery of fund shareholder reports. Funds and 
intermediaries may continue to rely on the Commission's guidance to 
electronically transmit reports to investors who have elected to 
receive reports electronically.\25\
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    \25\ For example, a fund or intermediary will not be required to 
send those investors, electronically or otherwise, a notice required 
by the rule. Some investors who receive shareholder reports pursuant 
to rule 30e-3 may in the future elect delivery under the 
Commission's electronic delivery guidance. The final rule requires 
funds to include in notices instructions regarding how an investor 
can elect to receive shareholder reports or other documents by 
electronic delivery if the fund offers electronic delivery. See rule 
30e-3(c)(1)(v)(C).
---------------------------------------------------------------------------

     Preservation of Preference for Paper Reports. Recognizing 
that some investors may wish to receive their shareholder reports in 
paper, the final rule--as did the proposed rule--incorporates a set of 
protections designed to preserve the ability of investors to receive 
paper reports on a per report or ongoing basis if that is their 
preferred means of communication.\26\
---------------------------------------------------------------------------

    \26\ See infra Sections II.B.2.c, II.B.2.d.
---------------------------------------------------------------------------

     Website Availability of Reports and Other Information. As 
proposed, the shareholder report and other required materials must be 
made publicly accessible and free of charge at a website address 
specified in a notice to investors.\27\
---------------------------------------------------------------------------

    \27\ See infra Section II.B.2.a.
---------------------------------------------------------------------------

     Notice. Substantially as proposed, investors must be 
provided with a paper notice of the website availability of the 
shareholder report (``Notice'') that contains instructions by which 
investors will be able to request a paper or email copy. The final rule 
allows funds greater flexibility than the proposal in the design of the 
Notice by permitting it to contain additional information including, 
for example, content from the shareholder report that the fund 
considers helpful to investors, instructions on how investors can elect 
electronic delivery of reports and other materials, and pictures, 
logos, or similar design elements so long as the design is not 
misleading and the information is clear.\28\
---------------------------------------------------------------------------

    \28\ See infra Section II.B.2.b; note 191 (reminding funds of 
their obligations with respect to the antifraud provisions of the 
federal securities laws).
---------------------------------------------------------------------------

     New Extended Transition Period. To inform investors in 
advance of the change of transmission method, and to accommodate 
systems and operations changes by funds, intermediaries and service 
providers necessary to implement the new optional transmission regime, 
we are adopting an extended transition period.\29\ This extended 
transition period replaces the proposed requirement to send an 
``Initial Statement'' 60 days in advance of reliance on the rule with 
respect to an investor.
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    \29\ See infra Sections II.B.2.d, II.B.2.f, II.E.
---------------------------------------------------------------------------

     Filing of Notice. We have modified the proposal by 
adopting amendments to Form N-CSR to require the filing of Notices that 
incorporate disclosures from the shareholder report.\30\ This 
requirement should help further inform Commission regulatory efforts 
with respect to how the content of shareholder reports can be improved 
and should help our monitoring for compliance with the rule.
---------------------------------------------------------------------------

    \30\ See infra Section II.B.2.b.v.
---------------------------------------------------------------------------

     Guidance Regarding Financial Intermediaries. We are also 
providing guidance, as requested by commenters, to clarify the 
operation of the rule in the context of financial intermediaries such 
as broker-dealers.\31\
---------------------------------------------------------------------------

    \31\ See infra Section II.C.
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C. Other Actions

    We are committed to continuously improving the content and delivery 
of information to investors, including through efforts that encourage 
the use of technology to provide investors with the tools they need to 
evaluate their investments, and reducing costs and other regulatory 
burdens where appropriate. To that end, today we are taking two related 
actions intended to further these goals.
    First, we approved amendments to rules of the New York Stock 
Exchange (``NYSE'') regarding processing fees paid to financial 
intermediaries for the delivery of shareholder reports and Notices 
under ``notice and access'' rules such as rule 30e-3 to investors 
holding shares through certain financial intermediaries.\32\ The NYSE 
rule

[[Page 29161]]

amendments state that ``notice and access'' processing fees, which 
previously applied only to proxy distributions where an issuer elects 
to utilize notice and access for a proxy distribution,\33\ may also 
apply to transmission of shareholder reports under rule 30e-3 to 
beneficial owners who purchase their fund shares through broker-dealer 
intermediaries.\34\ The amendments clarify, however, that the ``notice 
and access'' fee will not be charged for any account with respect to 
which a fund pays a ``preference management'' fee in connection with a 
distribution of shareholder reports.\35\ In addition, the NYSE rule 
amendments clarify that, for purposes of determining the amount of 
notice and access fees to be charged, the number of accounts should be 
computed by aggregating shares of any class of stock of the issuer 
eligible to receive the same distribution.\36\
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    \32\ See Exchange Act Release Nos. 83378 (June 5, 2018) (Order 
Affirming Action by Delegated Authority Approving SR-NYSE-2016-55 
and Discontinuing Stay); 79370 (Nov. 21, 2016) [81 FR 85655 (Nov. 
28, 2016)] (Stay Order); 79355 (Nov. 18, 2016) [81 FR 85291 (Nov. 
25, 2016)] (Approval Order) (``NYSE Approval Order''); 78589 (Aug. 
16, 2016) [81 FR 56717 (Aug. 22, 2016)] (Notice). NYSE rule 451 
outlines three types of processing fees discussed by commenters in 
connection with the proposal: (i) The ``interim report'' fee (a 
processing unit fee of $0.15 per account, whether a report is 
delivered in paper, or delivery is ``suppressed'' because the report 
is delivered electronically or not delivered because of 
``householding'' or other reasons); (ii) the ``preference 
management'' fee (a $0.10 fee assessed for each suppressed account--
e.g., accounts receiving shareholder reports by email or householded 
accounts); and (iii) a ``notice and access'' fee (an incremental fee 
charged at declining marginal levels based on the number of all 
financial intermediary accounts through which fund securities are 
beneficially owned; there are five marginal fee tiers (in $0.05 
increments) per account beginning with the $0.25 per account tier 
and decreasing to $0.05 per account tier). See NYSE rule 451.90.3-
451.90.5; see also NYSE rules 465 and 451.10 (noting applicability 
of fees under NYSE rule 451 to distribution of interim and annual 
reports).
    \33\ See rule 14a-16 under the Exchange Act which permits 
issuers, that comply with the requirements of the rule, to 
distribute proxy material electronically through the ``notice and 
access'' method. 17 CFR 240.14a-16.
    \34\ See NYSE rule 451.90(5). The Commission notes that the NYSE 
rule states that the ``notice and access fees'' in NYSE rule 
451.90(5) apply to the ``distribution of investment company 
shareholder reports pursuant to any `notice and access' rules 
adopted by the [Commission].'' We believe that rule 30e-3 qualifies 
as such a rule.
    \35\ Id.
    \36\ Id.
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    Second, today we also are issuing two releases requesting comment 
on issues related to shareholder reports. In the first release, we are 
requesting comment on enhancing fund disclosures to improve the 
investor experience and to help investors make more informed investment 
decisions.\37\ This release requests feedback directly from fund 
investors on the delivery, design and content of fund disclosure.
---------------------------------------------------------------------------

    \37\ See Disclosure Request for Comment, supra note 20.
---------------------------------------------------------------------------

    In the second release, we are requesting comment on the processing 
fees charged by intermediaries for distributing fund shareholder 
reports and other materials to investors.\38\ For example, we are 
requesting comment on the current processing fee structure, including 
the application of various processing fees and rates thereof under the 
NYSE rules, transparency of these fees, practices related to the 
payment of these fees and remittances received by financial 
intermediaries for delivery of fund documents (including shareholder 
reports), and the appropriateness of these fees in cases where 
intermediaries are separately paid shareholder servicing fees from fund 
assets.
---------------------------------------------------------------------------

    \38\ See Processing Fee Request for Comment, supra note 21.
---------------------------------------------------------------------------

II. Discussion

A. General Comments Regarding Rule 30e-3

    Most commenters on the proposal focused on whether we should adopt 
rule 30e-3 and particularly its optional method of satisfying 
requirements to transmit shareholder reports by making them available 
on websites. We discuss below general comments received on the 
proposal, as well as why we have determined to adopt the rule. Specific 
comments on the particular provisions of the rule as proposed are 
discussed in more detail in Sections II.B.2-II.E below.
1. Increased Internet Usage
    Commenters supporting the rule cited the benefits of allowing 
transmission of shareholder reports by making them accessible on 
websites, including improving the overall accessibility of the 
information \39\ and expanding the possibilities for innovative visual 
displays and layered disclosure.\40\ Commenters pointed to trends 
towards increasing internet usage, with some commenters highlighting 
that 94% of households owning mutual funds had some form of internet 
access in 2014, up from 68% in 2000.\41\ Commenters also noted that 
internet usage has increased among previously underserved demographic 
groups.\42\
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    \39\ See, e.g., Comment Letter of Capital Research and 
Management Company (Aug. 11, 2015) (``Capital Research Comment 
Letter I''); Comment Letter of Capital Research and Management 
Company (May 7, 2018) (``Capital Research Comment Letter II''); 
Comment Letter of Simpson Thacher & Bartlett LLP (Aug. 11, 2015) 
(``Simpson Thacher Comment Letter''); Comment Letter of Interactive 
Data Pricing and Reference Data LLC (Aug. 10, 2015) (``Interactive 
Data Comment Letter''); Comment Letter of Investment Company 
Institute (Aug. 12, 2015) (``ICI Comment Letter I'') (noting many 
investors now prefer enhanced availability of information on the 
internet).
    \40\ See Comment Letter of Investment Company Institute (July 8, 
2016) (``ICI Comment Letter II'') (``Paper reports are unable to 
help investors navigate layered information or access more detailed 
information. The internet offers the ultimate a la carte menu: Those 
who want more extensive information can get it; those who do not can 
access or be provided the essential information they need, in a form 
they are likely to use.''); see also Recommendation of the Investor 
Advisory Committee Regarding Promotion of Electronic Delivery and 
Development of a Summary Disclosure Document for Delivery of 
Investment Company Shareholder Reports (Dec. 7, 2017) (``Investment 
Advisory Committee Recommendation''); Comment Letter of the Consumer 
Action and National Consumers League to Anne Sheehan, Chairman of 
the Investor Advisory Committee (Dec. 1, 2017), available at https://www.sec.gov/comments/265-28/26528-2748128-161587.pdf.
    \41\ See, e.g., Comment Letter of the Committee of Annuity 
Insurers (Aug. 11, 2015) (``CAI Comment Letter I''); Capital 
Research Comment Letter I; ICI Comment Letter I.
    \42\ See, e.g., ICI Comment Letter I (noting widespread use of 
the internet among various age groups, education levels and income 
levels and highlighting a 2014 ICI study that ``found the following 
with respect to internet access in mutual fund owning households: 
(1) Head of household age 65 or older, 86% have access; (2) 
education level of high school diploma or less, 84% have access; and 
(3) household income of less than $50,000, 84% have access''); ICI 
Comment Letter II (highlighting a 2015 survey showing that 85% of 
all Americans had access to the internet); CAI Comment Letter I 
(stating that ``very widespread internet access holds true even for 
those demographic groups that may generally be assumed to have 
relatively less internet access than most'').
---------------------------------------------------------------------------

    A number of commenters stated that website disclosure is consistent 
with many investors' preferences.\43\ One commenter stated that 
shareholder use of the internet to conduct fund transactions had 
increased sharply since 2005, with 89% of the transactions processed by 
its fund family for direct shareholders made through electronic means 
in 2014.\44\ Similarly, another commenter stated that ``with increased 
ease of access, investors also increasingly prefer enhanced 
availability of financial information on the internet.'' \45\ This 
commenter provided survey results from 2013 finding that 82% of U.S. 
households owning mutual funds used the internet

[[Page 29162]]

for financial purposes.\46\ Several commenters also believed that the 
rule as proposed included appropriate protections for investors 
preferring paper by preserving the option for fund investors to 
continue receiving paper reports.\47\
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    \43\ See, e.g., Capital Research Comment Letter I; Comment 
Letter of CFA Institute (Aug. 10, 2015) (``CFA Institute Comment 
Letter'') (``We support this proposal to modernize the system for 
providing reports and believe most investors will view this as 
positively.''); ICI Comment Letter II (stating ``the Commission's 
proposal aligns much more effectively with shareholder preferences 
for information access than the current outdated system'').
    \44\ See Comment Letter of T. Rowe Price Associates, Inc. (Aug. 
21, 2015) (``T. Rowe Price Comment Letter I'') (comparing this with 
data from 2005 when 65% of transactions processed with direct 
shareholders were made through electronic means); Comment Letter of 
T. Rowe Price Associates, Inc. (Apr. 17, 2018) (``T. Rowe Price 
Comment Letter II'') (noting that in 2017, 87% of their interactions 
``with personal and workplace investors took place digitally via 
mobile applications or the Web'').
    See also FINRA Investor Education Foundation, Investors in the 
United States 2016 (Dec. 2016), available at https://www.usfinancialcapability.org/downloads/NFCS_2015_Inv_Survey_Full_Report.pdf (``FINRA 2016 Investors 
Study''). While the FINRA 2016 Investors Study does not distinguish 
fund shareholder reports from other disclosure materials regarding 
investments (nor does it specify what disclosure materials are 
contemplated in this survey e.g., shareholder reports, summary 
prospectuses, statutory prospectuses, account statements, etc.), it 
presents general investor survey data regarding investor disclosure 
preferences: 49% of respondents prefer paper documents physically 
mailed, 27% of respondents prefer electronic documents by email, 14% 
prefer in-person meetings with a broker/adviser, and 6% prefer that 
documents are accessed on the internet (not via email).
    \45\ See ICI Comment Letter I.
    \46\ See id.
    \47\ See, e.g., CFA Institute Comment Letter (``We believe the 
proposed conditions for using this option are appropriate to 
accommodate those investors wishing to receive paper reports.''); 
Comment Letter of State Street Corporation (Aug. 11, 2015) (``State 
Street Comment Letter'') (``We believe there are adequate safeguards 
in Rule 30e-3 which would allow shareholders who desire a hardcopy 
to still receive one.''); Comment Letter of Jonathan F. Zeschin, 
Independent Trustee and Board Chair of Matthews Asia Funds (Sept. 
27, 2016) (``[T]hose few shareholders who prefer to receive written 
reports in the mail can still do so, and the proposed rule includes 
appropriate notices and other safeguards for those shareholders.''); 
Comment Letter of Independent Directors Council (May 10, 2016) 
(``IDC Comment Letter'') (``It is important to bear in mind that the 
proposed rule includes appropriate safeguards for those shareholders 
who may still prefer to receive written reports in the mail.''); 
Comment Letter of Fidelity Equity and High Income Funds (Apr. 24, 
2017) (``Fidelity Comment Letter II'') (``Accordingly, investors 
ultimately would retain the ability to determine the manner in which 
they receive their shareholder reports and those who desire paper 
delivery would be appropriately protected.'').
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    A number of commenters in opposition to the proposed rule, however, 
suggested that the rule could have adverse effects on investors.\48\ 
Specifically, several commenters argued that internet access and use 
among Americans was not universal.\49\ Some commenters provided data 
showing that approximately 25-30% of Americans do not have a computer 
with broadband internet access in their homes.\50\ Some commenters 
noted that particular demographic groups may be less likely to use the 
internet.\51\ Some commenters drew on the results of studies we noted 
in the Proposing Release, which indicate that, in 2013, 41% of seniors 
65 and older do not use the internet and that, in 2014, 34% of seniors 
65 and older own mutual funds.\52\ Some commenters suggested that some 
people are less likely to use the internet specifically for financial 
purposes, to research funds, or to receive shareholder reports and 
other disclosure.\53\
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    \48\ See, e.g., Comment Letter of Sen. Susan M. Collins, Sen. 
Angus S. King, Jr., and Rep. Bruce Poliquin (Aug. 10, 2016) 
(``Collins, King and Poliquin Comment Letter'') (``Our concern, is 
that the safeguards in the proposed rule will not adequately ensure 
that those who rely on paper delivery will continue to have access 
to this important information.''); Comment Letter of David T. Herrod 
(Aug. 1, 2015) (``I feel an electronic default option would be 
detrimental to me as well as thousands of other investors.''); 
Comment Letter of Thomas G. Umenhofer (July 20, 2015) (``Not all 
Mutual Fund participants have access to computers or the internet, 
but do have access to the USPS. By implementing Rule 30e-3, you will 
be disadvantaging many mutual fund participants.'').
    \49\ See, e.g., Comment Letter of Zane Hollenberger (July 27, 
2015) (contending that internet access was not universal and would 
serve as a ``poor replacement'' for timely receipt of personal 
financial information through the mail); Comment Letter of John R. 
Dyce, President of the Ohio State Association of Letter Carriers 
(July 28, 2015) (``Significant portions of this country's population 
lack access to electronic services.''); Comment Letter of National 
Rural Letter Carriers' Association (Aug. 5, 2015) (``National Rural 
Letter Carriers' Comment Letter'') (``[T]he proposed rule would 
disadvantage the elderly, those with disabilities, and racial and 
ethnic minorities as these groups are far less likely than other 
Americans to have regular access to the internet.'').
    \50\ See, e.g., Comment Letter of American Forest and Paper 
Association (Aug. 7, 2015) (``American Forest and Paper Comment 
Letter''); Comment Letter of Forest Resources Association Inc. (Aug 
10, 2015) (``Forest Resources Comment Letter''); Comment Letter of 
Consumer Action and National Consumers League (Apr. 12, 2016) 
(``Consumer Action and Consumers League Comment Letter''). See also 
Comment Letter of Broadridge Financial Solutions, Inc. (Aug. 11, 
2015) (``Broadridge Comment Letter I'') (noting that ``growth in 
internet usage is driven in part by a greater penetration of mobile 
devices whose use to access regulatory reports on the internet would 
add costs to investors'').
    \51\ See, e.g., American Forest and Paper Comment Letter; 
Comment Letter of Best Cutting Die Company (Aug. 6, 2015) (``Many 
`seniors' are not computer literate, and may not even own, or have 
access to a computer.''); Comment Letter of Consumer Action (Jan. 8, 
2016) (``Consumer Action Comment Letter'') (stating that seniors and 
minorities would be disadvantaged by the proposal given statistics 
showing these groups may be less likely to have access to the 
internet); National Rural Letter Carriers' Comment Letter 
(``internet access in some rural parts of the country remains 
limited and many of our customers must rely on the mail for their 
investment reports.'').
    \52\ See Proposing Release, supra note 14, at 33627; see, e.g., 
American Forest and Paper Comment Letter; Comment Letter of Eric 
Skogseth, EVP of Bay State Envelope (July 16, 2015); Comment Letter 
of Lydia J. Morgan, CEO of Morgan Printers, Inc. (June 12, 2015). 
But see ICI Comment Letter I (discussing the results of a 2014 ICI 
survey showing that, among Americans 65 or older, those who own 
mutual funds are more likely to have internet access).
    \53\ See, e.g., Broadridge Comment Letter I.
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2. Use of ``Implied Consent''
    A number of commenters addressed the use of ``implied consent'' to 
allow for website transmission of shareholder reports. One commenter 
pointed to behavioral research that suggested implied consent is a 
``weak'' reflection of actual willingness and that the introduction of 
new processes (e.g., website transmission) may block ``psychologically 
effective access'' to shareholder reports.\54\ Another commenter stated 
that implied consent is inadequate because the proposed method for 
obtaining implied consent ``does not justify the conclusion that 
implied consent is gained for investors'' and that most investors 
preferred paper communications.\55\ Some commenters noted that certain 
federal agencies do not permit implied consent for electronic delivery 
of certain materials.\56\ Commenters also pointed to a 2013 survey that 
asked if the government or firms in the private sector should force 
consumers to shift from paper to electronic content in which 73% of 
respondents said it is wrong to expect anyone to go online to interact 
with government agencies.\57\ Some commenters opposed to the implied 
consent provisions in proposed rule 30e-3 suggested that the proposed 
Initial Statement (from which consent would be inferred under the 
proposed rule) \58\ could be inadvertently discarded or missed by 
investors.\59\
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    \54\ See id.
    \55\ See American Forest and Paper Comment Letter.
    \56\ See, e.g., American Forest and Paper Comment Letter 
(stating that the Internal Revenue Service does not allow financial 
organizations to use implied consent to enroll investors in 
electronic delivery of tax documents); Comment Letter of Domtar 
(Aug. 3, 2015) (``The SEC should follow other federal agencies in 
requiring recipients to take an affirmative action for e-delivery of 
important investment documents.''). With respect to electronic 
delivery (where documents or website links thereto are emailed 
directly to an investor's individual email address), the Commission 
also does not permit implied consent. See 1995 Release, supra note 
18; cf. Comment Letter of L.A. Schnase (July 2, 2015) (``Schnase 
Comment Letter'') (supporting the proposal, but expressing concern 
about the ``piecemeal approach'' the Commission is taking to the 
regulatory scheme governing electronic deliveries).
    \57\ See, e.g., American Forest and Paper Comment Letter; 
Consumer Action Comment Letter. The proposed rule, however, would 
not have required electronic transmission of shareholder reports, 
and investors would not have been required to go online to interact 
with the Commission or any other government agency.
    \58\ See proposed rule 30e-3(c).
    \59\ See Collins, King and Poliquin Comment Letter; Comment 
Letter of Karen Hibdon (July 31, 2015).
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    We also received a number of comments stating that website 
transmission of shareholder reports should not be the default 
transmission option.\60\ Others expressed concerns with having to use 
personal printers to print shareholder reports,\61\ and one commenter 
expressed concern that funds would eventually charge investors for 
paper shareholder reports.\62\
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    \60\ See, e.g., Comment Letter of Barry Daniels (June 12, 2015); 
Comment Letter of Larry Hensley, Process Engineer, Glatfelter (Aug. 
3, 2015); Comment Letter of Craig Timm (Aug. 10, 2015).
    \61\ See, e.g., Comment Letter of Bob Broadbear (July 20, 2015); 
Comment Letter of Marina Joyce (June 12, 2015); Comment Letter of 
Forest2Market (Aug. 7, 2015).
    \62\ See Comment Letter of Robert C. Tugwell (Aug. 10, 2015).
---------------------------------------------------------------------------

    On the other hand, we received several comments stating that the 
proposed rule better aligns with investor preferences for access to 
financial information,\63\ and recommending that

[[Page 29163]]

we broaden the use of implied consent in certain ways.\64\ One of these 
commenters noted that the proposal, which would allow investors to 
``opt into'' paper delivery, would allow funds to more readily 
accommodate the preferences of all investors.\65\ Several commenters 
also noted that this approach was consistent with prior Commission 
efforts to improve accessibility of information for the benefit of 
investors.\66\
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    \63\ See, e.g., ICI Comment Letter II (``[F]ewer than half of 
mutual fund shareholders still review some printed materials for 
information about their fund investments, and over two-thirds of 
these individuals likewise access online materials to gather 
information on their fund investments.'').
    \64\ See, e.g., Comment Letter of Allianz Life Insurance of 
North America (Aug, 11, 2015) (``Allianz Comment Letter'') 
(recommending that the Commission expand proposed rule 30e-3 to 
allow broader electronic delivery of certain documents, including 
prospectuses, using implied consent); ICI Comment Letter I 
(recommending that the Commission permit investors' implied consent 
to cover all series and funds in a fund complex and all funds held 
through a single financial intermediary).
    \65\ See ICI Comment Letter I.
    \66\ See, e.g., id.; see also Comment Letter of The Dreyfus 
Corporation (Aug. 11, 2015) (``Dreyfus Comment Letter'').
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3. Cost Savings
    Many commenters supporting the proposed rule stated that the rule 
would result in reduced printing and mailing costs for funds (and 
ultimately fund investors).\67\ Several commenters provided estimates 
of costs relating to potential cost savings under rule 30e-3.\68\ One 
commenter indicated that its fund group spends approximately $3.8 
million annually to print and mail shareholder reports to direct fund 
investors, and estimated that the proposed rule would result in savings 
of up to 50% of that amount.\69\ Another commenter estimated annual 
industry costs for print and mail delivery of shareholder reports at 
$344 million and suggested that, if the proposed rule was adopted, it 
had the potential to save fund shareholders on a net basis an estimated 
$140 million within the first three years and $89 million per year 
after the first year.\70\
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    \67\ See, e.g., Comment Letter of BlackRock, Inc. (Aug. 11, 
2015) (``BlackRock Comment Letter''); Comment Letter of the Center 
for Capital Markets Competitiveness (Sept. 6, 2016) (``CCMC Comment 
Letter''); Comment Letter of Confluence Technologies, Inc. (Aug. 11, 
2015) (``Confluence Comment Letter''); ICI Comment Letter I; ICI 
Comment Letter II; IDC Comment Letter; Comment Letter of Mutual Fund 
Directors Forum (Aug. 11, 2016); Schnase Comment Letter; Comment 
Letter of the Securities Industry and Financial Markets Association 
(Aug. 11, 2015) (``SIFMA Comment Letter''); Comment Letter of the 
Asset Management Group of the Securities Industry and Financial 
Markets Association (Aug. 11, 2015) (``SIFMA AMG Comment Letter''); 
Simpson Thacher Comment Letter; T. Rowe Price Comment Letter I; T. 
Rowe Price Comment Letter II; Comment Letter of Vanguard (Aug. 11, 
2015) (``Vanguard Comment Letter''); Capital Research Comment Letter 
II.
    \68\ Another commenter cited a third party's estimate of $320 
million in savings from the Commission's e-proxy initiative in 2014. 
See Confluence Comment Letter (citing estimates published by 
Broadridge in Analysis of Distribution and Voting Trends Fiscal Year 
Ended June 30, 2014). The commenter further stated that ``[b]y 
changing the default, Rule 30e-3 will result in a greater percentage 
of electronic delivery, which in turn will lower fund expenses, 
lower fund expense ratios, and generate higher returns, a benefit to 
all investors, both those comfortable with electronic delivery and 
those who require continued physical delivery.''
    \69\ See T. Rowe Price Comment Letter I.
    \70\ See ICI Comment Letter I (stating further that if the 
Commission adopted the commenter's suggested changes to the rule, 
potential net savings could instead total $465 million within the 
initial three-year timeframe). In a subsequent comment letter, the 
commenter revised its estimates to account for another commenter's 
interpretation of how NYSE processing fees would be applied to a 
rule 30e-3 framework. See Comment Letter of Investment Company 
Institute (Mar. 14, 2016) (``ICI Comment Letter III'') (stating that 
based on this interpretation, the net savings would be less than the 
ICI Comment Letter I projections; and estimating that even if ICI's 
recommended ``postcard'' modification were incorporated in the final 
rule, there would be a net cost of $84 million in the initial year 
and a subsequent net savings of $83 million per each subsequent 
year).
---------------------------------------------------------------------------

    One commenter claimed that the cost savings realized from proposed 
rule 30e-3 would likely not be passed on to investors and would not 
have a noticeable impact on investor costs even if it were passed on to 
investors.\71\ Another commenter suggested that the cost savings would 
benefit a relatively small number of mutual funds and be less 
significant than in the notice and access approach used in the proxy 
statement context, which the commenter compared to the proposed 
rule.\72\ This commenter stated that the proposed rule would result in 
greater processing fees for fund shares held through certain 
intermediaries. This commenter also suggested that cost savings could 
be better realized through the continued growth of electronic delivery 
under the Commission's existing guidance, which the commenter suggests 
is already common and projected to reach 59% of all transmissions of 
shareholder reports in 2018.\73\ The commenter estimated that fund 
companies currently expend $354 million for printing and mailing of 
shareholder reports and projected printing and mailing costs of $382 
million in 2018 under the existing requirements.\74\ The commenter 
estimated that aggregate net savings under the proposed rule would be 
about $18 million, or $0.02 per report, in 2018.\75\
---------------------------------------------------------------------------

    \71\ See Comment Letter of Consumer Federation of America (July 
29, 2015).
    \72\ See Broadridge Comment Letter I (contending that, based on 
its interpretation of New York Stock Exchange regulated rates, 
approximately 5% of fund report distribution jobs that Broadridge 
processes would result in a savings of $10,000 or more). We believe 
that in light of the NYSE Approval Order regarding processing fees 
paid to financial intermediaries for the delivery of shareholder 
reports and other documents to investors holding shares through 
certain financial intermediaries, the facts supporting the 
assumptions underlying this commenter's analysis have changed. See 
supra note 32.
    \73\ See Broadridge Comment Letter I; Comment Letter of 
Broadridge Financial Solutions, Inc. (Jan. 13, 2016) (``Broadridge 
Comment Letter II''). This commenter subsequently submitted 
presentation materials in connection with a meeting with Division of 
Investment Management staff, which included survey data in support 
of their projections. See Memorandum from the Division of Investment 
Management re: Meeting with Broadridge (Sept. 27, 2017) (including 
attachments thereto containing the survey data presented) 
(``Broadridge Meeting Memo I''); Memorandum from the Division of 
Investment Management re: Meeting with Broadridge (Apr. 13, 2018) 
(``Broadridge Meeting Memo II'')
    \74\ See Broadridge Comment Letter I; Broadridge Comment Letter 
II.
    \75\ Broadridge Comment Letter I.
---------------------------------------------------------------------------

    Finally, several commenters highlighted that the potential cost 
savings for funds and investors resulting from the proposed rule may 
depend in part on the application of the NYSE processing fees that 
funds pay to financial intermediaries.\76\ As noted earlier, today we 
approved amendments to NYSE rules regarding processing fees paid to 
financial intermediaries that would clarify the application of certain 
fees under the rule 30e-3 framework.\77\
---------------------------------------------------------------------------

    \76\ See, e.g., ICI Comment Letter II; Broadridge Comment Letter 
I.
    \77\ See supra Section I.C.
---------------------------------------------------------------------------

4. Regulatory Consistency
    Some commenters also supported the proposed rule as consistent with 
other regulatory frameworks adopted by the Commission and other 
regulatory bodies that encourage website availability as a means to 
satisfy disclosure obligations.\78\ For example, one commenter stated 
that the proposed rule was consistent with prior Commission efforts to 
modernize the manner in which information is provided to investors and 
to improve accessibility by taking advantage of technology for the 
benefit of investors.\79\ Others asserted that the notice and access 
model under the proposed rule was similar to the model adopted by 
another federal agency in 2014 for certain financial institutions to 
satisfy privacy

[[Page 29164]]

notice transmission requirements.\80\ In addition, one commenter 
highlighted regulatory regimes in foreign jurisdictions that permit a 
transmission framework for shareholder reports similar to that under 
the proposed rule.\81\
---------------------------------------------------------------------------

    \78\ But see supra note 56 and accompanying text (noting some 
commenters that stated that certain federal agencies do not permit 
implied consent for electronic delivery of certain materials).
    \79\ See, e.g., ICI Comment Letter I. But see Schnase Comment 
Letter (supporting the proposal, but arguing that the Commission 
should go further and ``allow funds to use the web to satisfy their 
delivery obligations for prospectuses, [statements of additional 
information] and other investor documents in addition to shareholder 
reports . . . .'').
    \80\ See, e.g., CAI Commenter Letter; ICI Comment Letter I. 
Referring to a rule adopted by the Bureau of Consumer Financial 
Protection (commonly known as the Consumer Financial Protection 
Bureau and referenced herein as the ``Bureau''). The rule that the 
Bureau adopted in 2014 permitted financial institutions to post the 
required privacy notice online if they met certain conditions, 
including the financial institution notifying consumers by mail on 
an annual basis about the availability of the notice. See Amendment 
to the Annual Privacy Notice Requirement Under Gramm-Leach-Bliley 
Act (Regulation P), Bureau of Consumer Financial Protection (Oct. 
20, 2014), available at https://files.consumerfinance.gov/f/201410_cfpb_final-rule_annual-privacy-notice.pdf.
    In December 2015, Congress amended the Gramm-Leach-Bliley Act 
(``GLBA'') as part of the Fixing America's Surface Transportation 
Act. These amendments to the GLBA provide an exception under which 
financial institutions that meet certain conditions are not required 
to provide annual privacy notices to customers. Because the Bureau 
determined that the alternative delivery method was no longer 
necessary in light of this new statutory exception, the Bureau 
proposed in June 2016 to remove the alternative delivery method from 
its regulations implementing the GLBA. See Amendment to the Annual 
Privacy Notice Requirement Under the Gramm-Leach-Bliley Act 
(Regulation P), Bureau of Consumer Financial Protection (June 29, 
2016), available at https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendment-annual-privacy-notice-requirement-under-gramm-leach-bliley-act-regulation-p/.
    \81\ See ICI Comment Letter II. This commenter suggested that 
the proposed rule was consistent with a global movement toward 
online financial disclosure and cited three foreign regimes as 
examples of this movement. These examples include: (1) The European 
Union, where funds are permitted to post shareholder reports on a 
website, with paper annual or semi-annual reports available by mail 
on request; (2) Canada, where funds send a negative consent letter 
to shareholders on an annual basis and shareholders may request a 
copy of the shareholder report by mail if desired; and (3) 
Australia, where funds can make shareholder reports available on a 
website, as long as in the first year of doing so they notify 
shareholders, explain how to access the website, and provide the 
option to request a mailed copy of the report.
---------------------------------------------------------------------------

5. Environmental Benefits
    Some commenters highlighted the environmental benefits associated 
with the reduction of paper reports under the rule, including fewer 
trees needed to make paper and a reduction in landfill waste.\82\ Some 
of these commenters also stated that the proposed rule is consistent 
with certain national and international initiatives regarding 
environmental issues, including The American Business Act on Climate 
Pledge \83\ and The Paris Agreement \84\ to combat climate change.\85\ 
Some commenters suggested, however, that environmental benefits of the 
proposed rule are overstated, citing environment-friendly initiatives 
previously undertaken by the paper industry.\86\
---------------------------------------------------------------------------

    \82\ See, e.g., Comment Letter of Environmental Paper Network 
(Oct. 4, 2016) (proposed rule would reduce landfill waste and 
resources associated with processing, printing, and transportation, 
which ultimately would reduce greenhouse gas emissions, water 
consumption and pollution, air pollution, wood and energy use, and 
solid waste); ICI Comment Letter II (estimating that the proposed 
rule would save approximately 2 million trees each year); Comment 
Letter of the Committee of Annuity Insurers (July 22, 2016) (``CAI 
Comment Letter II'') (noting that several members of the Committee 
indicated that they each send approximately 1 billion pages per year 
to contract owners in connection with their regulatory obligation to 
delivery annual and semi-annual reports to contract owners).
    \83\ See ICI Comment Letter II (citing the American Business Act 
on Climate Pledge).
    \84\ See id. (citing the United Nations Framework Convention on 
Climate Change, the Paris Agreement).
    \85\ See, e.g., ICI Comment Letter II; BlackRock Comment Letter.
    \86\ See, e.g., Comment Letter of Doug Delaney (Aug. 7, 2015); 
Comment Letter of Mark A. Heyde (Aug. 7, 2015); Comment Letter of 
Shane Johnson (June 12, 2015). Many other commenters argued that the 
proposed rule would harm the paper industry and postal workers. See, 
e.g., Comment Letter of Kathy Watters (July 20, 2015); Comment 
Letter of James Sandstrom (Aug. 7, 2015) (``Sandstrom Comment 
Letter''); Comment Letter of PDF Print Communications Inc. (Aug. 10, 
2015).
---------------------------------------------------------------------------

6. Reliability and Security Concerns
    A number of commenters also expressed a preference for transmission 
of paper shareholder reports because of the reliability and security of 
information delivered by the U.S. Postal Service.\87\ We note that, 
under the rule as proposed and final rule 30e-3, paper Notices would be 
mailed to investors, and those investors who prefer to have their 
shareholder reports mailed to them will continue to be able to receive 
them in that manner by making a request to permanently receive all 
future reports in paper, or by requesting individual reports in paper 
whenever they desire.
---------------------------------------------------------------------------

    \87\ See, e.g., Comment Letter of Richard Griffin (July 28, 
2015); Comment Letter of Tom Jones (July 28, 2015); Comment Letter 
of Michael J. Flynn (Aug. 4, 2015).
---------------------------------------------------------------------------

    We also received a number of comments expressing cybersecurity 
concerns related to the proposed rule. The vast majority of these 
comments, however, did not appear to fully appreciate the method of 
transmission proposed under the rule (e.g., paper notice of the website 
availability of the reports rather than electronic delivery of the 
reports by email or other means) or the information that would be made 
available (e.g., shareholder reports rather than account statements 
that may have personal information).\88\
---------------------------------------------------------------------------

    \88\ See, e.g., Comment Letter of Kenneth J. Janulewicz (July 
27, 2015); Comment Letter of Mary Wells (Aug. 17, 2015); Comment 
Letter of Jacquelyn Mangold (July 29, 2015).
---------------------------------------------------------------------------

    We are sensitive to these issues and acknowledge the importance of 
protecting the security of personal information. However, we do not 
believe that this new method of transmission would meaningfully 
increase the cybersecurity risks, such as identity thefts or 
``phishing'' attacks, noted by these commenters. Rule 30e-3, as 
proposed and adopted, does not present email ``phishing'' attack 
concerns because investors will not receive email communications as a 
result of the rule. Rather, shareholder reports would be posted on a 
public website, and investors would be provided with a paper notice 
regarding their availability. The final rule does not require that a 
Notice contain any personally identifiable information. If a fund were 
to choose to include this information in a Notice, the fund should take 
measures to protect this information just as funds do today regarding 
other mailings, like account statements, that may contain sensitive 
information.\89\
---------------------------------------------------------------------------

    \89\ See, e.g., Regulation S-P [17 CFR 248.30] (requiring 
written policies and procedures that address administrative, 
technical, and physical safeguards for the protection of customer 
records and information); Privacy of Consumer Financial Information 
(Regulation S-P), Exchange Act Release No. 42974 (June 22, 2000) [65 
FR 40334 (June 29, 2000)] (adopting Regulation S-P); Disposal of 
Consumer Report Information, Exchange Act Release No. 50781 (Dec. 2, 
2004) [69 FR 71322 (Dec. 8, 2004)] (adopting requirements for proper 
disposal of consumer report information and records).
---------------------------------------------------------------------------

7. Investor Advisory Committee
    In December 2017, the Investor Advisory Committee \90\ issued a 
recommendation regarding the promotion of electronic delivery and the 
development of a summary disclosure document for the delivery of fund 
reports.\91\ The recommendation provided, among other things, that the 
Commission explore: (i) Methods to encourage a transition to electronic 
delivery that respect investor preferences and that increase the 
likelihood that investors will see and read important disclosure 
documents; and (ii) development of a summary, layered disclosure 
document for annual

[[Page 29165]]

shareholder reports that incorporates key information from the report 
along with prominent notice regarding how to obtain a copy of the full 
report, and would be designed to be delivered either by mail or by 
email (depending on the investors' delivery preferences). The Committee 
also recommended that the Commission seek comment on the appropriate 
content and format of such a disclosure document and engage in investor 
testing or encourage testing by industry members.
---------------------------------------------------------------------------

    \90\ Section 911 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act added Section 39 to the Securities Exchange 
Act of 1934, which establishes the Investor Advisory Committee. The 
Committee advises and consults with the Commission on regulatory 
priorities, issues, and initiatives and submits findings and 
recommendations to the Commission. 15 U.S.C. 78pp(a). The Commission 
reviews the findings and recommendations of the Committee and issues 
a public statement assessing the finding or recommendation and 
disclosing the action, if any, the Commission intends to take with 
respect to the finding or recommendation. 15 U.S.C. 78pp(g).
    \91\ See Investment Advisory Committee Recommendation, supra 
note 40.
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B. Adoption of Rule 30e-3 and Related Amendments

1. Overview
    After consideration of the comments discussed above, we are 
adopting rule 30e-3 with several modifications designed to address 
preservation of investor preferences, cost, and administrability of the 
rule. Rule 30e-3 is intended to modernize the manner in which 
shareholder reports and other information are made available to 
investors and reduce expenses associated with printing and mailing that 
are currently borne by funds, and ultimately, fund investors.\92\
---------------------------------------------------------------------------

    \92\ If any provision of this rule, or the application thereof 
to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or the application of 
such provisions to other persons or circumstances that can be given 
effect without the invalid provision or application.
---------------------------------------------------------------------------

    Reliance on the rule is optional. Funds are permitted to satisfy 
their delivery obligations by mailing shareholder reports in paper, 
delivering reports pursuant to the Commission's electronic delivery 
guidance, providing notice and website accessibility pursuant to rule 
30e-3, or any combination of the foregoing, so long as the conditions 
of the applicable transmission methods are met. We believe that a fund 
is in the best position to choose whether or not to implement the rule 
after considering the costs and benefits of the rule, including 
consideration of the needs and preferences of the fund's particular 
investors.\93\ As discussed below, the final rule has been modified 
from the proposal to provide increased flexibility for funds to 
implement the rule according to their particular circumstances and the 
preferences of their investors. For example, these modifications permit 
funds to include in the Notice additional information from shareholder 
reports that they may deem helpful when notifying investors of the 
availability of reports.
---------------------------------------------------------------------------

    \93\ We understand that internet access and use is not uniformly 
distributed geographically. See infra note 97. In considering 
whether use of the rule is appropriate, we encourage each fund, in 
consultation with its intermediaries, to consider the prevalence of 
internet access and use across its investor base.
---------------------------------------------------------------------------

    The rule is consistent with our prior initiatives to harness the 
benefits of the internet and other new technologies for investors,\94\ 
and is consistent with similar initiatives of other regulators (both 
domestic and foreign).\95\ Furthermore, as we discussed in the 
Proposing Release, investor testing and internet usage trends have 
highlighted the evolution of investor preferences about electronic 
delivery of information, and shown that many investors would prefer 
enhanced availability of fund information on the internet.\96\ Given 
both current levels and trends in increasing internet access and use--
in particular with the significant increase in the use of the internet 
as a tool for disseminating financial information among all age 
groups--we believe that it is appropriate to permit the internet 
availability of shareholder reports to satisfy transmission 
obligations, subject to certain conditions including protections for 
investors who continue to prefer reports in paper form.\97\
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    \94\ See supra note 18.
    \95\ See supra notes 78-81 and accompanying text. But see supra 
note 56 and accompanying text (noting that some commenters stated 
that certain federal agencies do not permit implied consent for 
electronic delivery of certain materials); supra note 80 (noting 
that because of provisions in the Fixing America's Surface 
Transportation Act that amended the GLBA to provide an exception 
under which financial institutions that meet certain conditions are 
not required to provide annual privacy notices to customers, the 
Bureau determined that the alternative delivery method for the 
annual privacy notice requirement was no longer necessary in light 
of this new statutory exception).
    \96\ For example, investor testing sponsored by the Commission 
and conducted in 2011 (``2011 Investor Testing'') suggested that an 
investor looking for a fund's annual report is most likely to seek 
it out on the fund's website, rather than request it by mail or 
phone or by retrieving it from the Commission's Electronic Data, 
Gathering, Analysis, and Retrieval System (``EDGAR''). Proposing 
Release, supra note 14, at 33626-27. Many investors indicated that 
they would prefer that fund information be made available in both 
electronic and paper versions, with a plurality of respondents 
preferring electronic transmission by email with the option to 
easily request a paper copy of a particular report, though a 
significant minority indicated that they would still prefer to 
receive a paper copy through the mail. Id. at 33627.
    According to the most recent U.S. census data, approximately 
77.2% of U.S. households had some form of internet access in their 
home in 2015 and 86.8% have a computer (e.g., desktop, laptop, 
tablet or smartphone). See Camille Ryan & Jamie M. Lewis, Computer 
and internet Usage in the United States: 2015 (Sept. 2017), 
available at https://www.census.gov/content/dam/Census/library/publications/2017/acs/acs-37.pdf; see also Sarah Holden, Daniel 
Schrass & Michael Bogdan, Ownership of Mutual Funds, Shareholder 
Sentiment, and Use of the internet, 2017 (Oct. 2017), available at 
https://www.ici.org/pdf/per23-07.pdf (``[i]n mid-2017, 95 percent of 
households owning mutual funds had internet access, up from about 
two-thirds in 2000'' and ``86 percent of mutual fund-owning 
households with a household head aged 65 or older had internet 
access in mid-2017''); Andrew Perrin & Maeve Duggan, Americans' 
internet Access: 2000-2015 (June 2015), available at https://assets.pewresearch.org/wp-content/uploads/sites/14/2015/06/2015-06-26_internet-usage-across-demographics-discover_FINAL.pdf (finding in 
2015, 84 percent of all U.S. adults use the internet).
    But see Broadridge Meeting Memo I (citing studies on investor 
delivery preference for shareholder reports and mandatory 
disclosures regarding investments, which depending on the particular 
study, found 43% to 55% of investors preferred paper delivery).
    Understanding that an investor's experience when accessing a 
shareholder report may differ between a mobile device and a laptop, 
we request comment about investor experiences and preferences for 
fund disclosures on mobile devices in the Disclosure Request for 
Comment. See supra note 20.
    \97\ Since the 2011 Investor Testing, third-party studies and 
surveys indicate access to and use of the internet has continued to 
increase rapidly, including among demographic groups that have 
previously been less likely to use the internet. See, e.g., supra 
notes 41-42 and accompanying text; see also Pew Research Center, 
Who's Not Online and Why, at 2 (Sept. 25, 2013), available at https://pewinternet.org/Reports/2013/Non-internet-users.aspx. The Pew 
Research Center study, conducted in 2013, found that only 15% of 
American adults ages 18 and older do not use the internet or email--
falling from 26% in 2011, when the Commission's investor testing was 
conducted, and from 36% a decade before in 2001. See Pew Research 
Center, Older Adults and Technology Use, at 1 (Apr. 3, 2014), 
available at https://www.pewinternet.org/2014/04/03/older-adults-and-technology-use/. These researchers also found that in 2016, 67% of 
adults over the age of 64 used the internet, a 55% increase since 
2000. See Pew Research Center, Tech Adoption Climbs Among Older 
Adults, at 2 (May 17, 2017), available at https://assets.pewresearch.org/wp-content/uploads/sites/14/2017/05/16170850/PI_2017.05.17_Older-Americans-Tech_FINAL.pdf; see also Investment 
Company Institute, 2017 Investment Company Fact Book, available at 
https://www.ici.org/pdf/2017_factbook.pdf (``2017 ICI Fact Book'') 
at 129 (stating that 92% of U.S. households owning mutual funds had 
internet access in mid-2016).
    These trends have also extended to use of the internet for 
financial purposes. For example, a recent survey by the Investment 
Company Institute found that in 2017, 95% of U.S. households owning 
mutual funds had internet access (up from about two-thirds in 2000), 
with widespread use of the internet among various age groups, 
education levels and income levels, including access by 86% of 
mutual fund owning households headed by someone age 65 or older. See 
Ownership of Mutual Funds, Shareholder Sentiment, and Use of the 
internet, supra note 96, at 18.
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    We recognize that it is critical for investors to continue to 
receive disclosure through means that are convenient and accessible for 
them.\98\ We believe that the final rule's conditions include 
appropriate protections for those who lack internet access or who 
simply prefer paper reports. Investors who lack internet access or 
prefer paper reports will be

[[Page 29166]]

able to continue to receive them by mail:
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    \98\ Proposing Release, supra note 14, at 33627. In the 
Proposing Release, we noted concerns that some investors who prefer 
to receive shareholder reports in paper and some demographic groups 
of investors that may be less likely to use the internet might not 
fully understand the actions they would need to take under the 
proposed rule to continue to receive their reports in paper. See id.
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     First, the final rule provides that investors who prefer 
to receive reports in paper may continue to do so, either by making a 
one-time request to receive all future reports in paper, or by 
requesting individual reports in paper whenever they desire.
     Second, as outlined below in Sections II.B.2.f and II.E, 
we are adopting an extended transition period with staged effective 
dates. During the extended transition period, the earliest that Notices 
may be transmitted to investors in lieu of paper reports is January 1, 
2021. In general, funds will be required to provide two years of notice 
to shareholders before relying on the rule. Therefore, funds that begin 
providing notice at the start of 2019 will complete the two-year notice 
period, and may begin relying on the rule, on January 1, 2021. In 
addition, funds that are newly offered during the period of January 1, 
2019 through December 31, 2020 may rely on the rule starting January 1, 
2021, if they provide notice to shareholders starting with their first 
public offering. Funds that are newly offered on January 1, 2021 and 
thereafter would not be subject to the condition and could therefore 
rely on the rule immediately without providing any advance notice 
through required statements. All other funds may not rely on the rule 
until they have completed a full two year notice period or until 
January 1, 2022, whichever comes first.
    Although we are eliminating the Initial Statement requirement, we 
nonetheless believe that it is important that investors receive 
sufficient notice of the change in transmission method and sufficient 
opportunity to express their delivery preference. Therefore, the 
extended transition period is designed to ensure that investors receive 
disclosures during the extended transition period and to provide funds 
electing to make use of this optional method and financial 
intermediaries time to educate investors of the coming change through 
disclosures on prospectuses and certain other fund documents and 
through other means. It will also provide funds and financial 
intermediaries with time to implement any necessary operations and 
systems changes. Finally, the Commission staff will also use this 
extended transition period to engage in educational and investor 
outreach efforts.
    We believe these protections will mitigate the various concerns 
raised by commenters regarding this new optional method for funds to 
satisfy requirements to transmit shareholder reports.\99\ For example, 
the additional disclosures on shareholder documents about the 
forthcoming internet availability of reports, as well as other 
educational efforts undertaken by funds, financial intermediaries, and 
Commission staff should decrease the possibility that an investor will 
be unaware of the change in transmission method and will result in many 
investors receiving considerably more notice of the change in 
transmission than they would have under the proposed rule. An investor 
in a mutual fund, for example, that seeks to begin relying on the rule 
before January 1, 2022 would be notified about six times compared to 
the proposal, which did not have an extended transition period and 
would have required only that one Initial Statement be sent 60 days in 
advance of a change in transmission method.\100\ We believe that the 
required disclosures, which must be made using plain English 
principles, also mitigate concerns that some investors might not fully 
understand what they need to do to continue to receive paper reports. 
To the extent an investor does not prefer or is unable to access 
shareholder reports via the internet, he or she can request paper 
copies of shareholder reports, either on a permanent or ad hoc basis.
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    \99\ See supra notes 54-62 and accompanying text.
    \100\ See infra Section II.B.2.d. During the extended transition 
period, an investor in a mutual fund, for example, that seeks to 
begin relying on the rule before January 1, 2022 would receive 
approximately six notices of the upcoming change over a two-year 
period because each year, investors will receive notice on the 
summary prospectus or statutory prospectus, as well as the semi-
annual and annual report to shareholders.
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2. Conditions of Rule 30e-3
    New rule 30e-3 provides that a registered management company (and 
any separate series thereof) or UIT may satisfy its obligation to 
transmit a report required by rule 30e-1 or rule 30e-2, respectively, 
if certain conditions set forth in the rule are satisfied.\101\ These 
conditions generally relate to: (a) Availability of the report and 
other materials; (b) notice to investors of the website availability of 
the report; and (c) delivery of paper copies of materials upon request. 
Rule 30e-3 also requires transmission of paper reports to investors 
electing a delivery preference to receive them in that format.\102\ 
Finally, rule 30e-3 will also include a temporary condition relating to 
form amendments applicable during an extended transition period.\103\ 
The specific provisions of the rule are discussed in more detail in the 
sections that follow.
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    \101\ Rule 30e-3(a). The rule could also be used to satisfy any 
obligation to transmit an amendment to a report required by rule 
30e-1 or 30e-2 by satisfying the same conditions. An amendment to a 
shareholder report could also be transmitted through other permitted 
means, such as in paper through the mail.
    \102\ Rule 30e-3(f).
    \103\ Rule 30e-3(j); see infra Sections II.B.2.f, II.E.
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    These conditions are generally consistent with similar conditions 
in other rules adopted by the Commission, including its rules regarding 
the use of a summary prospectus and internet availability of proxy 
materials.\104\ For example, funds offering electronic delivery 
typically send investors an email notifying them of the online 
availability of the report or other information, along with a link to 
the website address where the document is available.\105\ Similarly, 
the Notice required under rule 30e-3 may satisfy shareholder report 
transmission obligations in part by containing a link to where the 
document may be accessed on the internet.
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    \104\ See rule 498 under the Securities Act (permitting the use 
of a summary prospectus) [17 CFR 230.498]; rule 14a-16 under the 
Exchange Act (internet availability of proxy materials) [17 CFR 
240.14a-16].
    \105\ See 1995 Release, supra note 18. Under rule 498, the 
requirement to send an electronic copy of a document by email may be 
satisfied by sending a direct link to the document on the internet; 
provided that a current version of the document is directly 
accessible through the link from the time that the email is sent 
through the date that is six months after the date that the email is 
sent and the email explains both how long the link will remain 
useable and that, if the recipient desires to retain a copy of the 
document, he or she should access and save the document. See rule 
498(f)(1) under the Securities Act [17 CFR 230.498(f)(1)].
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    Rule 30e-3 provides funds an optional means of satisfying 
shareholder report transmission obligations under rule 30e-1 and rule 
30e-2.\106\ Some commenters recommended, however, that the rule be 
clarified as to its application to UITs, as UITs and not the underlying 
funds held by such UITs are the entities with transmission obligations 
under rule 30e-2.\107\ In response to this recommendation, the final 
rule clarifies, by use of terminology and otherwise, that the operative 
conditions of rule 30e-3 extend to a UIT seeking to meet its 
transmission obligations under rule 30e-2.\108\
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    \106\ Rule 30e-3(a).
    \107\ See, e.g., CAI Comment Letter I; ICI Comment Letter II.
    \108\ For example, in a change from the proposal, the rule uses 
the defined term ``Company'' to refer collectively to the entities 
with obligations under rules 30e-1 and 30e-2. See rule 30e-3(h)(1) 
(defining ``Company'' to mean a Fund required to transmit a report 
to shareholders pursuant to rule 30e-1 or a UIT required to transmit 
a report to shareholders pursuant to rule 30e-2). For purposes of 
the rule, ``Fund'' is defined to mean a registered management 
company and any separate series of the management company. See rule 
30e-3(h)(2).

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[[Page 29167]]

a. Availability of Shareholder Report and Other Materials
    We are adopting generally as proposed, except as indicated below, 
certain requirements relating to the availability of the shareholder 
report and other materials for funds relying on rule 30e-3. 
Specifically, in order to satisfy transmission obligations under rule 
30e-1 or rule 30e-2, the current report to shareholders must be 
publicly accessible, free of charge, at a specified website 
address.\109\ In a change from the proposal, the final rule requires 
that the report must be accessible from the date the fund transmits the 
report as required by rule 30e-1 or 30e-2, at least until the date the 
fund next transmits a shareholder report required by rule 30e-1 or rule 
30e-2.\110\ This requirement is intended to provide investors with the 
opportunity for ongoing access to the shareholder report until, at a 
minimum, the date that the next report is transmitted.\111\
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    \109\ Rule 30e-3(b)(1).
    \110\ Id. Rules 30e-1 and 30e-2 require that a report be 
transmitted within 60 days after the close of the period covered by 
the report. See rule 30e-1(c); rule 30e-2(a). Under the proposal, 
(1) the report would have been required to be accessible on the 
website from the date the report was transmitted to investors, and 
(2) the Notice relating to the report would have been required to be 
transmitted within 60 days of the close of the related reporting 
period. See proposed rule 30e-3(b), (d). As discussed below, we have 
modified the final rule to permit the Notice to be delivered up to 
70 days after the close of the reporting period. However, we believe 
the report should nonetheless be available at the same time that 
reports are transmitted to investors, either in paper or 
electronically, in order that reports covering a complete year are 
available on the website at all times.
    \111\ See 1995 Release, supra note 18 (noting that to satisfy 
access requirements under the Commission's electronic delivery 
guidance, ``as is the case with a paper document, a recipient should 
have the opportunity to retain the information or have ongoing 
access equivalent to personal retention'').
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    Funds are not currently required to send first- and third-quarter 
portfolio holdings information to investors or make that information 
accessible on their websites. To provide investors with convenient 
access to the most recent four quarters of portfolio holdings, the rule 
requires that, in addition to posting the most current shareholder 
report, the following fund documents must also be posted at the 
specified website: (1) Any report with respect to the fund for the 
prior reporting period that was transmitted to shareholders of record 
pursuant to rule 30e-1 or rule 30e-2, if any; \112\ (2) the fund's 
complete portfolio holdings as of the close of the period covered by 
the current or prior report if the report includes a summary schedule 
of investments; \113\ and (3) for funds other than money market funds 
and small business investment companies (``SBICs''),\114\ the complete 
portfolio holdings as of the close of the fund's most recent first and 
third fiscal quarters, if any, after the date on which its registration 
statement became effective, within 60 days after the close of that 
period.\115\ Money market funds and SBICs are expressly excluded from 
the rule's posting requirement provisions for fiscal quarter-specific 
portfolio holdings schedules because money market funds are required 
currently to post certain portfolio holdings and other information on 
their websites pursuant to rule 2a-7,\116\ and because SBICs are not 
required to file reports on Form N-Q today and are not required to file 
reports on Form N-PORT.\117\
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    \112\ Rule 30e-3(b)(1)(ii). If a fund is transmitting a report 
for its first operational semi-annual period, the fund could rely on 
rule 30e-3 to transmit that report, despite not having made a prior 
report publicly accessible, provided that it meets the other 
required conditions.
    \113\ Rule 30e-3(b)(1)(iii). In a change from the proposal, this 
provision provides that a fund's complete portfolio holdings for its 
most recent second and fourth fiscal quarters must be posted at the 
specified website if a report required to be posted at the specified 
website (i.e., a current report to be transmitted pursuant to rule 
30e-3 or the report for the prior fiscal period) includes a summary 
schedule of investments.
    \114\ SBICs are unique investment companies that operate 
differently and are subject to a different regulatory regime than 
other management companies. They are ``privately owned and managed 
investment funds, licensed and regulated by the Small Business 
Administration (``SBA''), that use their own capital plus funds 
borrowed with an SBA guarantee to make equity and debt investments 
in qualifying small businesses.'' See SBA, SBIC Program Overview, 
available at https://www.sba.gov/content/sbic-program-overview.
    \115\ Rule 30e-3(b)(1)(iv). Under this requirement, the 
portfolio holdings as of the fiscal quarter following the period of 
the report will be required to be posted at the specified website 
when available. For example, a fund with a December 31 fiscal year 
end wishing to rely on rule 30e-3 to transmit its annual report to 
shareholders will also be required to ensure that its complete 
portfolio holdings for the first quarter of the next year is made 
similarly available within 60 days after the end of the first 
quarter.
    \116\ See rule 2a-7(h)(10).
    \117\ See rule 30b1-9; see also supra note 14. Until they are 
required to submit reports on Form N-PORT, management companies 
other than SBICs are required to file portfolio schedules as of the 
end of the first and third fiscal quarters on Form N-Q. See rule 
30b1-5. See also Investment Company Reporting Modernization, 
Investment Company Act Release No. 32936 (Dec. 8, 2017) [82 FR 58731 
(Dec. 14, 2017)] (delaying rescission of Form N-Q and certain other 
effective dates for final rules and other amendments adopted as part 
of the Reporting Modernization Adopting Release).
---------------------------------------------------------------------------

    The fund's prior shareholder report and portfolio holdings 
information for its first and third fiscal quarters are required to be 
publicly accessible in the same manner and for the same time period as 
the current shareholder report.\118\ We are adopting this requirement 
to provide investors with easy access to a full year of complete 
portfolio holdings information in one location (i.e., the website on 
which the report transmitted under the rule is made accessible), rather 
than requiring investors to access the fund's reports on Form N-PORT 
(or Form N-Q) for those periods separately.
---------------------------------------------------------------------------

    \118\ Rule 30e-3(b)(1).
---------------------------------------------------------------------------

    To conform the format and content of the portfolio holdings 
schedules for the first and third quarters to those schedules presented 
in the fund's shareholder reports for the second and fourth quarters, 
the rule requires the schedules for the first and third quarters to be 
presented in accordance with the schedules set forth in Sec. Sec.  
210.12-12 through 12-14 of Regulation S-X, which need not be 
audited.\119\
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    \119\ Rule 30e-3(b)(1)(iii)-(iv); 17 CFR 210.12-12 through 12-
14. These materials are required to be filed as exhibits to Form N-
PORT, regardless of whether the fund intends to rely on the rule to 
satisfy its shareholder report transmission obligations. See Part F 
of Form N-PORT [referenced in 17 CFR 274.150].
---------------------------------------------------------------------------

    In a change from the proposal, the final rule requires that if a 
report required to be posted includes a summary schedule of 
investments,\120\ the fund's complete portfolio holdings as of the 
close of the period covered by the report must also be posted at the 
specified website.\121\ In the Proposing Release, we stated that for 
funds relying on the proposed rule, use of the summary schedule may be 
unnecessary,\122\ and in particular, may be potentially confusing or 
cumbersome to investors seeking to access the fund's complete portfolio 
holdings.\123\ For

[[Page 29168]]

these reasons, we proposed amendments to our registration forms that 
would have restricted funds relying on proposed rule 30e-3 from 
providing a summary schedule in their shareholder reports in lieu of a 
complete schedule.\124\ We requested comment, however, as to whether 
the final rule should restrict funds relying on the proposed rule from 
using a summary schedule.
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    \120\ In lieu of providing a complete schedule of portfolio 
investments as part of the financial statements included in its 
shareholder report, a fund may provide a summary schedule of 
portfolio investments. See, e.g., Instruction 1 to Item 27(b)(1) of 
Form N-1A. Pursuant to rule 12-12B of Regulation S-X, the summary 
schedule generally must list separately the 50 largest issuers and 
any other issuer the value of which exceeded one percent of the net 
asset value of the fund at the close of the period. See rule 12-12B, 
n.3 of Regulation S-X [17 CFR 210.12-12B].
    \121\ Rule 30e-3(b)(1)(iii). Similarly to the other quarterly 
portfolio holdings required to be posted to the website, the 
portfolio holdings for the second and fourth quarters must be 
presented in accordance with rules 12-12 through 12-14 of Regulation 
S-X, but need not be audited.
    \122\ We noted, for example, that a fund currently using the 
summary schedule as a means to reduce fund printing and mailing 
costs may decide instead to include a complete portfolio schedule in 
the shareholder report due to more limited cost savings if the 
report is posted on its website in reliance on the proposed rule. 
Proposing Release, supra note 14, at 33631.
    \123\ We noted, for example, that under the proposed rule, an 
investor that wishes to view the complete portfolio holdings would 
first receive a notice of the availability of the report, then take 
the step to access the report on the fund's website, only to have to 
take a subsequent step to request or otherwise access the complete 
schedule. Proposing Release, supra note 14, at 33631. Currently, for 
funds using the summary schedule of investments, unless voluntarily 
posted on the fund's website, the fund's complete portfolio holdings 
are only available by telephonic request, or by accessing the fund's 
report on Form N-CSR for that period on the Commission's EDGAR 
system. See, e.g., Instruction 1 to Item 27(b) of Form N-1A; Item 
6(a) of Form N-CSR.
    \124\ See proposed amendments to Item 27(b) of Form N-1A; Item 
24, Instruction 7 of Form N-2; Item 28(a), Instruction 7(i) of Form 
N-3.
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    One commenter recommended that funds retain the ability to use the 
summary schedule of investments if they rely on the proposed rule.\125\ 
This commenter noted that it understood the Commission's concern that 
investors may have to take additional steps to access the complete 
portfolio schedule, but believed the policy rationale supporting 
allowing the summary schedule remained the same as when the Commission 
first implemented the summary schedule.\126\
---------------------------------------------------------------------------

    \125\ See ICI Comment Letter I.
    \126\ See id. The Commission adopted rules permitting the use of 
a summary schedule of investments in 2004. See Shareholder Reports 
and Quarterly Portfolio Disclosure of Registered Management 
Investment Companies, Investment Company Act Release No. 26372 (Feb. 
27, 2004) [69 FR 11244 (Mar. 9, 2004)]. In that release, the 
Commission stated that the summary schedule was ``designed to 
streamline shareholder reports and help investors to focus on a 
fund's principal holdings, and thereby better evaluate the fund's 
risk profile and investment strategy.'' Id. at 11248.
---------------------------------------------------------------------------

    We continue to be concerned that use of a summary schedule of 
investments with rule 30e-3 would be potentially confusing or 
cumbersome for investors seeking access to the complete portfolio 
schedule. At the same time, we acknowledge that a fund may choose to 
use a summary schedule for cost considerations or otherwise, and we 
continue to believe that the summary schedule can help investors focus 
on a fund's principal holdings and thereby better evaluate the fund's 
risk profile and investment strategy. The restriction contained in 
proposed rule 30e-3 effectively would have required a fund using the 
summary schedule to create and distribute two separate reports to 
shareholders (i.e., one containing the summary schedule for investors 
receiving the report in paper, and another containing a complete 
schedule of portfolio investments for purposes of rule 30e-3).
    To avoid the related administrative cost and other burdens 
associated with such a scenario, and at the same time help to provide 
investors with easy access to the complete portfolio schedule, the 
final rule requires, in a change from the proposal, that if a report 
required to be posted at the specified website (i.e., a current report 
to be transmitted pursuant to rule 30e-3 or the report for the prior 
fiscal period) includes a summary schedule of investments, the fund's 
complete portfolio holdings as of the close of the period covered by 
the report must also be posted at the specified website.\127\ This will 
provide investors with a year of complete portfolio schedules on the 
specified website, regardless of whether the fund chooses to utilize a 
summary schedule of investments in its reports.
---------------------------------------------------------------------------

    \127\ Rule 30e-3(b)(1)(iii).
---------------------------------------------------------------------------

    Like the schedule of investments required to be included with 
shareholder reports (and filed as part of reports on Form N-CSR), 
quarterly schedules of portfolio holdings currently required to be 
reported on Form N-Q, and monthly schedules of portfolio holdings that 
will be required to be reported on Form N-PORT,\128\ the portfolio 
holdings schedules specified by the rule are required to be presented 
in accordance with schedules set forth under Regulation S-X.\129\ 
Accordingly, we anticipate that most funds have established procedures 
in place to update and monitor the website posting of similar types of 
portfolio schedule disclosures. These requirements are also intended to 
provide disclosures that are easily understood and familiar to 
investors, because these disclosures will contain similar information 
and be presented in a similar manner as those currently included in 
shareholder reports.
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    \128\ See supra note 117 and accompanying text. The information 
reported on Form N-PORT for the third month of each fund's fiscal 
quarter will be made publicly available 60 days after the end of the 
fund's fiscal quarter. The Commission does not intend to make public 
the information reported on Form N-PORT for the first and second 
months of each fund's fiscal quarter that is identifiable to any 
particular fund or adviser; however, the Commission may use 
information reported on Form N-PORT in its regulatory programs, 
including examinations, investigations, and enforcement actions. 
Form N-Q will be rescinded May 1, 2020. Larger fund groups will 
begin submitting reports on Form N-PORT by April 30, 2019, and 
smaller fund groups by April 30, 2020. See Reporting Modernization 
Adopting Release, supra note 14; Investment Company Reporting 
Modernization, Investment Company Act Release No. 32936, supra note 
117.
    \129\ See Items 1 and 6 of Form N-CSR; Item 1 of Form N-Q; Part 
F of Form N-PORT.
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    As proposed, the final rule also requires compliance with certain 
conditions designed to ensure the accessibility of shareholder reports 
and other required materials.\130\ First, the website address at which 
the shareholder reports and other required portfolio information are 
made accessible may not be the address of the Commission's electronic 
filing system.\131\ Second, the materials required to be posted on the 
website must be presented in a format or formats convenient for both 
reading online and printing on paper, and persons accessing the 
materials must be able to permanently retain (free of charge) an 
electronic copy of the materials in this format.\132\ These conditions 
are designed to ensure that shareholder reports and other information 
posted on a website pursuant to the rule are user-friendly and allow 
investors the same ease of reference and retention abilities they would 
have with paper copies of the information.
---------------------------------------------------------------------------

    \130\ These requirements are largely similar to the 
accessibility requirements of rule 498 under the Securities Act, 
which allows funds to use a summary prospectus, and rule 14a-16 
under the Exchange Act, which requires issuers and other soliciting 
persons to furnish proxy materials by posting these materials on a 
public website and notifying shareholders of the availability of 
these materials and how to access them. See rule 14a-16 under the 
Exchange Act [17 CFR 240.14a-16].
    \131\ Rule 30e-3(b)(2). The Commission's electronic filing 
system for fund documents is EDGAR. Rule 498 under the Securities 
Act sets forth a similar requirement. See 17 CFR 
230.498(b)(1)(v)(A).
    \132\ Rule 30e-3(b)(3)-(4).
---------------------------------------------------------------------------

    The rule includes a safe harbor provision that would allow a fund 
to continue relying on the rule even if it did not satisfy the posting 
condition of the rule for a temporary period of time.\133\ In order to 
rely on this safe harbor, a fund must have reasonable procedures in 
place to ensure that the required materials are posted on the specified 
website in the manner required by the rule and take prompt action to 
correct noncompliance with these posting requirements.\134\ The rule 
requires prompt action as soon as

[[Page 29169]]

practicable following the earlier of the time at which the fund knows 
or reasonably should have known that the required documents are not 
available in the manner prescribed by the posting requirements of the 
rule. We are adopting this safe harbor because, as we explained in the 
Proposing Release, there may be times when, due to events beyond a 
fund's control, such as system outages or other technological issues, 
natural disasters, acts of terrorism, pandemic illnesses, or other 
circumstances, a fund may be temporarily not in compliance with the 
posting requirements of the rule.\135\
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    \133\ See rule 30e-3(b)(5). The rule provides that the 
conditions in paragraphs (b)(1) through (b)(4) of the rule (i.e., 
the posting requirements) shall be deemed to be met, notwithstanding 
the fact that the materials required by paragraph (b)(1) of the rule 
are not available for a period of time in the manner required by the 
posting requirements, so long as certain conditions are met. See id. 
Four commenters supported the safe harbor provision of the proposed 
rule. See BlackRock Comment Letter; ICI Comment Letter I, Comment 
Letter of OppenheimerFunds (Aug. 11, 2015) (``OppenheimerFunds 
Comment Letter''); State Street Comment Letter. Moreover, we did not 
receive any comment letters objecting to the safe harbor provision.
    \134\ See rule 30e-3(b)(5)(i) and (ii).
    \135\ Compare rule 498(e)(4) under the Securities Act (providing 
a similar safe harbor under the summary prospectus rule for the same 
reasons) [17 CFR 230.498(e)(4)], with rule 30e-3(b)(5). Providing 
for this safe harbor by rule may obviate the need to provide 
exemptive relief by order from the rule's conditions under 
catastrophic circumstances, as from time to time we have done. See, 
e.g., Exchange Act Release No. 81760 (Sept. 28, 2017) [82 FR 46335 
(Oct. 4, 2017)] (exemptive relief for individuals and entities 
affected by Hurricanes Harvey, Irma, or Maria); Securities Act 
Release No. 10416 (Sept. 27, 2017) [82 FR 45722 (Oct. 2, 2017)] 
(Regulation Crowdfunding and Regulation A relief and assistance for 
individuals and entities affected by Hurricanes Harvey, Irma, or 
Maria).
---------------------------------------------------------------------------

    One commenter recommended that the final rule clarify that the 
materials required to be posted could be posted on a third-party 
website or landing page, similar to what is allowed under the current 
process for notice and access for proxy materials.\136\ The rule as 
proposed, and as adopted today, does not require that the website be 
maintained by any particular party. Instead, the rule requires that the 
required materials be posted at the website specified in the 
Notice.\137\ Similar flexibility regarding the website on which 
required materials must be posted exists in our current rules relating 
to the use of a summary prospectus.\138\
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    \136\ See SIFMA Comment Letter.
    \137\ See rule 30e-3(b)(1).
    \138\ See rule 498(e)(1) under the Securities Act (requiring in 
the case of the summary prospectus, that the required documents be 
available at the website specified on the cover page or beginning of 
the summary prospectus) [17 CFR 230.498(e)(1)].
---------------------------------------------------------------------------

b. Notice
    Rule 30e-3 requires funds relying on the rule with respect to an 
investor to send a paper Notice notifying the investor of the 
availability of the report.\139\ The requirements for a Notice largely 
mirror the notice requirements under the Commission's rules mandating 
the posting of proxy materials online.\140\ We are adopting the Notice 
requirement generally as proposed, but with certain modifications in 
response to issues raised by commenters. In particular, the final rule 
permits the Notice to include additional content beyond what would have 
been permitted under the proposed rule.
---------------------------------------------------------------------------

    \139\ See rule 30e-3(c). As discussed above, funds relying on 
the rule to satisfy delivery obligations with respect to investors 
who currently receive paper shareholder reports would not have to 
rely on rule 30e-3 with respect to those shareholders who have 
elected to receive reports electronically. See supra note 18 and 
accompanying text.
    \140\ See rule 14a-16 under the Exchange Act [17 CFR 240.14a-
16].
---------------------------------------------------------------------------

    While most commenters focused on technical aspects of the Notice, 
one commenter encouraged the Commission to consider eliminating the 
Notice requirement altogether, which the commenter believed would lead 
to additional cost savings and environmental benefits.\141\ Another 
commenter recommended that the Notice be sent annually, rather than 
semi-annually, and that the final rule permit the Notice to be sent to 
investors 90 days after the fiscal year end rather than 60 days as 
proposed.\142\ A third commenter recommended requiring that the Notice 
be sent by email.\143\ Finally, another commenter recommended that the 
rule allow investors to elect to receive notices by email.\144\
---------------------------------------------------------------------------

    \141\ See BlackRock Comment Letter.
    \142\ See OppenheimerFunds Comment Letter.
    \143\ See State Street Comment Letter.
    \144\ See Simpson Thacher Comment Letter.
---------------------------------------------------------------------------

    We continue to believe that it is important for all investors to 
receive the Notice, as it will contemporaneously alert them to the 
availability of a shareholder report online and will provide them with 
information on how to obtain a paper copy of the report. Therefore, we 
are adopting as proposed the Notice requirements as to format (i.e., 
the Notice must be paper).\145\ We are requiring the Notice to be in 
paper because, even though an investor may have provided an email 
address (e.g., as part of opening an account), there may be instances 
where that investor provided his or her email address for certain 
limited purposes without necessarily opting to receive shareholder 
reports or notices of reports through email.
---------------------------------------------------------------------------

    \145\ Rule 30e-3(c).
---------------------------------------------------------------------------

    In a change from the proposal, the final rule extends from 60 days 
to 70 days the period of time in which the Notice must be sent to 
investors after the close of the period covered by the related 
report.\146\ We proposed a 60-day period because, as we explained in 
the Proposing Release, that is the period currently required for 
transmission of reports, whether in paper or electronically.\147\ After 
consideration of the comments we received, including comments 
recommending that we permit the Notice to accompany other important 
account materials,\148\ we believe a 70-day period will accommodate 
such changes to the Notice in the final rule and achieve additional 
cost savings and operational efficiencies.
---------------------------------------------------------------------------

    \146\ Id.
    \147\ See Proposing Release, supra note 14; rules 30e-1(c), 30e-
2(a).
    \148\ See, e.g., Comment Letter of Charles Schwab Investment 
Management, Inc. (Aug. 12, 2015) (``Schwab Comment Letter''); 
Dreyfus Comment Letter.
---------------------------------------------------------------------------

    First, in a change from the proposal and as discussed below, we are 
permitting the Notice to accompany other materials, including a 
shareholder's account statement. Because shareholder reports are 
generally prepared at or shortly before the end of the 60 days 
following the close of the reporting period, and account statements 
(whether monthly, quarterly, or annual) are typically prepared and 
mailed within a few days after the close of the applicable month end, a 
Notice would generally not be able to accompany an account statement 
mailing if the Notice is sent out within 60 days following the close of 
the reporting period.\149\
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    \149\ For example, pursuant to rule 30e-1, a fund would be 
required to transmit a report for a period ended March 31 by May 30. 
Permitting the fund 70 days to transmit a Notice would enable the 
fund, if it so chose, to combine it with the investor's May account 
statement mailing.
---------------------------------------------------------------------------

    Second, as also discussed below, we are permitting the Notice to 
include content from the shareholder report, and also requiring any 
such Notices to be filed with the Commission as part of a fund's report 
on Form N-CSR. Extending the time period to 70 days permits funds 
additional time to prepare Notices after finalizing their related 
shareholder reports, and matches up with the 70-day filing period for 
reports on Form N-CSR.\150\
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    \150\ Reports on Form N-CSR must be filed within 10 days after 
the shareholder report is sent to shareholders, and the shareholder 
report must be sent within 60 days after the close of the period 
covered by the report. See rule 30b2-1(a) [17 CFR 270.30b2-1(a)]; 
rule 30e-1(c).
---------------------------------------------------------------------------

i. Information That Must Be Included in the Notice
    As under the proposal, the Notice must be in plain English so that 
investors can easily understand it.\151\ The final rule also requires 
funds to include certain statements and information in the Notice, if 
applicable, and permits funds to include certain

[[Page 29170]]

additional information, generally as follows:
---------------------------------------------------------------------------

    \151\ Rule 30e-3(c)(1), (d).
---------------------------------------------------------------------------

     As was proposed, the Notice must contain a prominent 
legend in bold-face type stating that an important report to 
shareholders is available online and in paper by request, and in a 
change from the proposal, the Notice may include information 
identifying the fund, its sponsor (including any investment adviser or 
sub-adviser to the fund), a variable annuity or variable life insurance 
contract or insurance company issuer thereof, or a financial 
intermediary through which shares of the fund are held; \152\
---------------------------------------------------------------------------

    \152\ Rule 30e-3(c)(1)(i). We have modified this requirement to 
provide more flexibility to funds in recognition of the fact that 
investors can acquire interests in funds through a variety of 
distribution channels.
---------------------------------------------------------------------------

     as was generally proposed (but with certain 
modifications), the Notice must state that the report contains 
important information about the fund, including as proposed its 
portfolio holdings and, in a change from the proposal, its financial 
statements;\153\
---------------------------------------------------------------------------

    \153\ Rule 30e-3(c)(1)(ii).
---------------------------------------------------------------------------

     in a change from the proposal, the Notice may include a 
brief listing of other types of information contained in the report; 
\154\
---------------------------------------------------------------------------

    \154\ Id.
---------------------------------------------------------------------------

     as was proposed, the Notice must state that the report is 
available on the internet or, upon request, by mail, and encourage 
shareholders to access and review the report; \155\
---------------------------------------------------------------------------

    \155\ Rule 30e-3(c)(1)(iii).
---------------------------------------------------------------------------

     as was proposed, the Notice must include the website 
address where the shareholder report and other required portfolio 
information is posted (i.e., the ``landing page'' to those materials), 
but in a change from the proposal, the final rule eliminates the 
proposed requirement that the Notice include the website address for 
individual reports; \156\
---------------------------------------------------------------------------

    \156\ Rule 30e-3(c)(1)(iv). The website address must be specific 
enough to lead investors directly to the documents that are required 
to be posted online under the rule. The website address could be a 
central site with prominent links to each document, but could not be 
a home page or section of the website other than where the documents 
are posted. In addition to the website address, the Notice may 
contain any other equivalent method or means to access the 
documents. See id.
---------------------------------------------------------------------------

     as was generally proposed (with certain modifications), 
the Notice must include a toll-free (or collect) telephone number to 
contact the fund or the shareholder's financial intermediary \157\ and 
(A) provide instructions describing how a shareholder may request, at 
no charge, a paper or email copy of the shareholder report or other 
materials required to be made accessible online, and an indication that 
the shareholder will not receive a paper copy of the report unless 
requested,\158\ (B) explain that the shareholder can at any time in the 
future elect to receive paper reports and provide instructions 
describing how a shareholder may make that election (e.g., by 
contacting the fund or the shareholder's financial intermediary),\159\ 
and (C) if applicable, include instructions describing how a 
shareholder can elect to receive shareholder reports or other documents 
and communications by electronic delivery; \160\
---------------------------------------------------------------------------

    \157\ Rule 30e-3(c)(1)(v).
    \158\ Rule 30e-3(c)(1)(v)(A).
    \159\ Rule 30e-3(c)(1)(v)(B).
    \160\ Rule 30e-3(c)(1)(v)(C).
---------------------------------------------------------------------------

     in a change from the proposal, the Notice may include 
other methods by which a shareholder can contact the fund or the 
shareholder's financial intermediary (e.g., by email or through a 
website) and may include information needed to identify the 
shareholder; \161\ and
---------------------------------------------------------------------------

    \161\ Rule 30e-3(c)(2). For example, this information could 
include a control number unique to that shareholder.
---------------------------------------------------------------------------

     in a change from the proposal, the Notice is not required 
to be accompanied by a reply card.\162\
---------------------------------------------------------------------------

    \162\ Although the final rule does not require a reply card as a 
method of communication, a fund could choose to use reply cards.
---------------------------------------------------------------------------

    We requested comment on whether the proposed disclosures in the 
Notice, including the required statement that the report contains 
important information about the fund, were appropriate. One commenter 
suggested that the content of the Notice be enhanced to require 
disclosures relating to ``important information, such as [f]und 
performance and portfolio manager insights,'' noting that enhanced 
disclosures could encourage investors to access their shareholder 
reports.\163\ We agree that such additional disclosures could encourage 
investors to access their reports, so we have modified and expanded the 
proposed required statement in the Notice that the report to 
shareholders contains important information about the fund, including 
its portfolio holdings, to add a reference to the fund's financial 
statements.\164\ In addition, the final rule permits the statement to 
also include a brief listing of other types of information contained in 
the report. For example, the statement could also note that the report 
contains fund performance and portfolio manager insights as suggested 
by the commenter, or other types of information such as expense 
information.\165\
---------------------------------------------------------------------------

    \163\ See Comment Letter of Fidelity Investments (Aug. 10, 2015) 
(``Fidelity Comment Letter I''); see also Investment Advisory 
Committee Recommendation; Broadridge Meeting Memo I.
    \164\ Rule 30e-3(c)(1)(ii). Similar statements are required for 
other documents. For example, Form N-1A requires the back cover page 
of the statutory prospectus of an open-end fund to include a 
statement to the effect that the fund's annual report contains a 
discussion of the market conditions and investment strategies that 
significantly affected the fund's performance during its last fiscal 
year. See Item 1(b)(1) of Form N-1A.
    \165\ Rule 30e-3(c)(1)(ii). As discussed below, the final rule 
separately permits the Notice to include content from the related 
shareholder report. See infra Section II.B.2.b.ii.
---------------------------------------------------------------------------

    Some commenters recommended modifications to the proposed website 
address requirements. One commenter suggested that the rule not require 
the Notice to include a specific website address, which would allow the 
industry more flexibility in implementing the rule.\166\ Another 
commenter suggested that the rule not require website addresses for 
individual reports.\167\ That commenter stated that: (1) Such a 
requirement was too complex and costly to administer, as new reports 
are posted and old ones are taken down; (2) website addresses would be 
long and difficult to key in from the paper Notice; and (3) such 
requirement was inconsistent with our rules regarding the internet 
availability of proxy materials, which only requires a website address 
for a landing page and with which investors may already be familiar.
---------------------------------------------------------------------------

    \166\ See Fidelity Comment Letter I.
    \167\ See SIFMA Comment Letter I.
---------------------------------------------------------------------------

    After consideration of these comments, we have determined to 
eliminate from the final rule the proposed requirement that the Notice 
include the website address for individual reports. We agree with those 
commenters suggesting that such a requirement could result in 
unnecessary administrative burdens, and believe that limiting the 
website link to the landing page, where the shareholder report and 
other required materials are available, meets our objective of 
directing investors to the shareholder report in an easily accessible 
manner. The address used must be specific enough to lead investors 
directly to the documents that are required to be accessible under the 
rule's conditions, but may be a central site with prominent links to 
each document. The website may not be the home page or section of the 
website other than on which the documents are posted.\168\ Thus, an 
investor must be able to navigate from the landing page to each of the 
required documents with a single click or tap.
---------------------------------------------------------------------------

    \168\ Rule 30e-3(c)(1)(iv).
---------------------------------------------------------------------------

    To access their reports, investors will be required to key in the 
website address provided in the Notice. Some

[[Page 29171]]

investors could have difficulty accessing their reports if, for 
example, the address to the landing page is made up of a long string of 
unrelated or special characters. Short and intuitive website links to 
the landing page and other innovative solutions could mitigate this 
problem.
    In a change from the proposal, the final rule also provides that 
the Notice may include, in addition to a website address, other 
equivalent methods or means to facilitate shareholder access to the 
shareholder report and other required materials.\169\ Such methods or 
means could include, for example, inclusion of a Quick Response Code 
(QR code) or similar means to access the required website address or 
link.\170\
---------------------------------------------------------------------------

    \169\ Id.
    \170\ A QR code is a two-dimensional barcode containing 
information that is machine-readable. For example, some smartphones 
could scan a QR code with information of a specific Uniform Resource 
Locator (``URL'') and then be directed to that website. Although the 
final rule eliminates the requirement that the Notice include the 
direct website address for the report itself, a fund, could, 
pursuant to this provision, choose to include a link that takes an 
investor directly to the report.
---------------------------------------------------------------------------

    We proposed that the Notice not only be required to include a toll-
free telephone number that an investor can use to notify the fund that 
he or she wishes to receive paper reports in the future, but also a 
reply form that is pre-addressed with postage-paid as an alternative 
means by which the investor can notify the fund of his or her 
preference.\171\ Commenters generally opposed the reply card 
requirement, asserting that reply cards have a low response rate \172\ 
that does not justify their cost.\173\ Commenters urged that a toll-
free telephone number would be an equally effective means for an 
investor to express his or her preference and would be more cost-
effective than a reply card.\174\
---------------------------------------------------------------------------

    \171\ See proposed rule 30e-3(d)(1)(vi). As proposed, the reply 
card would have been required to include the information that the 
fund would need to identify the investor.
    \172\ See ICI Comment Letter I (estimating return rates as low 
as 2%).
    \173\ One commenter indicated that eliminating reply cards would 
reduce aggregate printing and mailing costs associated with rule 
30e-3 from $127 million per mailing (of Notices or Initial 
Statements) to between $81 million (if funds elect to use postcards) 
and $118 million (if funds elect to use envelopes), which represents 
a reduction of 7% to 36%. See ICI Comment Letter I.
    Another commenter indicated that including a reply form that is 
pre-addressed with postage paid would cost approximately $1,325,000 
in the aggregate per year. See T. Rowe Price Comment Letter I.
    Another commenter estimated cost savings from the elimination of 
reply cards to be approximately $10 million. See Broadridge Meeting 
Memo II.
    \174\ See, e.g., Comment Letter of Dechert LLP (Aug. 12, 2015) 
(``Dechert Comment Letter''); ICI Comment Letter I; Comment Letter 
of Mediant Communications (Aug. 12, 2015) (``Mediant Comment 
Letter''); SIFMA Comment Letter; T. Rowe Price Comment Letter I; 
Capital Research Comment Letter I.
---------------------------------------------------------------------------

    After considering the comments we received, we have determined not 
to require funds to include a reply card.\175\ We have been persuaded 
by commenters that the low response rates experienced from this means 
of communication coupled with the expense associated with this method 
do not justify the inclusion of a reply card.
---------------------------------------------------------------------------

    \175\ See rule 30e-3(c)(1)(v).
---------------------------------------------------------------------------

    However, the final rule permits the Notice to include additional 
means by which an investor can contact the fund or the investor's 
financial intermediary.\176\ Because funds and financial intermediaries 
have extensive direct experience with the types of communication 
methods preferred by their investors, we believe that the rule should 
provide flexibility to permit additional methods of communication, and 
we encourage the inclusion of additional means besides the required 
toll-free (or collect) telephone number, such as email addresses, 
dedicated web pages, etc. To further facilitate the use of other means 
of communication, the final rule permits the Notice to include any 
information needed to identify the shareholder so that shareholders may 
express their shareholder report transmission preference with 
ease.\177\ This information could include, for example, control 
numbers, account numbers, etc. As noted earlier, if a fund were to 
choose to include this information in a Notice, the fund should take 
appropriate measures to protect this information just as funds do today 
regarding other mailings, like account statements, that may contain 
sensitive information.
---------------------------------------------------------------------------

    \176\ See rule 30e-3(c)(2). In lieu of the reply card, some 
commenters suggested that the rule permit flexibility in how 
shareholders could express their delivery preference and/or require 
alternative means of shareholders expressing this preference, such 
as by email (see, e.g., Dechert Comment Letter; State Street Comment 
Letter) or fax (see, e.g., State Street Comment Letter). See Dechert 
Comment Letter; State Street Comment Letter; BlackRock Comment 
Letter; CAI Comment Letter I, ICI Comment Letter I; MFS Comment 
Letter; SIFMA Comment Letter.
    \177\ See rule 30e-3(c)(2).
---------------------------------------------------------------------------

    In providing the required toll-free (or collect) telephone number 
and other means, we encourage the use of methods that allow 
shareholders to express their preference as conveniently as possible, 
such as by limiting the need for investors to speak with multiple 
representatives or navigate through multiple telephone menus or web 
pages, or otherwise minimizing the steps necessary to express a 
preference. To record investor preferences, a fund might, for example, 
provide an automated system, live representatives, a toll-free (or 
collect) telephone number that is dedicated solely for this purpose, or 
a prompt for investors when they access their shareholder account 
information online, such as through the use of a pop-up.
    In light of the principle that effective rulemaking should not end 
with rule adoption, the staff will review, and report to the Commission 
on, the implementation of rule 30e-3 to evaluate whether funds are 
employing processes that effectively facilitate investor election of 
delivery preferences, including the ease through which investors may 
elect delivery preferences, taking into account, among other things, 
the continued development of delivery mechanisms and the evolving array 
of retail investor preferences. For example, the staff's review would 
include an evaluation of the number of investors who have elected paper 
delivery, whether such election is on an ad hoc basis or permanent 
basis, the means through which the election was made (telephone, online 
or otherwise), and the overall investor experience relating to the 
election of delivery preferences. The purpose of such review would be 
to better inform the Commission and the staff on whether funds are 
implementing processes that effectively facilitate investors making 
elections consistent with investors' preferences and on whether any 
further action should be taken to facilitate investor election of 
delivery preferences.
    Some commenters recommended that the final rule permit the Notice 
to include disclosures informing investors how they can affirmatively 
consent to electronic delivery of shareholder reports and other 
documents.\178\ After further consideration of these comments, we 
believe that the Notice should provide the recipient investor with 
information on how to obtain shareholder reports in the investor's 
preferred format (i.e., in paper or by email via electronic delivery). 
Therefore, the final rule requires the Notice to include, if 
applicable, instructions describing how an investor can elect to 
receive shareholder reports or other documents or communications by 
electronic delivery.\179\
---------------------------------------------------------------------------

    \178\ See, e.g., ICI Comment Letter I; OppenheimerFunds Comment 
Letter; SIFMA Comment Letter.
    \179\ See rule 30e-3(c)(1)(v)(C). This provision would require, 
if applicable, instructions not only on how to elect electronic 
delivery of regulatory documents like a shareholder report, but on 
how to elect electronic delivery of other types of communications 
(e.g., announcements, news articles, and other ``investor 
relations'' communications).

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

[[Page 29172]]

    Finally, in a change from the proposal, the final rule permits a 
Notice to include pictures, logos, or similar design elements so long 
as the design is not misleading and the information is clear.\180\ A 
similar provision exists in the rules governing the content of the 
Notice of internet Availability of Proxy Materials.\181\ While we did 
not receive any comments that suggested this modification to the 
proposal,\182\ we believe that this provision promotes our general goal 
of highlighting the Notice for investors' attention by permitting the 
addition of content that alerts investors to the Notice itself, and by 
extension the shareholder report, without obscuring important 
information contained in the Notice.
---------------------------------------------------------------------------

    \180\ See rule 30e-3(c).
    \181\ See rule 14a-16(g)(3) under the Exchange Act [17 CFR 
240.14a-16(g)(3)]; see also rule 421(d)(3) under the Securities Act 
[17 CFR 230.421(d)(3)].
    \182\ While not expressly recommending this modification to the 
proposal in its comment letters, one commenter designed a sample 
``enhanced notice'' that included design elements such as pictures 
and logos that would be consistent with this modification. See 
Broadridge Meeting Memo I.
---------------------------------------------------------------------------

ii. Option To Include Content From Report in Notice
    The Notice is designed to alert investors to the availability of a 
shareholder report online and to provide investors with information on 
how to obtain paper reports if that is their preference. As we noted in 
the Proposing Release, we believe it is important to limit the total 
information included in the Notice, in order to ensure that information 
regarding the availability of a shareholder report does not become 
obscured. Therefore, we proposed that the rule limit the information 
contained in the Notice to the information required by the rule, but 
requested comment on whether we should require that the Notice not 
contain any additional information other than that specified by the 
rule.\183\
---------------------------------------------------------------------------

    \183\ See proposed rule 30e-3(d)(3).
---------------------------------------------------------------------------

    In addition to the comments described above regarding types of 
additional information that should be permitted in the Notice (e.g., 
instructions on how to elect electronic delivery of documents), we 
received comments recommending that the final rule should expand the 
legend in the Notice to include additional information about the 
fund.\184\ One commenter recommended that the Notice should require in 
a standardized format certain additional content found in the report 
(for example, a fund's top ten holdings, performance line graph, total 
return performance, expense information, and/or portfolio 
composition).\185\ Other commenters recommended that the Commission 
should explore the development of a document more akin to a ``summary 
shareholder report'' that incorporates layered disclosure 
principles.\186\
---------------------------------------------------------------------------

    \184\ See, e.g., Fidelity Comment Letter I (recommending that 
the legend be expanded to alert shareholders that the report 
contains information such as fund performance and holdings 
information and portfolio manager's insights).
    \185\ See Broadridge Meeting Memo I (recommending an ``enhanced 
notice,'' which this commenter suggests could be preceded by a 
Commission pilot to ``accelerate benefits and be made available to 
any and all investment companies that wish to use [the enhanced 
notice]''); Broadridge Meeting Memo II.
    \186\ See Comment Letter of Consumer Action (Dec. 1, 2017); see 
also Investment Advisory Committee Recommendation (``[T]he [Investor 
Advisory Committee] recommends that the Commission explore 
development of a summary disclosure document for annual shareholder 
reports that incorporates key information from the report along with 
prominent notice regarding how to obtain a copy of the full report. 
The summary document should be designed to be delivered either by 
mail or by email, depending on the investors' delivery preferences. 
It should also incorporate a layered disclosure approach, including 
the ability of those getting the document electronically to click 
through to more detailed disclosure on a particular topic.'').
---------------------------------------------------------------------------

    After consideration of these comments, we believe that permitting--
but not requiring as a condition to use this optional method--the 
inclusion of certain additional information in the Notice is 
appropriate so long as it is limited to content from the shareholder 
report for which Notice is being given.\187\ We have modified the final 
rule accordingly to permit registered management companies (but not 
UITs) to include content from the report in a Notice.\188\ To avoid 
obscuring the information required to be in the Notice (i.e., the 
required legends, website address, etc.), under the final rule, 
additional content from the shareholder report included in the Notice 
must be placed after the information specified by paragraph (c)(1) of 
the rule.\189\
---------------------------------------------------------------------------

    \187\ Similarly, in cases where shareholder reports are 
delivered electronically via email, we note that such emails would 
not be precluded from including content from the related report 
under the Commission's electronic delivery guidance. See 1995 
Release, supra note 18; 1996 Release, supra note 18; 2000 Release, 
supra note 18.
    \188\ See rule 30e-3(c)(3). UITs subject to rule 30e-2 are 
principally separate accounts offering variable annuities and 
variable life insurance policies that do not prepare or transmit 
shareholder reports for the separate accounts themselves. Rather, 
under rule 30e-2 they are required to transmit the shareholder 
reports of the underlying funds in which they invest, which may be 
numerous and in many cases are unaffiliated. Because of this two-
tier structure, the final rule limits the provision permitting 
inclusion of additional content from shareholder reports to reports 
required by rule 30e-1.
    \189\ Id.
---------------------------------------------------------------------------

    We are persuaded that permitting additional flexibility regarding 
the content of the Notice is appropriate, and may result in funds 
crafting Notices that convey to investors certain key content from the 
shareholder report, while also encouraging investors to access the 
shareholder report for more detailed information.\190\ Information 
contained in shareholder reports that we believe may be communicative 
and appropriate--albeit not required--for inclusion in the Notice could 
be, for example: One or more graphical representations of holdings; a 
list of the fund's top holdings (e.g., top five or ten holdings); 
performance information; the type of fund; a brief statement of the 
fund's investment objectives and strategies; the expense ratio or an 
expense example; and the name and title of the fund's portfolio 
manager(s).
---------------------------------------------------------------------------

    \190\ This approach draws from certain aspects of the Investor 
Advisory Committee Recommendation. For example, the Investor 
Advisory Committee recommended that ``the Commission explore 
development of a summary disclosure document for annual shareholder 
reports that incorporates key information from the report along with 
prominent notice regarding how to obtain a copy of the full 
report.'' See IAC Recommendation, supra note 40. While the final 
rule does not require a summary disclosure document, and does not 
mandate any particular content, it permits funds to add to the 
Notice content from the shareholder report and similarly requires 
that the Notice include a prominent legend regarding how to obtain a 
copy of the report.
    Additionally, the Investor Advisory Committee recommended that 
``the Commission engage in investor testing of the proposed [summary 
document and layered] disclosure, or encourage testing by industry 
members, to ensure that the proposed approach delivers the expected 
benefits of reducing costs for funds and distributors without 
sacrificing disclosure quality.'' Id.
    Consistent with the Investor Advisory Committee Recommendation, 
we note that the Fund Retail Investor Experience and Disclosure 
Request for Comment, as well as investor testing of disclosure 
alternatives, are two key initiatives the Commission is using to 
assess our current disclosure framework for funds and to consider 
possible changes to that framework. See Disclosure Request for 
Comment, supra note 20. Regarding this investor testing, the 
Commission's Office of the Investor Advocate (``OIAD'') is engaging 
in investor testing through its Policy Oriented Stakeholder and 
Investor Testing for Innovative and Effective Regulation 
(``POSITIER'') initiative. See Disclosure Request for Comment, supra 
note 20.
---------------------------------------------------------------------------

    Providing funds the flexibility to include in the Notice certain 
information from the shareholder report is intended to allow them to 
identify and provide content they believe is particularly informative 
to their investors. Funds that decide to include additional information 
from the report in their Notices generally should consider the 
appropriateness of such information, the benefits to investors, and the 
cost impacts associated with adding information to the Notice. When 
including content from the report in a Notice, funds have obligations 
with respect to the antifraud provisions of the

[[Page 29173]]

federal securities laws.\191\ In this regard, inclusion of only certain 
elements of performance information required to be included in reports 
raises certain considerations. If a fund chooses to include in the 
Notice performance information from the report, the content should 
include all information required with respect to the particular 
performance item in accordance with applicable presentation 
requirements.\192\
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    \191\ See, e.g., Section 17(a) under the Securities Act [15 
U.S.C. 77q]; Section 10(b) under the Exchange Act [15 U.S.C. 78j(b)] 
and rule 10b-5 thereunder [17 CFR 240.10b-5]; and Section 34(b) of 
the Investment Company Act [15 U.S.C. 80a-33(b)].
    \192\ For example, a fund could include either the complete line 
graph or complete performance table required by the applicable form 
(see, e.g., Item 27(b)(7)(ii) of Form N-1A requiring an open-end 
management company's report to include (A) a line graph, and (B) 
annual total returns table).
---------------------------------------------------------------------------

    While the final rule does not prescribe a specific page limit, 
funds generally should limit optional content to a relatively brief 
amount to avoid detracting from the primary purpose of the Notice and 
to encourage investors to access the shareholder report itself. As 
discussed further below, we are requiring funds that choose to transmit 
Notices with additional information from the shareholder report to file 
such Notices as part of their reports on Form N-CSR.\193\ As discussed 
above, we believe it is important that information regarding the 
availability of a shareholder report does not become obscured, and to 
address this concern, we are requiring that the information that is 
required to be in the Notice (i.e., the required legends, website 
address, etc.) must be presented before any additional content from the 
shareholder report is included in the Notice to ensure that the 
required legends and website address are positioned prominently in the 
Notice.
---------------------------------------------------------------------------

    \193\ See Item 1(b) of Form N-CSR.
---------------------------------------------------------------------------

iii. Materials That May Be Combined With or Accompany the Notice
    To further ensure that the information contained in the Notice 
would not be obscured, the rule as proposed would have prohibited the 
Notice from being incorporated into or combined with another 
document,\194\ or sent along with other shareholder communications 
(with the exception of the fund's current summary prospectus, 
prospectus, statement of additional information, or Notice of internet 
Availability of Proxy Materials under rule 14a-16 under the Exchange 
Act).\195\ We received a number of comments on this aspect of the 
proposed rule, with commenters requesting additional flexibility in 
what materials or documents could be combined with, or accompany, the 
Notice.
---------------------------------------------------------------------------

    \194\ See proposed rule 30e-3(d)(2).
    \195\ See proposed rule 30e-3(d)(4).
---------------------------------------------------------------------------

    Some commenters recommended that the final rule permit the use of a 
single, consolidated Notice for funds within the same fund complex or 
for funds held in the same intermediary contract or account.\196\ 
Commenters noted that such an approach would have the benefits of 
increasing the likelihood of investor review \197\ and reductions in 
costs.\198\ One commenter recommended that a consolidated Notice be 
permitted for funds from different fund complexes,\199\ while another 
recommended that the final rule permit consolidated Notices for funds 
held through a variable insurance product.\200\
---------------------------------------------------------------------------

    \196\ See CAI Comment Letter I; Fidelity Comment Letter I; ICI 
Comment Letter I; OppenheimerFunds Comment Letter; Schwab Comment 
Letter.
    \197\ See ICI Comment Letter I.
    \198\ See ICI Comment Letter I; OppenheimerFunds Comment Letter.
    \199\ See Fidelity Comment Letter I.
    \200\ See CAI Comment Letter I. This commenter also recommended 
that the consolidated Notice be permitted to specify either a single 
website or multiple websites at which required documents were 
available for different funds.
---------------------------------------------------------------------------

    Some commenters recommended that the final rule permit the Notice 
to be incorporated into the summary prospectus and account statements, 
stating it would provide additional visibility due to investor interest 
in those documents.\201\ A number of commenters recommended that other 
materials should be permitted to accompany the Notice, including 
account statements,\202\ new account applications,\203\ new account 
welcome kits,\204\ notices from other funds with the same fiscal year 
end,\205\ dividend checks,\206\ transaction confirmations,\207\ and in 
the case of variable insurance products, the variable annuity contract 
or life insurance policy and the related contract prospectuses or 
statements of additional information.\208\ Commenters stated that 
investors would be more likely to read Notices bundled with other 
materials,\209\ and that additional cost savings would result.\210\
---------------------------------------------------------------------------

    \201\ See, e.g., Capital Research Comment Letter I; State Street 
Comment Letter.
    \202\ See.,e.g., Dreyfus Comment Letter; ICI Comment Letter I; 
Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment 
Letter; Schwab Comment Letter; T. Rowe Price Comment Letter I.
    \203\ See, e.g., ICI Comment Letter I.
    \204\ See, e.g., ICI Comment Letter I; Invesco Comment Letter; 
MFS Comment Letter; OppenheimerFunds Comment Letter; T. Rowe Price 
Comment Letter I.
    \205\ See, e.g., Capital Research Comment Letter I; ICI Comment 
Letter I.
    \206\ See, e.g., ICI Comment Letter I; Invesco Comment Letter; 
MFS Comment Letter; OppenheimerFunds Comment Letter; T. Rowe Price 
Comment Letter I.
    \207\ See, e.g., T. Rowe Price Comment Letter I.
    \208\ See, e.g., CAI Comment Letter I; ICI Comment Letter I.
    \209\ See, e.g., ICI Comment Letter I; MFS Comment Letter; T. 
Rowe Price Comment Letter I.
    \210\ See, e.g., Dreyfus Comment Letter; ICI Comment Letter I; 
T. Rowe Price Comment Letter I.
---------------------------------------------------------------------------

    After consideration of the comments, we have modified the final 
rule to permit the use of consolidated Notices.\211\ In addition to 
reduced costs, we believe that a single, consolidated Notice could be 
effective in alerting a shareholder to the online availability of 
shareholder reports for multiple funds. We note that if a consolidated 
Notice is used, a fund must draft the Notice to incorporate all 
elements required by the rule with respect to each report covered by 
the Notice. For example, if the website address for one report covered 
by the Notice does not include the materials required for one or more 
other funds covered by the Notice, then additional website addresses 
would be required so that all required materials for the funds covered 
by the Notice are made appropriately accessible. In such case, we 
believe it should be clear to investors which website address is 
associated with each report covered by the consolidated Notice.
---------------------------------------------------------------------------

    \211\ See rule 30e-3(c)(4).
---------------------------------------------------------------------------

    We have also modified the final rule to permit the Notice to 
accompany additional materials beyond a current summary prospectus, 
statutory prospectus, statement of additional information, or Notice of 
internet Availability of Proxy Materials. As with consolidated Notices, 
we believe that permitting Notices to accompany other documents not 
only could result in additional cost savings (i.e., reduced mailing 
expenses), but could be effective in alerting a shareholder to the 
Notice if the other documents are likely to be read by investors. Under 
the final rule, a Notice may accompany one or more Notices for other 
funds.\212\ In the case of a fund that is available as an investment 
option in a variable annuity or variable life insurance contract, the

[[Page 29174]]

Notice may accompany the contract or the contract's statutory 
prospectus and statement of additional information.\213\ We have also 
modified the final rule to permit the Notice to accompany the 
investor's account statement. Like consolidated Notices, we believe 
that permitting Notices to accompany account statements could result in 
additional cost savings. Moreover, we believe that an investor who is 
likely to read account statements would also be likely to become aware 
of the accompanying Notice and the content therein.\214\ We believe 
that the Notice would not be unduly obscured if accompanied by these 
materials because it is accompanying materials personalized to the 
receiver,\215\ but decline to permit the Notice to accompany other 
materials suggested by commenters.
---------------------------------------------------------------------------

    \212\ See rule 30e-3(c)(5)(i), (ii). Under the final rule, a 
Notice for a fund may accompany a summary prospectus, statutory 
prospectus or statement of additional information for other funds 
because (1) rule 498 under the Securities Act does not prohibit a 
summary prospectus for one fund from accompanying a summary 
prospectus, statutory prospectus or statement of additional 
information for another fund, and (2) the final rule permits the 
Notice for one fund to accompany a Notice for another fund, and for 
a Notice to incorporate or combine one or more other Notices. See 
rule 498 under the Securities Act [17 CFR 230.498]; rule 30e-
3(c)(5)(i), (ii).
    \213\ Rule 30e-3(c)(5)(iii). Thus, Notices for underlying funds 
offered under a contract may (either as individual Notices or as a 
consolidated Notice) accompany (1) the contract, (2) the contract's 
statutory prospectus and statement of additional information, and 
(3) summary prospectuses, statutory prospectuses, statements of 
additional information, and Notices of internet Availability of 
Proxy Materials for one or more underlying funds. See also rule 
498(c) under the Securities Act (permitting, under certain 
conditions, a summary prospectus for a fund that is available as an 
investment option in a variable annuity or a variable life insurance 
contract to be bound together with the statutory prospectus for the 
contract and summary prospectuses and statutory prospectuses for 
other investment options available in the contract) [17 CFR 
230.498(c)].
    \214\ Rule 30e-3(c)(5)(iv).
    \215\ See, e.g., rule 498(c) under the Securities Act [17 CFR 
230.498(c)].
---------------------------------------------------------------------------

iv. Householding
    Similar to the Commission's rules on householding prospectuses, 
shareholder reports, and proxy statements and information 
statements,\216\ as proposed, final rule 30e-3 allows one Notice to be 
sent to shareholders who share an address so long as the conditions set 
forth in rule 30e-1(f), rule 30e-2(b), rule 14a-3(e) under the Exchange 
Act, or rule 14c-3(c) under the Exchange Act are satisfied.\217\ We 
received no comments on this requirement, and are adopting the 
requirement as proposed.
---------------------------------------------------------------------------

    \216\ See, e.g., rule 154 under the Securities Act (permitting 
householding of prospectuses) [17 CFR 230.154]; rules 30e-1(f) and 
30e-2(b) (permitting householding of shareholder reports); rules 
14a-3(e) and 14c-3(c) under the Exchange Act (permitting 
householding of annual reports to security holders, proxy statements 
and information statements, and Notices of internet Availability of 
Proxy Statements) [17 CFR 240.14a-3(e); 17 CFR 240.14c-3(c)]. See 
generally Delivery of Disclosure Documents to Households, Investment 
Company Act Release No. 24123 (Nov. 4, 1999) [64 FR 62540 (Nov. 16, 
1999)] (adopting householding rules with respect to prospectuses and 
shareholder reports); Delivery of Proxy Statements and Information 
Statements to Households, Investment Company Act Release No. 24715 
(Oct. 27, 2000) [65 FR 65736 (Nov. 2, 2000)] (adopting householding 
rules with respect to proxy statements and information statements).
    \217\ Rule 30e-3(c)(6).
---------------------------------------------------------------------------

v. Requirement To File Form of Notice
    We proposed to require that a form of the Notice be filed with the 
Commission not later than 10 days after the Notice is sent to 
shareholders.\218\ We anticipated that this filing would have occurred 
on a new EDGAR submission type that would have been created by the 
Commission, and stated our belief that the Notice filing requirement 
would have assisted us in overseeing compliance with the rule.
---------------------------------------------------------------------------

    \218\ See proposed rule 30e-3(d)(6).
---------------------------------------------------------------------------

    Commenters generally opposed filing the Notice semi-annually as 
part of a separate filing. Some commenters recommended that the Notice 
be filed instead as an exhibit to Form N-CEN or Form N-CSR.\219\ 
Commenters also recommended eliminating the filing requirement, and 
indicated that the Commission could ensure compliance in a less costly 
manner using its examination program.\220\
---------------------------------------------------------------------------

    \219\ See, e.g., Dechert Comment Letter; ICI Comment Letter I; 
T. Rowe Price Comment Letter I.
    \220\ See, e.g., Dechert Comment Letter; Invesco Comment Letter; 
SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

    After further consideration of these comments, we have modified the 
final rule as follows. Notices that do not contain content from the 
report (as permitted by paragraph (c)(3)) would not be required to be 
filed with the Commission because we do not expect those Notices to 
change significantly from period to period.\221\ We also believe that 
our staff can evaluate for compliance with the Notice provisions of the 
rule through the Commission's examination program.
---------------------------------------------------------------------------

    \221\ We expect this to be the case given the nature of the 
information required in the Notice, along with the general 
restriction on including information other than that required by the 
rule.
---------------------------------------------------------------------------

    On the other hand, Notices that contain content from the report as 
permitted by paragraph (c)(3) would be required to be filed with the 
Commission as part of the fund's report on Form N-CSR.\222\ We believe 
it is appropriate for the Commission to review the disclosure in these 
Notices in conjunction with its overall review of shareholder reports 
and other disclosure filings. In requiring that they be filed with the 
Commission, the staff will be able to monitor for compliance with the 
rule, as well as for general industry trends in the use of these 
Notices as part of its ongoing disclosure review and other activities.
---------------------------------------------------------------------------

    \222\ Item 1(b) of Form N-CSR (requiring the filing of a copy of 
each notice transmitted to stockholders in reliance on rule 30e-3 
that contains disclosures specified by paragraph (c)(3) of that 
rule).
---------------------------------------------------------------------------

c. Delivery of Paper Copy Upon Request
    As a condition to reliance on the rule, we proposed to require that 
the fund or UIT (or a financial intermediary through which shares of 
the fund or UIT may be purchased or sold) must send, at no cost to the 
requestor and by U.S. first class mail or other reasonably prompt 
means, a paper copy of the most recent annual and semi-annual reports 
of the fund (or underlying fund in the case of a UIT), and portfolio 
holdings of the fund (or underlying fund in the case of a UIT) as of 
its most recent first and third fiscal quarters, to any person ad hoc 
requesting copies of any such documents within three business days 
after receiving a request for a paper copy.\223\ This requirement is 
intended to allow investors to receive shareholder reports and 
portfolio information in paper, if they prefer, even if they are 
receiving Notices under the rule,\224\ and we are adopting it generally 
as proposed. However, we have modified the final rule from the proposal 
to eliminate the reference in this provision to financial 
intermediaries given the guidance in this release regarding the 
operation of the rule in the context of financial intermediaries.\225\
---------------------------------------------------------------------------

    \223\ Proposed rule 30e-3(f). One commenter questioned fund firm 
practices regarding delivery of paper shareholder reports upon 
request. See Broadridge Comment Letter II. A second commenter 
disputed the premise and sampling methodology conducted by the first 
commenter, stating that fund firms have ``specific, highly effective 
processes in place to handle requests under Rule 498.'' See ICI 
Comment Letter III. The Commission is not aware of investors having 
systemic issues related to fund firm practices regarding delivery of 
paper shareholder reports upon request.
    \224\ See, e.g., 1995 Release, supra note 18 (stating `that ``as 
a matter of policy, where a person has a right to receive a document 
under the federal securities laws and chooses to receive it 
electronically, that person should be provided with a paper version 
of the document if any consent to receive documents electronically 
were revoked or the person specifically requests a paper copy 
(regardless of whether any previously provided consent was 
revoked).''). A similar requirement is found in rule 498 under the 
Securities Act governing the use of a summary prospectus. See rule 
498(f) [17 CFR 230.498(f)].
    \225\ See rule 30e-3(e), (i); proposed rule 30e-3(f); infra 
Section II.C. For clarity, the final paragraph (e) of rule 30e-3 
operates independently of final paragraph (f) of rule 30e-3. Compare 
rule 30e-3(e) (requiring funds to deliver a paper report in response 
to a shareholder's ad hoc request) and rule 30e-3(f) (requiring 
funds to deliver paper reports to a shareholder, who has elected a 
shareholder preference to receive paper reports). See also infra 
Section II.B.2.d.
---------------------------------------------------------------------------

d. Investor Elections To Receive Future Reports in Paper
    While we believe that many investors would prefer internet 
availability of shareholder reports based on investor

[[Page 29175]]

testing and internet usage trends, we also acknowledge that there will 
be investors who continue to prefer receiving shareholder reports in 
paper.\226\ In order to maintain the ability of those investors to 
receive paper copies of their shareholder reports, the final rule 
prohibits reliance on the rule to transmit a report to a shareholder if 
such shareholder has notified the fund (or the shareholder's financial 
intermediary) that the shareholder wishes to receive paper copies of 
shareholder reports at any time after the fund has notified the 
shareholder of its intent to rely on the rule or provided a Notice to 
the shareholder.\227\
---------------------------------------------------------------------------

    \226\ See supra notes 96-97 and accompanying text.
    \227\ Rule 30e-3(f)(1).
---------------------------------------------------------------------------

    Under the proposal, rule 30e-3 would have permitted use of the rule 
as to a particular investor only if the investor either previously 
affirmatively consented to this method of transmission, or was 
determined to have provided implied consent (if affirmative consent was 
not received) by sending an Initial Statement to investors.\228\ To 
obtain implied consent, the proposed rule would have required that the 
Initial Statement inform the investor that future shareholder reports 
would be made available on a website until the investor provided 
notification that he or she wished to receive paper copies of the 
reports in the future.\229\ If such notification was not received 
within 60 days after sending the Initial Statement, the rule could be 
relied upon with respect to that investor provided that the other 
conditions of the rule were met.\230\
---------------------------------------------------------------------------

    \228\ Proposed rule 30e-3(c). These proposed conditions are 
substantially similar to certain of the conditions relating to the 
Commission's rules on ``householding'' prospectuses, shareholder 
reports, and proxy statements and information statements to 
investors who share an address. See, e.g., rule 154 under the 
Securities Act [17 CFR 230.154]; rules 30e-1 and 30e-2 under the 
Investment Company Act [17 CFR 270.30e-1; 17 CFR 270.30e-2]; rules 
14a-3 and 14c-3 under the Exchange Act [17 CFR 240.14a-3; 17 CFR 
240.14c-3]. For purposes of the householding rules, consent may be 
written or implied.
    While the householding rules require that consent (other than 
implied consent) be ``in writing,'' we did not propose a similar 
``in writing'' requirement because, consistent with the Commission's 
guidance on electronic delivery, consent may be provided in a number 
of ways, including in writing, electronically, or telephonically. 
See 1995 Release, supra note 18 (noting that one method for 
satisfying evidence of delivery is to obtain informed consent from 
an investor to receive information through a particular medium); 
1996 Release, supra note 18 (stating that informed consent should be 
made by written or electronic means); 2000 Release, supra note 18 
(stating Commission's view that an issuer or market intermediary may 
obtain an informed consent telephonically, as long as a record of 
that consent is retained).
    \229\ Proposed rule 30e-3(c)(1). The proposed rule defined 
``Initial Statement'' as the statement described in paragraph (c)(1) 
of the rule. See proposed rule 30e-3(h)(2).
    \230\ Proposed rule 30e-3(c)(4).
---------------------------------------------------------------------------

    Comments were mixed regarding the Initial Statement and the 
proposal's use of both affirmative and implied consent. Some commenters 
recommended removing provisions of the proposed rule that allow 
affirmative consent and provide solely for implied consent.\231\ One of 
these commenters stated that these affirmative consent provisions would 
add cost and complexity in tracking affirmative consents ``as an 
additional step separate from the notice'' and noted that the current 
``notice and access'' system for the delivery of proxy materials does 
not contain such a feature.\232\ In contrast, other commenters 
expressed concerns about permitting internet availability of 
shareholder reports to be the default method of satisfying transmission 
obligations to investors for those funds that elect to rely on the rule 
based on implied consent.\233\ Some of these commenters suggested that 
affirmative consent would be a more appropriate means to assess 
investor preferences for internet availability or paper transmission of 
shareholder reports.\234\
---------------------------------------------------------------------------

    \231\ See SIFMA Comment Letter (further noting that ``[t]he 
current system of notice and access for the delivery of proxy 
materials relies entirely on an implied consent approach, and in our 
experience that approach has been successful in accurately capturing 
the preferences of clients, who have the option of requesting paper 
copies on either a one-time or on-going basis''); Comment Letter of 
InveShare, Inc. (Feb. 11, 2016) (``InveShare Comment Letter'').
    \232\ See SIFMA Comment Letter.
    \233\ See supra notes 54-59 and accompanying text.
    \234\ See, e.g., American Forest and Paper Comment Letter.
---------------------------------------------------------------------------

    One commenter suggested that the final rule eliminate the Initial 
Statement requirement altogether.\235\ That commenter argued that the 
Initial Statement is unnecessary because both the Initial Statement and 
the Notice serve to inform investors of report availability and the 
right to receive paper reports. The commenter further argued that 
elimination of the Initial Statement requirement would streamline 
customer communications regarding delivery preferences, reduce 
unnecessary fund and investor expenses, and align the requirements of 
the rule with the Commission's rule regarding internet availability of 
proxy materials (rule 14a-16 under the Exchange Act).\236\
---------------------------------------------------------------------------

    \235\ See Fidelity Comment Letter I.
    \236\ Id.
---------------------------------------------------------------------------

    After considering comments, we have eliminated the proposed Initial 
Statement from the final rule. Instead, we are adopting an extended 
transition period. During the extended transition period, an investor 
in a mutual fund, for example, that seeks to begin relying on the rule 
before January 1, 2022 would receive approximately six notices of the 
upcoming change over a two-year period (each year, investors will 
receive notice on the summary prospectus or prospectus, as well as the 
semi-annual and annual report to shareholders.). The extended 
transition period is an appropriate, effective, and cost-efficient 
method of funds informing shareholders of the change in transmission 
format in lieu of the proposed Initial Statement provisions.\237\
---------------------------------------------------------------------------

    \237\ See infra Section II.B.2.f.
---------------------------------------------------------------------------

    In addition, the extended transition period will provide time for 
funds, financial intermediaries, and Commission staff to undertake 
efforts to raise investor awareness of the change in transmission 
method before funds are permitted to begin relying on the rule. These 
efforts, combined with the requirement that Notices be transmitted in 
lieu of paper reports informing investors of their ability to receive 
paper reports, will help ensure that all investors--including those who 
hold only funds that first choose to rely on the rule on or after 
January 1, 2022--nonetheless are made aware of the change in 
transmission method and the option to receive reports in the manner 
they prefer. We believe that upon the completion of this extended 
transition period it is appropriate to begin allowing all funds to rely 
on the rule.
Permanent Elections for Paper Reports
    Although the final rule replaces the proposed provisions relating 
to the Initial Statement with the extended transition period, the final 
rule also includes provisions enabling an investor to elect to receive 
future shareholder reports in paper after making a one-time election. 
Specifically, the rule provides that a fund may not rely on rule 30e-3 
to satisfy its obligations to transmit a report if at any time after 
the fund has notified the investor of its intent to rely on the rule or 
provided a Notice to the investor, the investor has notified the fund 
(or the investor's financial intermediary) that the investor wishes to 
receive paper copies of shareholder reports.\238\
---------------------------------------------------------------------------

    \238\ See rule 30e-3(f)(1). In the Proposing Release, we 
requested comment as to whether funds should be able to re-solicit 
implied consent for shareholders who had previously elected paper 
delivery and if we should prescribe a minimum time period for doing 
so. One commenter believed we should, but did not suggest a 
particular waiting period. See State Street Comment Letter. Given 
that the final rule eliminates the Initial Statement requirement to 
obtain implied consent, we no longer need to consider a minimum 
waiting period for re-soliciting implied consent.
    One commenter suggested that the current system of notice and 
access for the delivery of proxy materials relies entirely on an 
implied consent approach. See SIFMA Comment Letter. While the 
commenter is correct that rule 14a-16 under the Exchange Act does 
not require delivery of a notice similar to the Initial Statement, 
the rule also does not incorporate the concept of implied consent. 
See rule 14a-16(j)(4) under the Exchange Act (requiring the 
registrant to maintain records of security holder requests to 
receive materials in paper or via email for future solicitations, 
and to provide copies of the materials to a security holder who has 
made such a request until the security holder revokes such request 
rule 30e-1(f)) [17 CFR 240.14a-16(j)(4)].

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

[[Page 29176]]

    Beginning as early as January 1, 2019, funds will track investor 
preferences for paper copies of reports. We have adopted this date for 
two reasons. First, this date provides funds, financial intermediaries, 
and other service providers with a period of time to update systems to 
begin tracking investor paper preferences for shareholder reports.\239\ 
Second, this approach will allow investors who currently receive paper 
copies of reports to continue to receive them in that format without 
interruption. Therefore, if a fund intends to rely on the rule to 
transmit reports before January 1, 2022, the fund's investors will 
generally have a two year period to notify their fund of their 
preference and avoid any interruption of their paper deliveries.\240\ 
Funds that newly offer their shares to the public after January 1, 
2019, but include the notice in the relevant disclosure documents from 
the date of their first public offering will be able to rely on the 
rule beginning January 1, 2021. Although this may result in a shorter 
notice period to shareholders of these funds, we believe this is 
appropriate because these funds will have been offered to investors 
solely with the expectation that the fund will rely on the rule.
---------------------------------------------------------------------------

    \239\ We discuss these operational considerations and others 
with respect to financial intermediaries below in Section II.C.
    \240\ For most investors, this period before January 1, 2022 
will result in an extended opportunity to notify their fund of their 
preference for paper reports and receive them in that format without 
interruption as compared to the proposed rule. Under the proposed 
rule, there would not have been an extended transition period during 
which prominent disclosures would have been included in shareholder 
documents notifying investors of the upcoming change in transmission 
format. A fund would have been permitted under the proposed rule to 
send Notices to an investor 60 days after sending an Initial 
Statement to that investor. See proposed rule 30e-3(c).
---------------------------------------------------------------------------

Application of Investor Elections for Paper Reports Across Multiple 
Positions
    Under the proposed rule, each fund, including each series of a 
registrant offering multiple series, would have needed to obtain 
separate consent as to an investor, regardless of whether consent was 
obtained from that investor by other series offered by that registrant. 
An investor preferring paper copies also would have needed to deny or 
revoke consent for each fund, including each series, for which the 
shareholder preferred to receive paper copies of reports. In the 
Proposing Release we requested comment on whether consent should be 
obtained separately as to each fund, or whether consent that is applied 
to one fund could be inferred as to other funds held by the investor. 
We also requested comment on whether there were any special 
considerations relating to investors who invest through 
intermediaries.\241\
---------------------------------------------------------------------------

    \241\ See Proposing Release, supra note 14, at 33632.
---------------------------------------------------------------------------

    Commenters who addressed this issue uniformly recommended that 
consent should be permitted to be inferred with respect to all funds 
held by an investor within a fund complex \242\ or with a financial 
intermediary,\243\ including funds held by contract owners through a 
variable insurance product.\244\ These commenters noted that requiring 
consent for each individual fund position could cause investor 
confusion and possibly overwhelm investors if separate Initial 
Statements per fund position were required to be sent.\245\ Another 
commenter stated that tracking consents on a fund-by-fund basis might 
be too burdensome for funds, especially in the case of funds offering 
exchange privileges.\246\ Some commenters stated that applying investor 
preferences across all funds held within a fund complex or held in a 
particular account or financial intermediary would provide regulatory 
consistency with the Commission's electronic delivery guidance \247\ 
and with the Commission's e-proxy rules.\248\
---------------------------------------------------------------------------

    \242\ See, e.g., BlackRock Comment Letter; Schwab Comment 
Letter; ICI Comment Letter I; Invesco Comment Letter; MFS Comment 
Letter; OppenheimerFunds Comment Letter; State Street Comment 
Letter.
    \243\ See, e.g., BlackRock Comment Letter; Schwab Comment 
Letter; Fidelity Comment Letter I; ICI Comment Letter I; Invesco 
Comment Letter; Mediant Comment Letter; OppenheimerFunds Comment 
Letter; SIFMA Comment Letter.
    \244\ See CAI Comment Letter I.
    \245\ See ICI Comment Letter I.
    \246\ See State Street Comment Letter.
    \247\ See MFS Comment Letter.
    \248\ See Fidelity Comment Letter I (recommending that account 
level preferences, and not fund level preferences, should be adopted 
in the final rule, noting that ``most funds and broker dealers 
maintain shareholder delivery preferences at the account level 
(account or multiple accounts under the same SSN or TIN) and not at 
the fund level. Delivery preference requirements at the fund level 
is inconsistent with existing account level preference management 
requirements under the Proxy Rule, electronic delivery and other 
account level preferences (e.g., letters and alerts).''); SIFMA AMG 
Comment Letter (recommending that consents be permitted at the 
customer or account level rather than on a fund-by-fund basis in 
noting that ``[c]urrent consent collection databases used for 
electronic delivery of disclosure and other documents generally 
collect information at the account level. For example, an account 
holder with the same name and address would be solicited to consent 
to electronic delivery of shareholder reports with respect to all 
funds held in the account of the account holder. The requirement of 
sub-section (c) of proposed Rule 30e-3 to collect consents on a 
fund-by-fund basis would require reprogramming or completely new 
consent collection techniques and databases. We believe the cost of 
implementing these changes may be a significant impediment to funds 
relying on Rule 30e-3 to transmit reports to shareholders who have 
not yet provided affirmative consent to electronic delivery over the 
Commission's existing electronic delivery guidance.'').
---------------------------------------------------------------------------

    After consideration of the issues raised by commenters, we agree 
that applying the investor's election for paper reports at the investor 
account level,\249\ rather than the fund position level, is consistent 
with other delivery preference requirements with which investors, 
intermediaries, and funds are already familiar. Therefore, the final 
rule provides that if an investor has notified a fund complex or UIT 
(or the investor's financial intermediary) that the investor wishes to 
receive paper copies of shareholder reports, the investor will be 
deemed to have requested paper copies with respect to (i) any and all 
current and future funds held through an account or accounts with (A) 
the fund's transfer agent or principal underwriter or agent thereof for 
the same ``group of related investment companies'' as such term is 
defined in rule 0-10 under the Investment Company Act; \250\ or (B) a 
financial intermediary; and (ii) any and all funds held currently and 
in the future in a separate account funding a variable annuity or 
variable life insurance contract.\251\
---------------------------------------------------------------------------

    \249\ The election could be applied, for example, if fund shares 
are held by an investor in one or more accounts with the same 
registration (i.e., names, social security numbers, and/or tax 
identification numbers).
    \250\ 17 CFR 270.0-10.
    \251\ Rule 30e-3(f)(2). See also infra Section II.C.
---------------------------------------------------------------------------

e. Prospectuses and Statements of Additional Information Transmitted 
Under Rule 30e-1(d)
    Rule 30e-1(d) permits an open-end management investment company to 
transmit a copy of its prospectus or statement of additional 
information in place of its shareholder report, if it includes all of 
the information that would otherwise be required to be contained in the 
shareholder report.\252\ Under rule 30e-3 as proposed, the rule would 
not be available to a fund seeking

[[Page 29177]]

to transmit a copy of its currently effective statutory prospectus or 
statement of additional information, or both, as permitted by rule 30e-
1(d).\253\ We received no comments on this aspect of the proposed rule 
and are adopting it as proposed.\254\
---------------------------------------------------------------------------

    \252\ See rule 30e-1(d).
    \253\ See proposed rule 30e-3(g).
    \254\ Rule 30e-3(g).
---------------------------------------------------------------------------

f. Extended Transition Period
    Rather than making the rule effective immediately and requiring an 
Initial Statement, as proposed, we are adopting an extended transition 
period with staged effective dates.\255\ During the extended transition 
period, the earliest that Notices may be transmitted to investors in 
lieu of paper reports is January 1, 2021. In general, funds will be 
required to provide two years of notice to shareholders before relying 
on the rule, if relying on the rule before January 1, 2022.\256\ 
Therefore, funds that begin providing notice at the start of 2019 will 
complete the two-year notice period, and may begin relying on the rule, 
on January 1, 2021. Funds that are newly offered during the period from 
January 1, 2019 through December 31, 2020 may rely on the rule starting 
January 1, 2021, if they provide notice to shareholders starting with 
their first public offering. Funds that are newly offered beginning 
January 1, 2021 and thereafter may rely on the rule immediately without 
providing advance notice. All other funds may not rely on the rule 
until they have completed the full two year notice period or until 
January 1, 2022, whichever comes first.
---------------------------------------------------------------------------

    \255\ See rule 30e-1(j).
    \256\ For purposes of paragraph (i) of the rule, a ``required 
statement'' means the statement regarding a fund's intent to rely on 
rule 30e-3 specified by (i) its applicable registration form, and 
(ii) in the case of a fund that uses a summary prospectus, rule 498. 
See rule 30e-3(i)(2). See also infra Section II.B.3 for a discussion 
of the related disclosure amendments.
---------------------------------------------------------------------------

    The extended transition period is designed so that investors will 
receive disclosures to alert them to the change in the transmission 
method and allow them to express their delivery preference while also 
providing funds and financial intermediaries a period of time to 
educate investors of the coming change through disclosures on 
prospectuses and certain other fund documents and through other means. 
It will also provide funds and financial intermediaries with time to 
implement any necessary operations and systems changes. Finally, the 
Commission staff will also use this extended transition period to 
engage in educational and investor outreach efforts. As discussed 
above, after consideration of comments received on the proposal, we 
believe that the enhanced disclosure requirements during this extended 
transition period are a more appropriate and effective method of 
providing investors with advance notice of a fund's intent to rely on 
rule 30e-3 than the proposed Initial Statement requirement.\257\
---------------------------------------------------------------------------

    \257\ See supra Section II.B.2.d.
---------------------------------------------------------------------------

    Except as specified below, a fund generally may rely on rule 30e-3 
to transmit a report to an investor before January 1, 2022, only after 
providing required statements over a two-year period as follows:
Beginning January 1, 2021
     Existing funds with public shareholders prior to January 
1, 2019--if the fund includes the required statements on each 
applicable document required to be delivered or transmitted to 
shareholders for the period beginning on January 1, 2019 and ending on 
December 31, 2020.\258\
---------------------------------------------------------------------------

    \258\ Rule 30e-3(i)(1)(ii).
---------------------------------------------------------------------------

     Funds that begin offering shares publicly during period 
January 1, 2019 through December 31, 2020--if the fund includes the 
required statements on each applicable document required to be 
delivered or transmitted to shareholders for the period beginning on 
the date the fund first publicly offers its shares and ending on 
December 31, 2020.\259\
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    \259\ Id. We believe it is appropriate to permit such funds to 
rely on the rule on January 1, 2021 because investors in such funds 
will be alerted to the change in transmission method both when they 
purchased shares in the fund and each time a shareholder report is 
delivered to them other than in reliance on rule 30e-3.
---------------------------------------------------------------------------

     Funds that begin offering shares publicly January 1, 2021 
and thereafter--would not be subject to the condition and could 
therefore rely on the rule immediately without providing any advance 
notice through required statements.\260\
---------------------------------------------------------------------------

    \260\ Rule 30e-3(i)(1)(i)(B).
---------------------------------------------------------------------------

Between January 1, 2021 and January 1, 2022
    A fund may otherwise begin to rely on rule 30e-3 before January 1, 
2022 if the fund includes the required statement on the applicable 
disclosure documents for a period of two years prior to beginning to 
rely on the rule.\261\
---------------------------------------------------------------------------

    \261\ Rule 30e-3(i)(1)(ii).
---------------------------------------------------------------------------

3. Related Amendments
    In connection with our adoption of rule 30e-3, we are also adopting 
related amendments to certain of our rules and forms. First, we are 
adopting, as proposed, amendments to rule 498 under the Securities Act, 
which concerns the use of a summary prospectus,\262\ to require funds 
relying on rule 30e-3 to include as part of the legend on the cover 
page or beginning of the fund's summary prospectus the website address 
required to be included in the Notice.\263\ We received no comments on 
this aspect of the proposal. The website address that leads to 
shareholder report information could be the same as the website address 
that leads to prospectus information, provided that the other 
conditions of each rule are met, or different so long as both addresses 
are provided as part of the legend.\264\ This requirement is intended 
to provide investors an additional reminder of the website availability 
of shareholder reports.
---------------------------------------------------------------------------

    \262\ See rule 498 under the Securities Act [17 CFR 230.498].
    \263\ See rule 498(b)(1)(v)(A) under the Securities Act [17 CFR 
230.498(b)(1)(v)(A)].
    \264\ See id.
---------------------------------------------------------------------------

    Second, in a change from the proposal, the final rule permits a 
summary prospectus to include instructions describing how a shareholder 
can elect to receive prospectuses or other documents and communications 
by electronic delivery.\265\ We received a number of comments on fund 
investors' increasing internet usage and receipt of electronically 
delivered materials.\266\ We are persuaded by these comments. 
Accordingly, the final rule will permit a summary prospectus to include 
electronic delivery election instructions, consistent with our belief 
that this provision will promote our general goal of providing 
investors with their preferred format of materials, and is parallel and 
consistent with conditions set forth in rule 30e-3 that ensure 
investors who prefer paper copies have instructions regarding how to 
communicate that preference.\267\
---------------------------------------------------------------------------

    \265\ See rule 498(b)(1)(vi) under the Securities Act [17 CFR 
230.498(b)(1)(vi)].
    \266\ See supra Section II.A.1.
    \267\ See supra Sections II.B.2.c, II.B.2.d. Similarly, Notices 
under final rule 30e-3 would include instructions describing how a 
shareholder can elect to receive shareholder reports or other 
documents and communications by electronic delivery. See rule 30e-
3(c)(1)(v)(C).
---------------------------------------------------------------------------

    Third, we are amending rule 498 under the Securities Act, as 
proposed, to include a Notice required by rule 30e-3 among the 
materials that are permitted to have equal or greater prominence when 
accompanying a summary prospectus prepared in reliance on rule 
498.\268\ Similarly, we are amending rule 14a-16 under the Exchange 
Act, generally as proposed, to include a Notice required by rule 30e-3 
among the materials that are permitted

[[Page 29178]]

to accompany a Notice of Internet Availability of Proxy Materials.\269\ 
We received no comment on these proposed amendments.
---------------------------------------------------------------------------

    \268\ Rule 498(f)(2) under the Securities Act [17 CFR 
230.498(f)(2)].
    \269\ Rule 14a-16(f)(2)(iii) under the Exchange Act [17 CFR 
240.14a-16(f)(2)(iii)]. The final amendment to rule 14a-
16(f)(2)(iii) excludes the proposed reference to the Initial 
Statement. See id. See also rule 30e-3(c)(5) (permitting a Notice to 
accompany a Notice of Internet Availability of Proxy Materials).
---------------------------------------------------------------------------

    Fourth, to notify investors of the upcoming change in transmission 
format, and in a change from the proposal, we are also amending rule 
498 and certain fund registration forms to require that funds intending 
to rely on rule 30e-3 prior to January 1, 2022 include prominent 
disclosures on the cover page or beginning of their summary 
prospectuses; on the front cover page of their statutory prospectuses; 
and on the front cover page or beginning of their annual and semi-
annual reports, for two years during the three-year period between 
January 1, 2019 and December 31, 2021.\270\ With the exception of 
newly-formed funds, funds would generally provide these disclosures as 
follows:
---------------------------------------------------------------------------

    \270\ See new paragraphs (b)(1)(vi) and (b)(1)(vii) of rule 498; 
new paragraph (a)(5) to Item 1 of Form N-1A; new paragraph (d)(8) to 
Item 27 of Form N-1A; new paragraph 1.l to Item 1 of Form N-2; new 
instruction 6.g to Item 24 of Form N-2; new paragraph (a)(xi) to 
Item 1 of Form N-3; new instruction 6(vii) to Item 28(a) of Form N-
3; new paragraph (a)(x) to Item 1 of Form N-4; new paragraph (a)(6) 
to Item 1 of Form N-6.
---------------------------------------------------------------------------

     Open-End Funds. Open-end funds would be required to 
provide the cover page disclosure on at least six documents sent to 
investors during this time: One per year on the fund's summary 
prospectus or statutory prospectus, at least one per year on the fund's 
annual report to shareholders, and one per year on the fund's semi-
annual report to shareholders.
     Closed-End Funds. Closed-end funds would be required to 
provide the cover page disclosure on at least four documents during 
this time: One per year on the fund's annual report to shareholders and 
one per year on the fund's semi-annual report to shareholders, as well 
as on their prospectuses unless the fund relies on rule 8b-16(b) under 
the Investment Company Act.\271\
---------------------------------------------------------------------------

    \271\ 17 CFR 270.8b-16(b) (providing an exemption for closed-end 
funds from the requirement to annually update their registration 
statement, so long as certain disclosures are included in their 
annual report to shareholders, or for dividend reinvestment plan 
descriptions, transmitted as permitted under rule 8b-16).
---------------------------------------------------------------------------

     Variable Insurance Products. Variable annuity and variable 
life insurance contracts registered on Forms N-4 and N-6, respectively, 
would be required to provide the cover page disclosure on at least two 
contract prospectuses during this time.\272\
---------------------------------------------------------------------------

    \272\ Most issuers of variable annuities and variable life 
insurance policies amend their registration statements annually and 
hence send updated prospectuses to their contract owners at least 
once per year. Issuers of variable annuity and variable life 
insurance contracts that no longer amend their registration 
statements and do not distribute updated prospectuses to contract 
owners rely on staff no-action letters issued by the Division of 
Investment Management (see, e.g., Great-West Life & Annuity 
Insurance Co., SEC Staff No-Action Letter (pub. avail. Oct. 23, 
1990)). Consistent with this no-action position, such issuers may 
rely on rule 30e-3 prior to January 1, 2022 if comparable notice is 
provided to contract owners during the extended transition period 
when providing them with prospectuses and shareholder reports for 
underlying funds in which the separate account invests.
     In addition, we understand that a small number of issuers of 
variable life insurance policies continue to register their 
securities on Form S-6 [17 CFR 239.16]. Such issuers may rely on 
rule 30e-3 prior to January 1, 2022 if comparable notice is provided 
on prospectuses (or supplements thereto) delivered to policyholders 
during the extended transition period.
---------------------------------------------------------------------------

    In addition to providing advance notice to investors of their 
fund's expected use of the rule, these disclosures are intended to 
provide important information to both current and prospective investors 
that gives them an overview of the change in delivery format options, 
including the fact that reports will be made available on a website and 
that they will be able to retain delivery of their reports in paper if 
they should so desire. We believe that these disclosure requirements 
help to mitigate commenters' concerns regarding the use of the Initial 
Statements as a condition to reliance on the rule. We encourage the use 
of graphical indicators such as flags or other design elements to 
further draw investor attention to these disclosures. Beginning January 
1, 2022, these cover page disclosures will no longer be required.

C. The Role of Certain Financial Intermediaries \273\
---------------------------------------------------------------------------

    \273\ For purposes of this Section II.C., in using the term 
``financial intermediaries'' we are referring to intermediaries such 
as banks, brokers, and dealers who maintain securities accounts for 
others. See, e.g., Exchange Act rule 17Ad-20 (defining the term 
``securities intermediary'' to mean a clearing agency registered 
under Exchange Act Section 17A [15 U.S.C. 78q-1] or a person, 
including a bank, broker, or dealer, that in the ordinary course of 
its business maintains securities accounts for others in its 
capacity as such).
---------------------------------------------------------------------------

    As acknowledged in our proposal and stated by commenters, most fund 
investors are not direct shareholders of record, but instead engage an 
investment professional and hold their fund investments as beneficial 
owners \274\ through accounts with intermediaries such as broker-
dealers.\275\ As a result, today intermediaries commonly assume 
responsibility for distributing issuer materials to beneficial owners, 
including shareholder reports. In the case of broker-dealers, 
distribution of shareholder reports to beneficial owners is generally 
governed by self-regulatory organization (``SRO'') rules, which state 
that broker-dealer member firms are required to distribute annual 
reports, as well as ``interim reports,'' to beneficial owners on behalf 
of issuers, so long as an issuer (i.e., the fund) provides satisfactory 
assurance that the broker-dealer will be reimbursed for expenses (as 
defined in SRO rules) incurred by the broker-dealer for distributing 
the materials.\276\
---------------------------------------------------------------------------

    \274\ The discussion in this section of ``beneficial owners'' 
refers to beneficial owners whose names and addresses do not appear 
directly in issuers' stock registers (e.g., on fund transfer agent 
recordkeeping systems) because their securities are held in street 
name accounts registered in the name of the intermediary. ``Street 
name'' accounts are also known as ``omnibus accounts.''
    \275\ In the Proposing Release, we requested comment on the 
impact of the proposed rule regarding shareholders holding fund 
shares through intermediated accounts. See Proposing Release, supra 
note 14, at Section II.D.6. By one estimate, approximately 75% of 
accounts are currently held through brokers and other 
intermediaries, excluding positions held in employer-sponsored 
plans. See SIFMA Comment Letter (citing estimate provided by 
Broadridge Financial Services, Inc.).
    \276\ See NYSE rule 465(2); NYSE rule 451(a)(1)-(2); Financial 
Industry Regulatory Authority (``FINRA'') rule 2251(e)(1)(C); FINRA 
rule 2251.01. As discussed above, today we approved amendments to 
NYSE rules that provide additional clarification with respect to the 
application of certain processing fees that may be charged in the 
transmission of shareholder reports, including fees that may be 
applied for reports provided electronically pursuant to a notice and 
access rule such as rule 30e-3. See supra notes 32-36 and 
accompanying text.
---------------------------------------------------------------------------

    Certain commenters expressed concerns regarding potential 
complexities and costs for broker-dealers to administer proposed rule 
30e-3.\277\ As discussed above and in response to these commenter 
concerns,

[[Page 29179]]

we have modified the final rule 30e-3(e) to eliminate the proposed 
reference to financial intermediaries in that provision given the 
guidance we are providing today regarding the operation of the rule in 
the context of financial intermediaries.\278\
---------------------------------------------------------------------------

    \277\ See e.g., SIFMA Comment Letter (stating that the proposed 
rule did not address the role and obligations of broker-dealers to 
administer the notice process for clients, and would present 
logistical challenges and some components would unnecessarily 
increase complexity and cost without sufficient benefit to mutual 
funds and their investors; also recommending that the Commission set 
an effective date for the new rule that provides sufficient time for 
broker-dealers to develop new infrastructure and internal 
procedures, and suggesting a transition period of at least 24 months 
following the effective date of the new rule); Broadridge Comment 
Letter I (stating that the proposed rule did not acknowledge the 
essential role broker-dealers would play in making the rules work in 
practice and that an additional method of delivery for fund reports 
would add cost and complexity to processing; further noting that the 
processing complexities of the proposed rule are similar to those of 
proxies and opining that the proposal did not appropriately 
contemplate or measure these extra costs).
    \278\ See supra note 225 and accompanying text.
---------------------------------------------------------------------------

    Multiple commenters requested that the Commission clarify 
intermediaries' role with respect to delivering Initial Statements and 
Notices under proposed rule 30e-3, as well as their role in delivering 
paper copies of shareholder reports to fund beneficial owners upon 
request.\279\ Commenters also requested clarity on how beneficial 
owners who hold fund shares through accounts with intermediaries can 
communicate their election to receive paper copies of shareholder 
reports.\280\ With respect to beneficial owners holding fund positions 
from more than one fund complex in intermediated accounts, commenters 
further requested whether beneficial owners would be able to 
communicate their preferences on an account-level basis instead of on a 
fund-by-fund basis.\281\ Commenters also asked that the Commission 
clarify how intermediaries will be reimbursed by funds for the services 
they would provide,\282\ as well as confirm that an intermediary or 
other third party service provider could host the website on which the 
materials would be accessible.\283\
---------------------------------------------------------------------------

    \279\ See, e.g., ICI Comment Letters I and II; Broadridge 
Comment Letter I; CSIM Comment Letter; Fidelity Comment Letter I; 
Invesco Comment Letter; MFS Comment Letter; OppenheimerFunds Comment 
Letter; SIFMA Comment Letter.
    \280\ See SIFMA Comment Letter; Schwab Comment Letter; 
Broadridge Comment Letter I; ICI Comment Letter I.
    \281\ See SIFMA Comment Letter; ICI Comment Letter I.
    \282\ See, e.g., ICI Comment Letter I; Invesco Comment Letter; 
SIFMA Comment Letter.
    \283\ See, e.g., SIFMA Comment Letter; Broadridge Comment Letter 
I; InveShare Comment Letter; see also infra note 307 (detailing 
commenters' discussion and requests for clarification about 
intermediary website hosting).
---------------------------------------------------------------------------

    After consideration of the comments we received, including concerns 
raised regarding the role of financial intermediaries, we have made 
several modifications to the rule designed to respond to investor 
protection concerns, streamline and clarify the operation of the 
transmission regime, provide additional flexibility, and further 
increase cost savings for investors. For example, we have eliminated 
the requirement to send an Initial Statement and reply cards under the 
final rule. In addition, the final rule permits flexibility with 
respect to the preparation and mailing of Notices, and requires that 
elections to receive paper reports apply on an account-level basis, 
instead of a fund by fund basis.
    In response to commenters' concerns regarding broker-dealer 
activities under the new rule 30e-3 framework, below we provide 
guidance addressing the processes that could be followed by broker-
dealers and other intermediaries that deliver shareholder reports to 
beneficial owners. To remind funds and others of the guidance provided 
in this release, we have added a note to final rule 30e-3 indicating 
that this release contains a discussion of how the conditions and 
requirements of the rule may apply in the context of investors holding 
fund shares through financial intermediaries.\284\
---------------------------------------------------------------------------

    \284\ See Note to rule 30e-3.
---------------------------------------------------------------------------

    Financial intermediaries already perform many functions similar to 
those outlined in rule 30e-3. For example, intermediaries currently 
forward to beneficial owners a variety of materials from funds and 
other issuers of securities, including shareholder reports. Many 
intermediaries operate websites that host shareholder reports and other 
materials relating to a beneficial owner's investments. Intermediaries 
today also collect and maintain investor preferences as to delivery 
format (i.e., whether a beneficial owner receives reports or other 
documents--including materials prepared by the intermediary such as 
account statements and confirmations--in paper or has elected 
electronic delivery of some or all of those materials), and monitor for 
potential householding arrangements and collect related consents for 
their customers. As a result, we believe many intermediaries generally 
may be able to leverage existing infrastructure and adapt systems and 
processes currently used for the delivery of documents and other 
information to their customers.\285\
---------------------------------------------------------------------------

    \285\ Two commenters suggested that the framework for rule 30e-3 
as proposed was similar to that for the notice and access framework 
for the delivery of proxy materials. See SIFMA Comment Letter, 
Broadridge Comment Letter I. Although both frameworks involve a 
notice and access framework, the proxy framework involves additional 
complexities relating to the process of voting security holdings--
considerations not applicable in the case of rule 30e-3, 
particularly after the modifications we have made to the final rule 
as discussed above. Instead, we believe that the existing framework 
for the delivery of fund documents other than proxy materials (e.g., 
prospectuses, summary prospectuses, shareholder reports, ad hoc 
requests for paper documents, etc.) is the more appropriate 
analogous framework.
---------------------------------------------------------------------------

1. Distribution of Notices to Beneficial Owners
    SRO rules require broker-dealers to distribute shareholder reports 
to beneficial owners.\286\ We believe that a broker-dealer, at the 
fund's request, could also distribute Notices required under rule 30e-3 
if the broker-dealer distributes the materials in a manner consistent 
with the rule. We understand that today, funds and broker-dealers 
routinely develop detailed implementation plans and other parameters 
for fulfillment of paper and electronic delivery of fund materials 
(such as shareholder reports, prospectuses, and proxy materials) and 
other shareholder servicing and compliance-related matters for 
beneficial owners. We believe that such plans and parameters also could 
provide a basic framework for the delivery of Notices under rule 30e-
3.\287\
---------------------------------------------------------------------------

    \286\ See supra note 276 and accompanying text.
    \287\ Funds and broker-dealers could work together to establish 
or modify their plans and parameters. Such discussions also may 
prompt changes to existing servicing arrangements and/or compliance 
and oversight activities, particularly where funds determine that 
broker-dealers will prepare and transmit consolidated Notices in 
lieu of those prepared by funds (see infra notes 291-293 and 
accompanying text) or establish or use their own website in lieu of 
funds' (or a third party's) to provide access to the shareholder 
materials for their customers (see infra paragraph accompanying note 
307).
---------------------------------------------------------------------------

    The rule permits flexibility in the preparation and delivery of 
Notices. For example, a Notice could relate solely to an individual 
fund, or multiple Notices can be combined together to create a 
consolidated Notice.\288\ In addition, the rule permits a Notice to be 
sent with other documents, including other Notices and account 
statements.\289\ As with funds, a broker-dealer could likewise forward 
Notices to beneficial owners in any of the aforementioned 
scenarios.\290\
---------------------------------------------------------------------------

    \288\ See rule 30e-3(c)(4).
    \289\ See rule 30e-3(c)(5).
    \290\ In the case of fund-generated Notices that do not have a 
telephone number or other contact information for the broker-dealer, 
a broker-dealer could include a cover page or other similar 
communication that provides the beneficial owner with contact and 
other information for the broker-dealer, as is often done today when 
annual reports or other fund documents are forwarded to beneficial 
owner customers. This contact information could be used by the 
beneficial owner to, for example, elect to receive all future 
reports in paper or elect electronic delivery of the report and 
other documents or communications.
---------------------------------------------------------------------------

    A fund may determine that for cost or other reasons, it would be 
preferable for the broker-dealer to prepare and distribute a 
consolidated Notice for beneficial owners who may be invested in 
multiple funds offered by one or more fund complexes.\291\ In addition, 
a

[[Page 29180]]

broker-dealer may similarly prefer to prepare such Notices for its 
customers, given that its customers may have come to expect 
consolidated communications at the account level rather than the 
position level.\292\ Moreover, Notices prepared by a broker-dealer may 
better generally match fund investors' expectations because a broker-
dealer--and not the fund--typically processes a beneficial owner's 
fund-related requests.\293\
---------------------------------------------------------------------------

    \291\ For example, because the final rule permits a Notice to 
accompany other materials (e.g., an account statement), a combined 
mailing could reduce mailing costs relative to sending the Notice in 
a separate mailing without any accompanying documents.
    \292\ Commenters stated that the ability for broker-dealers to 
prepare their own Initial Statements, including incorporating their 
own contact information, may assist beneficial owners in 
communicating their delivery preferences in the manner in which they 
are generally accustomed. We believe the same may be true of 
Notices. See, e.g., ICI Comment Letter I (stating that ``investors 
are used to receiving consolidated communications from 
intermediaries''); SIFMA Comment Letter (``As a practical matter, 
for accounts held in street name through brokers . . . proposed Rule 
30e-3 would necessarily have to be carried out by such brokers.''); 
InveShare Comment Letter (``Clients furthermore expect that each 
brokerage firm will provide a consolidated and uniform source of 
information and support with respect to multiple securities included 
in a given client account.'').
    \293\ See supra notes 274-275 and accompanying text.
---------------------------------------------------------------------------

    Notices prepared by broker-dealers generally should be consistent 
with paragraph (c) of rule 30e-3. For example, as discussed in the 
section below,\294\ a broker-dealer preparing a Notice may wish to 
include the broker-dealer's own toll-free telephone number, as well as 
instructions about how the beneficial owner could notify the broker-
dealer regarding his or her report delivery preferences.\295\
---------------------------------------------------------------------------

    \294\ See infra Section II.C.2.
    \295\ We also believe that a broker-dealer should generally 
specify that a request to receive paper copies of reports will be 
deemed to be a request with respect to each fund whose shares are 
held in the beneficial owner's account.
---------------------------------------------------------------------------

2. Beneficial Owner Elections for Paper Reports
    The final rule prohibits reliance on the rule if a shareholder has 
expressed a preference that the shareholder wishes to receive paper 
copies of shareholder reports.\296\ Broker-dealer firms generally 
should track their customer elections to receive paper reports. 
Consistent with today's framework under which broker-dealer firms 
facilitate delivery of shareholder reports to their customers, we 
believe that broker-dealer firms could provide information to the fund 
(or fulfillment service provider) regarding the number of paper copies 
of shareholder reports, and fund-prepared Notices, needed by the 
broker-dealer to fulfill its customers' delivery preferences.
---------------------------------------------------------------------------

    \296\ See rule 30e-3(f)(1).
---------------------------------------------------------------------------

    In response to concerns raised by commenters regarding the burdens 
and costs of tracking elections to receive paper reports on a fund by 
fund basis,\297\ and in a change from the proposal, the rule has been 
modified so that an election to receive paper reports will apply to any 
and all current and future funds held through an account or accounts 
with a financial intermediary.\298\ We believe that tracking paper 
report elections on an account basis should simplify the operation of 
the rule, as well as the design and implementation of systems to track 
shareholder report paper elections for both broker-dealers and funds.
---------------------------------------------------------------------------

    \297\ See, e.g., State Street Comment Letter.
    \298\ See rule 30e-3(f)(2).
---------------------------------------------------------------------------

    Today, paper copies of statutory prospectuses or statements of 
additional information may be requested by beneficial owners on an ad 
hoc basis in cases where a fund uses a summary prospectus.\299\ Paper 
copies of disclosure documents (including shareholder reports) may also 
be requested where a client has elected electronic delivery for some, 
but not all communications.
---------------------------------------------------------------------------

    \299\ As discussed above in Section II.B.3., we believe that 
beneficial owner ad-hoc requests for paper reports or other required 
materials would continue to be fulfilled by funds when requested (as 
they are today) or such customer requests could be fulfilled 
directly by the broker-dealer.
---------------------------------------------------------------------------

    We note that the rule's approach of delivering Notices, together 
with the option of permitting shareholders to request paper copies on 
either an ad hoc or ongoing basis, is generally similar to the 
operational approach currently used by many broker-dealers (and funds) 
for the delivery of fund materials, including proxy materials. We 
believe that existing systems for default electronic delivery could be 
leveraged by broker-dealers in implementing the final rules in order to 
establish new processes and procedures for delivery of shareholder 
reports at a lower cost than would be the case if such systems did not 
already exist.\300\ In particular, elimination of the proposed Initial 
Statement in the final rule reduces the operational complexities with 
respect to use of the rule, which we believe may make it easier for 
existing systems to be leveraged. We recognize, however, that some 
broker-dealers may decide instead to create new systems.
---------------------------------------------------------------------------

    \300\ See, e.g., SIFMA Comment Letter (describing operation 
execution of proposed rule 30e-3 in terms of re-tooling established 
systems or creating new systems); Broadridge Comment Letter I 
(describing ongoing systems development in light of proposed rule 
30e-3 including potentially adding new control number and consent 
systems).
---------------------------------------------------------------------------

    To facilitate beneficial owners' elections to receive future 
reports in paper, a broker-dealer firm generally should provide 
information on how to contact the firm (or if applicable, the fund) in 
conjunction with the delivery of Notices. For Notices prepared by the 
broker-dealer firm, the Notice could contain the toll-free telephone 
number of the firm and other methods by which beneficial owners could 
contact the firm. If the broker-dealer firm is delivering Notices 
prepared by a fund, the firm could include with the Notice information 
containing the toll-free telephone number of the firm and other methods 
by which beneficial owners could contact the firm.\301\
---------------------------------------------------------------------------

    \301\ For example, this information could be provided on a cover 
sheet to the delivered Notice, or on an account statement delivered 
with the Notice. See rule 30e-3(c)(5)(iv) (permitting Notices to 
accompany a shareholder's account statement).
---------------------------------------------------------------------------

    A commenter also requested a transition period of at least 24 
months following the effective date of the rule to allow time to 
address new systems, processes and procedures required to comply with 
the rule.\302\ In response to these and other concerns raised by 
commenters, and other considerations discussed below on the effective 
date of the rule, we are adopting an extended effective date of January 
1, 2019 to provide funds, financial intermediaries, and other service 
providers with an adequate period of time to modify systems and 
operations to accommodate the new transmission framework. Broker-
dealers generally should track investor elections for paper copies of 
shareholder reports after first transmitting a notification of a fund's 
intent to rely on the rule, beginning as early as January 1, 2019, or 
the first time a Notice is provided to the shareholder.\303\
---------------------------------------------------------------------------

    \302\ See SIFMA Comment Letter.
    \303\ See Section II.B.2.d. As discussed, the final rule has 
been streamlined and simplified, in an effort to reduce complexity 
and related implementation burdens and costs. Broker-dealers also 
will have an extended transition period of an additional two years 
to coordinate with funds on the design and implementation of 
Notices, which may be transmitted beginning January 1, 2021.
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3. Website Availability of Materials
    The final rule does not require that the website where the required 
materials are available be maintained by any particular party. Instead, 
the rule provides that the required materials must be posted at the 
website specified in the Notice.\304\ This approach is consistent with 
similar flexibility provided under the current rules relating to the 
use of a summary prospectus.\305\ In addition, electronic

[[Page 29181]]

delivery elections for shareholder reports and other documents can be 
fulfilled by making fund reports and other materials accessible on 
websites hosted by the fund, the broker-dealer firm, or a third-party 
service provider of the fund or intermediary.\306\ Thus, a variety of 
existing infrastructure arrangements for hosting reports and other 
materials may be leveraged in providing website availability of 
shareholder reports to beneficial owners under rule 30e-3.
---------------------------------------------------------------------------

    \304\ See rule 30e-3(b)(1).
    \305\ See rule 498(e)(1) under the Securities Act (requiring in 
the case of the summary prospectus, that the required documents be 
available at the website specified on the cover page or beginning of 
the summary prospectus) [17 CFR 230.498(e)(1)].
    \306\ Pursuant to the Commission's existing electronic delivery 
guidance, beneficial owner elections for electronic delivery of 
shareholder reports and other documents continue to grow, with one 
commenter noting that electronic delivery has grown from 19% of fund 
report deliveries in 2010 to over 50% as of June, 2018. See supra 
note 73 and accompanying text.
---------------------------------------------------------------------------

    Commenters observed that it could be more efficient for a broker-
dealer to establish its own website (or utilize a central third-party 
website) on which shareholder materials would be hosted, and identify 
this website (as opposed to each fund or fund family's website) in any 
Notices prepared by the broker-dealer.\307\ A fund, as the party 
ultimately responsible for the content and delivery of shareholder 
reports under Commission rules, may agree to the use of a broker-dealer 
or third party website to provide electronic access to shareholder 
reports and other materials applicable to a beneficial owner's account 
if the reports and others materials are posted in a manner consistent 
with the requirements of rule 30e-3.\308\ We also acknowledge, as noted 
by commenters, that allowing the use of a control number or QR code (or 
similar login process) to access a broker-dealer's website (or other 
central third-party website) could help investors to more efficiently 
access the fund reports and other materials relevant to them, rather 
than directing an investor that holds various fund positions to 
multiple fund complex websites where such documents are publicly 
available.\309\
---------------------------------------------------------------------------

    \307\ See, e.g., SIFMA Comment Letter (requesting clarification 
that the use of a single third party website or landing page where 
investors can access all relevant materials is permitted); 
Broadridge Comment Letter II, at Attachment B (discussing the 
ability for an investor to access shareholder reports on a fund's or 
a broker's website and the ability for such website to be customized 
by the fund or broker to provide an enhanced user experience for the 
investor); InveShare Comment Letter (noting that investors are used 
to using a single web page to locate documents, where documents are 
listed in an orderly manner).
    \308\ For example, if a broker-dealer were to establish its own 
website, it should generally follow procedures similar to those 
described in rule 30e-3(b)(2)-(5). Use of a broker-dealer or third 
party website may be a more user friendly, efficient, and cost 
effective way to provide electronic access to reports and other 
materials. For example, a consolidated Notice prepared by the 
broker-dealer that directs beneficial owners to their account page 
through a single website address (rather than multiple website 
addresses for beneficial owners who own funds from multiple 
complexes) may make it easier for beneficial owners to access these 
reports than accessing multiple reports available on separate 
websites. We note that today, such reports may be accessed from a 
broker-dealer website, where they reside, or through re-direction to 
a central website, or the fund's website. We also note that many 
broker-dealers provide beneficial owners with links to fund websites 
for accessing documents delivered via electronic delivery and for 
otherwise accessing these documents from their online accounts with 
their broker-dealer as noted above. Thus, in certain circumstances, 
it may be more cost effective for the shareholder report and other 
materials to be hosted on the fund's website or a central third-
party website.
    \309\ See supra notes 169-170 and accompanying text.
---------------------------------------------------------------------------

D. Extension of Similar Delivery Framework to Other Documents

    While rule 30e-3 as proposed would apply only to shareholder 
reports, we also requested comment in the Proposing Release on whether 
we should permit a similar framework to satisfy delivery obligations 
for summary or statutory prospectuses.\310\ Citing cost reductions and 
other reasons, a number of commenters recommended that we extend a 
similar framework to other materials, including prospectuses,\311\ 
variable insurance product materials,\312\ and notices required under 
rule 19a-1 and related exemptive orders.\313\ One commenter suggested 
that the Commission should adopt rules allowing funds to use the 
internet to satisfy delivery requirements across all investor 
documents.\314\ Some commenters also suggested that the Commission 
amend rule 172 under the Securities Act to apply the rule's ``access 
equals delivery'' framework to funds and variable insurance 
products.\315\
---------------------------------------------------------------------------

    \310\ See Proposing Release, supra note 14, at 33633.
    \311\ See, e.g., CAI Comment Letter I; Capital Research Comment 
Letter I; Fidelity Comment Letter; ICI Comment Letter I; Comment 
Letter of Independent Directors Council (Aug. 11, 2015); Invesco 
Comment Letter; OppenheimerFunds Comment Letter; Schwab Comment 
Letter; SIFMA AMG Comment Letter; State Street Comment Letter; 
Vanguard Comment Letter.
    \312\ See Allianz Comment Letter; see also CAI Comment Letter I.
    \313\ See Comment Letter of Eaton Vance Investment Managers 
(Aug. 11, 2015).
    \314\ See Schnase Comment Letter.
    \315\ See Allianz Comment Letter; CAI Comment Letter I.
---------------------------------------------------------------------------

    While we appreciate these recommendations, we believe that the 
appropriate incremental step is rule 30e-3, as adopted. As discussed 
above, we are seeking comment on the content, delivery, and design of 
fund disclosure as well as the processing fees for delivering fund 
shareholder reports and other materials to investors, and may consider 
in the future an electronic or notice and access delivery framework for 
documents other than shareholder reports.\316\
---------------------------------------------------------------------------

    \316\ See Disclosure Request for Comment, supra note 20; 
Processing Fees Request for Comment, supra note 21.
---------------------------------------------------------------------------

E. Effective Dates

1. Rule 30e-3
    In the Proposing Release, we stated that because the use of 
proposed rule 30e-3 would be optional, we believed that a compliance 
period was unnecessary and expected that funds would be able to rely on 
the rule immediately after the effective date provided they first 
transmit an Initial Statement.\317\ We requested comment on the 
proposed compliance dates, and a commenter suggested that the 
Commission set an effective date six months after date of publication 
in the Federal Register and allow for a transition period of 24 months 
from the rule's effective date to allow the conditions of the rule to 
apply gradually (such as applying the rule first to new accounts, and 
then to existing accounts).\318\
---------------------------------------------------------------------------

    \317\ Proposing Release, supra note 14, at 33654.
    \318\ See SIFMA Comment Letter.
---------------------------------------------------------------------------

    After further consideration, we are adopting an extended transition 
period with staged effective dates for rule 30e-3 and the related 
amendments we are adopting today. While rule 30e-3 will become 
effective on January 1, 2019, the rule provides that a fund may only 
begin transmitting Notices pursuant to the rule beginning January 1, 
2021.\319\ For most funds seeking to rely on the rule before January 1, 
2022, a temporary condition will require the funds to prominently 
disclose information on the cover pages of certain documents prior to 
their reliance on the rule, as discussed in more detail in this 
release.\320\
---------------------------------------------------------------------------

    \319\ See rule 30e-3(i).
    \320\ Id.; see supra Section II.B.2.f; infra Section II.E.2.
---------------------------------------------------------------------------

    We are adopting a delayed effective date of January 1, 2019 to 
provide funds, broker-dealers and other financial intermediaries, and 
service providers with an adequate period of time to modify systems and 
operations to accommodate the new transmission framework. Beginning as 
early as January 1, 2019, however, funds and intermediaries will begin 
to track investor elections for paper copies of the shareholder 
report.\321\
---------------------------------------------------------------------------

    \321\ See rule 30e-3(f). The need to track an investor's 
preference would be triggered by the first notice the fund provides 
to the investor that it intends to rely upon the rule to transmit 
shareholder reports. Id. For example, a fund that intends to rely on 
rule 30e-3 on January 1, 2021 would need to track investor 
preferences the first time it transmits or delivers a document that 
includes the required cover page disclosure discussed above. See 
supra Section II.B.2.f. A fund that will rely on rule 30e-3 on 
January 1, 2022 or thereafter would need to track investor 
preferences beginning the first time it transmits a Notice.

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[[Page 29182]]

2. Disclosure Amendments
    As discussed above, we are also requiring funds to provide 
prominent disclosures on the cover page or beginning of their summary 
prospectuses, and cover pages of their statutory prospectuses, and 
annual and semi-annual reports, informing investors of the change in 
delivery format options if the funds intend to rely on the rule prior 
to January 1, 2022.\322\ These amendments to rule 498 and Forms N-1A, 
N-2, N-3, N-4, and N-6 will be effective January 1, 2019 for a 
temporary period of three years (i.e., between January 1, 2019 and 
December 31, 2021). Effective January 1, 2022, these disclosures will 
no longer be required, and the related requirements in rule 498 and 
Forms N-1A, N-2, N-3, N-4, and N-6 will be removed. Additional 
amendments to rule 498, including an amendment to permit the inclusion 
of information about electronic delivery, will become effective January 
1, 2019 and will remain effective indefinitely.
---------------------------------------------------------------------------

    \322\ See supra Section II.B.2.f.
---------------------------------------------------------------------------

3. Other Amendments
    As also discussed above, we are permitting funds to include content 
from the shareholder report in the Notice under rule 30e-3(c)(3), 
provided that funds that choose to transmit Notices with additional 
information from the shareholder report file those Notices as part of 
their reports on Form N-CSR.\323\ To that end, we are amending Form N-
CSR to provide instructions for funds to file such Notices. The 
amendments to Form N-CSR are effective January 1, 2021.
---------------------------------------------------------------------------

    \323\ See supra Section II.B.2.
---------------------------------------------------------------------------

    We are also amending rule 14a-16 under the Exchange Act to include 
a Notice required by rule 30e-3 among the materials that are permitted 
to accompany a Notice of internet Availability of Proxy Materials.\324\ 
The amendments to rule 14a-16 will be effective January 1, 2021.
---------------------------------------------------------------------------

    \324\ See id.
---------------------------------------------------------------------------

    We are amending Section 800 of 17 CFR part 200 to display control 
numbers assigned to information collection requirements for rule 30e-3 
by the Office of Management and Budget pursuant to the Paperwork 
Reduction Act. This amendment is effective January 1, 2019.
4. Communications With Investors During the Extended Transition Period
    As noted earlier, we are persuaded by commenters that the proposed 
provisions of the rule regarding affirmative and implied consent 
through use of an Initial Statement would add unnecessary complexity to 
the implementation of the rule without a corresponding benefit.\325\ 
Instead, we believe that the extended transition period provides a less 
burdensome framework to alert investors to the change in transmission 
format.\326\
---------------------------------------------------------------------------

    \325\ See supra Section II.A.2.
    \326\ See supra Section II.B.2.f.
---------------------------------------------------------------------------

    Although we are requiring most funds, as a condition to relying on 
rule 30e-3 before January 1, 2022, to include the required disclosures 
regarding the upcoming change on prospectuses and shareholder reports, 
we also encourage funds and financial intermediaries (e.g., broker-
dealers, insurance companies issuing variable insurance products) to 
take advantage of the extended transition period to engage with their 
investors to communicate the forthcoming change through additional 
appropriate means. Such engagement could further enhance investors' 
awareness of the upcoming change in delivery method, and provide 
additional opportunity for investors to select the delivery method most 
appropriate for their individual circumstances.
    We believe that this engagement with investors could build upon 
funds' and intermediaries' existing efforts to ask investors to elect 
electronic delivery. It is our understanding that funds and 
intermediaries periodically solicit investors to opt-into electronic 
delivery of account and fund related documents, including shareholder 
reports, in lieu of receiving documents in paper. We are aware that 
some of these efforts have included:
     Dedicated electronic delivery website pages that explain 
the benefits of electronic delivery (for example, electronic delivery 
is faster, economical, convenient, secure, and environmentally 
friendly) and provide instructions and website links that facilitate 
enrolling in electronic delivery (e.g., by obtaining online access and 
logging into an account held directly with the fund or through an 
intermediary and selecting communications preferences). These website 
pages may include frequently asked questions and information on how to 
contact a service representative (by phone or email) to facilitate 
enrollment, and may also highlight how to receive paper copies of 
materials upon request, how to update or cancel enrollment, and the 
procedures followed when an email address provided is invalid or 
otherwise fails.
     Paper mailing campaigns that provide information similar 
to the above, including the mailing of inserts that accompany the 
monthly or quarterly account statement or other regulatory mailings or 
marketing materials sent to investors.
     Email campaigns that are targeted to investors who have 
not consented to electronic delivery, but have provided email addresses 
to funds or their intermediaries on account applications or when 
obtaining online access.
     Online account alerts or pop-ups that remind investors who 
have logged into their account page of the availability of electronic 
delivery and prompt investors to take action.
     Engagement by phone through call scripts which prompt fund 
or intermediary customer service representatives to highlight 
electronic delivery options and guide interested investors through the 
enrollment process.
     Elimination of small balance account service fees and 
other incentives for investors who sign up for electronic delivery of 
documents, in lieu of receiving paper documents.
    We believe that the levels of internet access and electronic 
availability and delivery of financial information will continue to 
increase \327\ as a result of the various efforts described above and 
general trends in technology and demographic changes. We also continue 
to believe that electronic delivery and website availability of 
disclosures are methods that have the potential to significantly 
improve the communication of information to investors. For example, 
many fund websites include additional information aside from disclosure 
documents and other information mandated under our rules such as 
educational materials, interactive calculators, and investment research 
tools and materials. Funds and intermediaries will be able to engage 
with their investors on the benefits of enrolling in electronic 
delivery and accessing information online, both during the extended 
transition period and thereafter, and to continue to improve the user-
friendliness and content of their websites.
---------------------------------------------------------------------------

    \327\ See supra notes 39-47 and accompanying text.

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[[Page 29183]]

III. Economic Analysis

A. Introduction

    We are mindful of the importance of assessing the costs and 
benefits of our rules. Section 2(b) of the Securities Act, Section 3(f) 
of the Exchange Act, and Section 2(c) of the Investment Company Act 
require us, when engaging in rulemaking that requires us to consider or 
determine whether an action is necessary or appropriate in (or, with 
respect to the Investment Company Act, consistent with) the public 
interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital 
formation.\328\ Additionally, Exchange Act Section 23(a)(2) requires 
us, when adopting rules under the Exchange Act, to consider, among 
other things, the impact that any new rule would have on competition 
and not to adopt any rule that would impose a burden on competition 
that is not necessary or appropriate in furtherance of the Exchange 
Act.\329\
---------------------------------------------------------------------------

    \328\ 15 U.S.C. 77b(b), 15 U.S.C. 78c(f), 15 U.S.C. 80a-2(c), 
and 15 U.S.C. 80b-2(c).
    \329\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    At the outset, the Commission notes that, where possible, it has 
sought to quantify the costs, benefits, and effects on efficiency, 
competition, and capital formation expected to result from new rule 
30e-3, the amendments to various rules and registration forms, and 
their reasonable alternatives. The economic effects of new rule 30e-3 
are dependent on a number of factors, including the number of funds 
that rely on the rule; for those funds that rely on the rule, the 
number of investors that ultimately select paper transmission; the 
extent to which funds currently rely on Commission guidance to transmit 
shareholder reports electronically; the extent to which investors 
currently have opted into electronic delivery; \330\ and the extent to 
which investors become more aware of the website availability of 
portfolio investment and other information, view the information, and 
use the information to make investment decisions.
---------------------------------------------------------------------------

    \330\ See supra note 18.
---------------------------------------------------------------------------

    New rule 30e-3 allows funds to satisfy shareholder report 
transmission requirements by making such reports publicly accessible on 
a website if they meet certain conditions. This new option is designed 
to modernize the manner in which periodic information is made available 
to investors. We believe it will improve the information's overall 
accessibility while reducing expenses associated with printing and 
mailing that are borne by funds, and ultimately, by their investors. 
The rule also draws on the Commission's investor testing efforts and 
other empirical research concerning investors' preferences about 
methods of delivery for required disclosure documents and use of the 
internet for financial and other purposes generally.\331\
---------------------------------------------------------------------------

    \331\ See supra notes 18, 96, and 97 and accompanying text.
---------------------------------------------------------------------------

    Further, printing and mailing expenses associated with shareholder 
reports are typically passed on to fund investors through fund expense 
ratios. Currently, if investors with a preference for electronic 
delivery do not take the necessary step of affirmatively electing 
electronic delivery pursuant to the Commission's current guidance on 
electronic delivery, the shared costs associated with printing and 
mailing reports incurred by investors will be higher than if 
shareholder reports were delivered in paper form only to those 
investors that have a preference for paper delivery. The new rule, 
however, creates an optional regulatory structure that eliminates the 
need for investors to take the step to affirmatively elect electronic 
delivery and enables funds to make website availability of shareholder 
reports the default, which will reduce the printing and mailing costs 
shared by investors while still accommodating the interests of those 
investors who prefer paper copies.\332\
---------------------------------------------------------------------------

    \332\ We believe that the change from generally requiring 
investors to ``opt-in'' if they wish to receive electronic instead 
of paper copies of shareholder reports, to--as under the new rule--
``opt-out'' if they wish to receive paper copies instead of 
electronic copies will increase the ability of funds to deliver 
shareholder reports electronically. Although the preferences of 
investors will not change dependent on the form of consent, economic 
theory and empirical evidence suggest the likelihood that investors 
receive electronic transmissions of fund reports will be greater 
under opt-out consent rather than opt-in consent. See, e.g., Richard 
H. Thaler and Shlomo Bernatzi, Save More Tomorrow^TM: 
Using Behavioral Economics to Increase Employee Saving, Journal of 
Political Economy, Vol. 112:1, S164-S187 (2004); Richard H. Thaler 
and Cass R. Sunstein, Libertarian Paternalism, The American Economic 
Review, Vol. 93:2, 175-179 (2003). Thaler and Sunstein argue that a 
``status quo'' bias results in the continuance of existing 
arrangements even if better options are available. The authors 
illustrate their argument with higher rates of initial enrollments 
in employee savings plans when enrollment is automatic as compared 
to when employees must first complete an enrollment form. The free-
riding problem can also contribute to an inefficiently higher rate 
of paper use under the existing rules. The free-riding problem may 
arise because while investors must incur effort (albeit small) to 
switch from paper to electronic delivery under the current rules, 
those investors that fail to switch from paper still benefit from 
the aggregate printing and mailing cost savings due to other 
investors having switched to electronic delivery, thus, an 
inefficiently low proportion of investors may take the step to 
switch from paper to electronic delivery.
    Under the final rule, which makes website availability the 
default, some investors with a preference for paper reports may fail 
to request paper because of the ``status quo'' bias discussed above. 
See infra Section III.D.2. We lack the data to estimate the number 
of such investors. There is considerable evidence of investor 
preferences for enhanced availability of fund information on the 
internet rather than in paper form. See supra note 19.
---------------------------------------------------------------------------

    As we discuss in greater detail below, we estimate that aggregate 
cost savings, net of compliance costs, after the first year of reliance 
on rule 30e-3 would be approximately $141.4 million per year, or 
approximately 55% of the annual printing and mailing costs under the 
existing requirements.\333\ The share of net cost savings realized by 
funds that will be actually passed through to investors will affect the 
net impact of the rule on investors. Given that printing and mailing 
expenses are fund expenses, we expect that these savings will generally 
be fully passed along to investors, except perhaps in certain 
circumstances (e.g., where the fund is operating under an expense 
limitation arrangement).
---------------------------------------------------------------------------

    \333\ See infra note 373 and infra Section III.C.1.
---------------------------------------------------------------------------

    For purposes of the estimates below, we aggregate printing and 
mailing costs for positions held directly and positions held in street 
name. We assume that the printing and mailing costs are incurred, and 
cost savings realized, by funds. As discussed above, intermediaries and 
other third parties incur printing and mailing costs on behalf of funds 
in instances of positions held in street name, and such intermediaries 
and other third parties are expected to incur a portion of the 
aggregate costs and cost savings from rule 30e-3.\334\ By one estimate, 
approximately 75% of accounts are currently held through brokers and 
other intermediaries.\335\ We expect that intermediaries and other 
third parties will continue to pass through most or all shareholder 
report printing and mailing costs to funds under rule 30e-3, as 
currently intermediaries and other third parties who perform these 
functions on behalf of funds under existing requirements pass through 
printing and mailing costs incurred.
---------------------------------------------------------------------------

    \334\ See supra Section II.C.
    \335\ See supra note 275.
---------------------------------------------------------------------------

    Due to the optional nature of the rule, we expect that, in general, 
each fund will only rely on the rule if the benefits to that fund 
exceed the costs. We have provided estimates of the aggregate costs 
associated with printing and mailing shareholder reports. However, as 
discussed in further detail below, in certain cases the Commission is 
unable to quantify other economic effects, such as how the availability 
of shareholder reports online will affect investors' use

[[Page 29184]]

of the information, because the Commission lacks the information 
necessary to provide a reasonable estimate. Where the Commission is 
unable to quantify the economic effects, the discussion is qualitative 
in nature and includes, where possible, descriptions of the direction 
of these effects.

B. Economic Baseline and Affected Parties

    The baseline from which we analyze the economic effects of rule 
30e-3, as well as the related rule and registration form amendments, is 
the current set of regulatory requirements under which funds transmit 
shareholder reports to investors. The baseline also includes the 
current practice of many funds to make some or all of these reports--or 
other materials listing portfolio investment information--accessible on 
their websites. The baseline reflects the fact that some funds transmit 
these materials electronically today, pursuant to Commission guidance 
that permits such a transmission method on a shareholder-by-shareholder 
``opt-in'' basis, provided that certain other conditions are met.\336\ 
The baseline also reflects the recently adopted rules and forms and 
rule and form amendments modernizing the reporting and disclosure of 
information by registered investment companies,\337\ as well as rules 
established by exchanges related to the transmission of shareholder 
reports to investors, including the NYSE rule amendments regarding 
processing fees paid to financial intermediaries.\338\
---------------------------------------------------------------------------

    \336\ See supra note 25 and accompanying text.
    \337\ See Reporting Modernization Adopting Release, supra note 
14.
    \338\ See supra notes 32-34 and accompanying text.
---------------------------------------------------------------------------

    The parties that could be affected by new rule 30e-3 are funds that 
currently are or would be required to transmit shareholder reports 
under rule 30e-1 or 30e-2; shareholders of funds; financial 
intermediaries and other third parties involved in the distribution of 
shareholder reports to beneficial owners of funds on behalf of funds; 
and current and future users of fund portfolio investment information, 
including investors and third-party information providers. Some 
commenters have also suggested that the rule may have effects on the 
environment, the paper industry, and mail carriers.\339\
---------------------------------------------------------------------------

    \339\ See supra Section II.A.5.
---------------------------------------------------------------------------

    The assets of all registered investment companies exceeded $19 
trillion at year-end 2016, having grown from about $5.8 trillion at the 
end of 1998.\340\ Approximately 95.8 million individuals own shares of 
registered investment companies, representing 55.9 million or 44.4% of 
U.S. households.\341\ Based on industry statistics and staff analysis 
of Commission filings, we estimate that, as of December 2017, the 
number of funds that could be affected by rule 30e-3 is 12,630, 
including 9,360 mutual funds, 1,821 exchange-traded funds (1,829 ETFs 
less 8 UIT ETFs), 711 closed-end funds, 14 funds that could file 
registration statements or amendments to registration statements on 
Form N-3, and 724 UITs.\342\ For the reasons discussed below, we 
continue to estimate, as we did in the proposal, that the number of 
affected funds that will rely on rule 30e-3 comprises 90% of the number 
of all funds.\343\ Thus, the number of affected funds reflecting 
updates to the industry data figures is 11,367.\344\
---------------------------------------------------------------------------

    \340\ See 2017 ICI Fact Book, supra note 97, at 8.
    \341\ Among mutual fund-owning households, 63% held funds 
outside employer-sponsored retirement accounts, with 19% owning 
funds only outside such plans. See 2017 ICI Fact Book, supra note 
97, at 121
    \342\ See infra note 476.
    \343\ See Proposing Release, supra note 14, at n.800. See also 
infra note 477 and accompanying and following text.
    \344\ See infra note 478.
---------------------------------------------------------------------------

    Rules 30e-1 and 30e-2 generally require funds to transmit reports 
to shareholders at least semi-annually, with holdings as of the end of 
the second and fourth fiscal quarters disclosed in the fund's semi-
annual and annual reports, respectively.\345\ Holdings as of the end of 
the first and third fiscal quarters are currently disclosed in reports 
on Form N-Q filed with the Commission, which are available on 
EDGAR.\346\ Funds are not required to send first- and third-quarter 
portfolio holdings information to investors or make that information 
accessible on their websites.
---------------------------------------------------------------------------

    \345\ See supra note 16.
    \346\ See supra note 117 for a discussion of the changes 
recently adopted by the Commission.
---------------------------------------------------------------------------

    In addition to providing paper copies of shareholder reports to 
investors, some funds may voluntarily, or because of other 
requirements, make some or all of these reports--or other materials 
listing portfolio holdings at particular times--accessible on websites. 
For example, rule 498 under the Securities Act, which concerns the use 
of a summary prospectus, requires that shareholder reports be made 
publicly available on a website if a summary prospectus is used.\347\
---------------------------------------------------------------------------

    \347\ See infra note 474 and accompanying text.
---------------------------------------------------------------------------

    Under existing Commission guidance, funds can transmit shareholder 
reports or other documents electronically in lieu of paper delivery if 
they satisfy certain conditions relating to investor notice, access, 
and evidence of delivery. The Commission's guidance indicates that one 
way evidence of delivery can be demonstrated as to an investor is if an 
investor has agreed to electronic transmission on an affirmative ``opt-
in'' basis.
    Some shareholder reports are currently transmitted electronically 
under this guidance. One commenter estimated that 43% of reports to 
street name holders are delivered electronically and projected that 59% 
of reports to street name holders will be delivered electronically in 
2018.\348\ By one estimate, approximately 75% of accounts are currently 
held through brokers and other intermediaries.\349\
---------------------------------------------------------------------------

    \348\ See Broadridge Comment Letter I. The commenter also 
estimated that the rate of electronic delivery of reports held in 
street name would reach 54% by June 2017 and 59% by June 2018. 
However, the commenter noted that ``e-delivery rates for direct-sold 
accounts lag those of the street.'' See Broadridge Meeting Memo I.
    Another commenter stated that for accounts held directly, ``an 
informal sampling of some of our members with direct-at-fund 
business showed an average e-delivery rate of about 40 percent.'' 
See ICI Comment Letter I.
    \349\ See supra note 275.
---------------------------------------------------------------------------

    While these figures demonstrate that electronic delivery is used 
for a significant proportion of shareholder reports (which affects the 
baseline printing and mailing costs across funds under the existing 
requirements), because a fund is not required to report to the 
Commission the extent to which it relies on Commission guidance, we 
lack information to estimate the percentage of funds that solely or 
predominantly rely on electronic delivery under existing Commission 
guidance. We recognize, consistent with the comments we have received, 
that electronic delivery of reports to some investors under existing 
Commission guidance may continue to reduce printing and mailing costs 
in the future, regardless of whether rule 30e-3 is adopted.\350\
---------------------------------------------------------------------------

    \350\ See, e.g., Broadridge Comment Letter I.
---------------------------------------------------------------------------

    In the Proposing Release, we estimated aggregate annual printing 
and mailing costs under the existing requirements to be approximately 
$116.4 million.\351\ Based on the estimates provided by 
commenters,\352\

[[Page 29185]]

we recognize that printing and mailing costs under the existing 
requirements estimated in the proposal may have been understated and we 
are doubling our estimated share of printing and mailing costs under 
existing requirements in the external costs of rules 30e-1 and 30e-2. 
Based on this change to the assumptions in our estimate and the use of 
updated industry figures on the number of funds, our revised estimate 
of aggregate annual printing and mailing costs under the existing 
requirements is approximately $256.2 million.\353\ The revised estimate 
is close to the average of the estimate in the proposal and the average 
of aggregate cost estimates based on commenter estimates.\354\
---------------------------------------------------------------------------

    \351\ $116,368,583. See Proposing Release, supra note 14, at 
n.707. Printing and mailing costs (inclusive of processing fees) 
were estimated to be approximately $10,354 ($31,061 / 3) per fund, 
and approximately $6,667 ($20,000 / 3) per UIT. See Proposing 
Release, supra note 14, nn.777, 790.
    \352\ One commenter estimated aggregate industry printing and 
mailing costs under the existing requirements, providing an estimate 
of $344 million. See supra note 70 and accompanying text. Another 
commenter provided an estimate of $354 million (projected to be $382 
million in 2018) for fund positions held in street name, which the 
commenter estimated comprised approximately 75% of all fund 
positions. See supra note 74 and accompanying text. If printing and 
mailing costs for fund positions held directly are similar to those 
for funds held in street name, aggregate printing and mailing costs 
would be $354 million / 0.75 = $472 million. We recognize that 
average printing and mailing costs for fund positions held directly 
could be higher if such funds rely less on electronic delivery. See 
supra note 348. The average of the estimate of aggregate costs 
provided by the first commenter and the estimate of aggregate costs 
based on the information provided by the second commenter is ($344 
million + $472 million) / 2 = $408 million. Several other commenters 
provided estimates of their own costs of printing and mailing 
shareholder reports but did not provide sufficient information to 
estimate aggregate industry costs. See, e.g., T. Rowe Price Comment 
Letter I (indicating that its fund group spends approximately $3.8 
million annually to print and mail shareholder reports to direct 
fund investors); Schwab Comment Letter (stating that annual printing 
and mailing costs to deliver the annual and semi-annual shareholder 
reports to shareholders of all of its funds are approximately $4 
million); MFS Comment Letter (stating that its annual printing and 
mailing costs were $7.2 million); Capital Research Comment Letter I 
(stating that its annual printing and mailing costs for semi-annual 
shareholder reports were approximately $17.7 million and for annual 
reports--approximately $28 million but clarifying that, since the 
summary prospectus is included with its annual shareholder reports, 
the amount attributable to annual shareholder reports is 
approximately $14.8 million); Capital Research Comment Letter II 
(estimating the cost for mailing production expense, postage 
expense, freight expense and print and design expense for semi-
annual and annual shareholder reports for the period from July 2016 
to June 2017 at approximately $28 million); Blackrock Comment Letter 
(estimating its printing and distribution costs to be approximately 
$30 million per year).
    \353\ See infra note 544 and accompanying text. Printing and 
mailing costs (inclusive of processing fees) were estimated to be 
approximately $10,354 ($31,061 / 3) per fund, and approximately 
$6,667 ($20,000 / 3) per UIT. See Proposing Release, supra note 14, 
nn.777, 790. Doubling those estimates results in printing and 
mailing costs of approximately $20,707.33 ($31,061 x \2/3\) per fund 
and approximately $13,333.33 ($20,000 x \2/3\) per UIT.
    Using 2017 industry figures, we estimate that there are 11,906 
funds and 724 UITs. See infra note 476. Thus, aggregate annual 
printing and mailing costs under the existing requirements (($31,061 
x \2/3\) x 11,906 + ($20,000 x \2/3\) x 724) = $256,194,844.
    \354\ ($116.4 million + $408 million) / 2 = $262.2 million. See 
supra notes 351-352.
    We are unable to determine how likely it is that the costs would 
be close to the lower or upper bound of the range, thus, we present 
the midpoint of the range for reference.
---------------------------------------------------------------------------

C. Benefits

    Rule 30e-3, to the extent that it is relied upon by funds, will 
likely provide benefits to both current and prospective investors. 
First, the rule is expected to benefit funds and their investors by 
reducing aggregate expenses related to the delivery of paper 
shareholder reports. Second, we believe that the rule may facilitate 
investor review of periodic information by increasing its overall 
accessibility. We discuss these benefits in greater detail below.
    The expected benefits described below will not necessarily be 
distributed uniformly across all funds that choose to rely on rule 30e-
3. First, funds that currently have low printing and mailing costs--for 
example, because they have shorter shareholder reports or lower per-
page printing costs--will realize smaller net cost savings from rule 
30e-3. Similarly, funds that deliver many of their shareholder reports 
electronically in reliance on existing Commission guidance will realize 
smaller net cost savings from rule 30e-3, although they may still 
realize net cost savings associated with those investors who do not opt 
into electronic delivery. Further, even if the net cost savings from 
rule 30e-3 are small, investors and funds may still realize some 
benefits from website accessibility of first- and third-quarter 
portfolio holdings information that currently may be found only on 
EDGAR.
    Second, when funds presently rely on rule 498, which among its 
requirements includes website posting of shareholder reports when using 
a summary prospectus, the potential benefits to investors of having the 
shareholder report available in an electronic format alongside other 
fund information will likely be smaller. However, funds that presently 
rely on rule 498 may still realize net cost savings from no longer 
printing and mailing as many shareholder reports. The use of rule 30e-3 
by funds that presently rely on rule 498 will also result in the 
benefits to investors of website accessibility of fund portfolio 
holdings information for the first and third fiscal quarters.
    Funds that choose to rely on rule 30e-3 could be at a competitive 
advantage if investors choose funds based on their preference for 
website availability, either because investors prefer to view 
shareholder reports electronically or because funds that rely on rule 
30e-3 could have lower expense ratios due to savings of printing and 
mailing costs. Additionally, as discussed above, some commenters 
discussed potential benefits of rule 30e-3 for the environment.\355\
---------------------------------------------------------------------------

    \355\ See supra Section II.A.5.
---------------------------------------------------------------------------

    As discussed in Section II.E above, in a change from the proposal, 
we are adopting an extended transition period with staggered effective 
dates for new rule 30e-3 and the other amendments adopted today. This 
extended transition period would defer the realization of the benefits 
discussed above. However, it would provide the separate benefit of 
enabling investors more time to become informed of the potential 
forthcoming change in the delivery manner of their shareholder reports 
and also provide funds, financial intermediaries, and service providers 
with a period of time to modify systems and operations to accommodate 
the new shareholder report delivery framework.
    As discussed in Section II.B.3 above, in a change from the 
proposal, we are also amending rule 498 to permit a summary prospectus 
to include a description of how a shareholder can elect to receive 
prospectuses or other documents and communications by electronic 
delivery.\356\ This provision is expected to enhance investor awareness 
of how to request shareholder reports and related fund materials in the 
investor's preferred format while enabling additional efficiencies in 
shareholder report delivery for funds. To the extent that the option to 
include with a summary prospectus instructions describing how investors 
may elect electronic delivery will increase the likelihood that 
investors with a preference for electronic delivery communicate their 
preference to the fund, this amendment to rule 498 is expected to 
contribute to increased reliance on electronic delivery under the 
existing Commission guidance. Consistent with the printing and mailing 
cost savings, this would result in benefits to funds, and in turn, 
investors, from the final rules. Further, if electronic delivery 
facilitates increased investor access to, and review of, fund 
information, this amendment to rule 498 may result in better informed 
investor decisions and more efficient allocation of investor capital. 
If investors increasingly elect electronic delivery as a result of this 
amendment to rule 498, the magnitude of the benefits incremental to 
reliance on rule 30e-3 from printing and mailing cost savings and 
increased investor review will decrease. We lack the information to 
quantify the increase in electronic delivery use that would be 
incremental

[[Page 29186]]

to this amendment to rule 498 and thus how the magnitude of the 
benefits expected from this amendment to rule 498 will compare to the 
reduction in the benefits incremental to the reliance of funds on rule 
30e-3.
---------------------------------------------------------------------------

    \356\ See supra note 265 and accompanying text.
---------------------------------------------------------------------------

1. Cost Savings
    We anticipate that funds relying on rule 30e-3, and their 
investors, will benefit from gains in the efficiency and a reduction in 
the expenses related to the distribution of paper shareholder reports. 
Although the rule will have minimal effect, if any, on the expenses 
associated with the preparation of reports, we expect that the expenses 
associated with printing and mailing of shareholder reports will be 
substantially reduced. By reducing fund expenses, printing and mailing 
cost savings are expected to increase the portion of investor money 
that is retained in the fund rather than used to cover expenses, 
resulting, over time, in a net positive effect on the level of capital 
invested in funds. Furthermore, to the extent that reductions in fund 
expenses due to printing and mailing cost savings have a positive 
effect on fund performance and attract new investors or additional 
capital from existing investors, the rule may result in further capital 
formation benefits. We are unable to precisely estimate the magnitude 
of capital formation effects that may result from our projected cost 
savings under the rule because the magnitude of such effects may be 
affected by the extent of pass-through of cost savings and by other 
factors that affect the flow of investor capital into mutual funds, 
including other components of fund returns, overall market returns, and 
returns on investments other than funds.
    Specifically, because the new rule provides a structure for making 
website accessibility of shareholder reports and other materials the 
default delivery method, funds relying on rule 30e-3 will only incur 
printing and mailing costs as necessary to accommodate those investors 
opting for paper, and printing and mailing costs associated with 
Notices delivered to investors who have not made such an election.
    As we have recognized in the past, affirmative shareholder consent 
can be difficult to obtain even for practices that many shareholders 
may prefer,\357\ resulting, under the existing regime, in more 
investors receiving paper copies than may be truly reflective of 
preferences and thus higher shared costs associated with that excess 
paper distribution. While it is still possible under the new rule that 
some investors may not take the affirmative steps necessary to express 
their transmission preference--in this case, to request paper 
delivery--investors in the fund will not share any unnecessary printing 
and mailing costs for those investors, as the default is website 
accessibility. Under the new rule, funds relying on rule 30e-3 will 
only incur costs of distribution of paper reports and other materials 
for those investors who request delivery in that format.
---------------------------------------------------------------------------

    \357\ See Investment Company Act Release No. 22884 (Nov. 13, 
1997) [62 FR 61933, 61935 (Nov. 20, 1997)] (concerning implied 
consent to delivery of disclosure documents to households); see also 
supra note 332.
---------------------------------------------------------------------------

    In the Proposing Release, we estimated approximately $105 million 
in annual (gross) cost savings if the proposed rule were adopted.\358\ 
Net of annual costs of compliance with rule 30e-3, which we estimated 
to be approximately $32 million after the first year,\359\ annual net 
savings were estimated to be approximately $73 million in the 
aggregate, or approximately 63% of printing and mailing costs under the 
existing requirements, as estimated in the Proposing Release.\360\
---------------------------------------------------------------------------

    \358\ $104,731,725. See Proposing Release, supra note 14, at 
n.815.
    \359\ $31,531,880. See Proposing Release, supra note 14, at 
n.717.
    \360\ $104,731,725 - $31,531,880 = $73,199,845. $73,199,845 / 
$116,368,583 = 63%. See supra note 351.
---------------------------------------------------------------------------

    Several commenters provided alternative estimates of potential cost 
savings associated with the printing and mailing of shareholder reports 
under the proposed rule.\361\ For example, one commenter asserted that 
electronic delivery is already common and thus concluded that fund 
companies would only save about $18 million \362\ in 2018, which would 
represent approximately a 4.7% net reduction in ongoing printing and 
mailing costs projected by the commenter under the existing rules.\363\ 
Another commenter estimated savings over the first three years after 
implementation, netting out initial costs, of $140 million.\364\ This 
commenter also projected ongoing annual savings after the first year of 
$89 million, which would represent approximately a 25.9% reduction in 
existing costs as estimated by the commenter.\365\ This commenter also 
suggested that, should the Commission remove the postage-paid reply 
form requirement, net savings could reach $465 million over the first 
three years and ongoing annual savings could reach $182 million after 
the first year, or approximately a 53% reduction in existing costs as 
estimated by the commenter.\366\
---------------------------------------------------------------------------

    \361\ See also supra note 352 for a discussion of printing and 
mailing expenses provided by commenters.
    \362\ See Broadridge I Comment Letter. This dollar estimate of 
cost savings, however, likely understates potential cost savings 
since it was calculated using processing fees expected to be charged 
by intermediaries prior to the Commission approval of the NYSE rule 
that modifies processing fees.
    \363\ Id. The commenter projected costs to be $382 million in 
fiscal year 2018 under the baseline. $18 million / $382 million = 
4.7%.
    \364\ See ICI Comment Letter I; Fidelity Comment Letter II 
(citing the ICI estimate).
    \365\ ICI Comment Letter I. The commenter estimated current 
costs at $344 million. $89 million / $344 million = 25.9%.
    \366\ ICI Comment Letter I. The commenter estimated current 
costs at $344 million. $182 million / $344 million = 52.9%.
---------------------------------------------------------------------------

    Another commenter estimated that the proposed rule would result in 
savings of up to 50%.\367\ Another commenter stated that the 
commenter's annual printing and mailing costs to deliver the annual and 
semi-annual shareholder reports to shareholders of all of its funds are 
approximately $4 million and projected annual cost savings under the 
proposed rule to be $1.7 million,\368\ which would amount to a 
reduction of approximately 43%. We note that commenter methodologies 
with regard to projected cost savings varied, and thus, commenter 
estimates may not be directly comparable to each other or to our 
estimates.
---------------------------------------------------------------------------

    \367\ See T. Rowe Price Comment Letter I.
    \368\ See Schwab Comment Letter.
---------------------------------------------------------------------------

    After considering the estimates and information provided by 
commenters about the potential factors that may affect net cost savings 
on an ongoing basis, and after considering the changes made in the 
final rule from the proposal, we have revised the estimates of annual 
gross cost savings and annual costs of relying on rule 30e-3.
    First, we have revised our estimate of gross annual cost savings 
for the funds that rely on rule 30e-3, estimated to be $105 million in 
the proposal.\369\ We continue to estimate, as we did in the proposal, 
that 90% of funds will rely on rule 30e-3,\370\ resulting in gross 
annual cost savings of 90% of the annual printing and mailing costs 
under the existing requirements. However, as discussed in greater 
detail in Section III.B above, after considering commenters' estimates 
and updated industry figures on the number of funds, we have revised 
our estimate of printing and mailing costs under the existing 
requirements to approximately $256.2 million.\371\ As a result, we now 
estimate

[[Page 29187]]

gross annual cost savings to be approximately $230.6 million.\372\
---------------------------------------------------------------------------

    \369\ See supra note 358 and accompanying text.
    \370\ See supra Section III.B and supra note 353 and 
accompanying and following text.
    \371\ See supra note 353 and accompanying text.
    \372\ We continue to estimate, as we did in the proposal, that 
the number of affected funds that will rely on rule 30e-3 comprises 
90% of the number of all funds. See supra note 343 and accompanying 
text. As discussed above, we estimate aggregate annual printing and 
mailing costs under the existing requirements to be approximately 
$256.2 million. See supra note 353 and accompanying text. Thus, we 
estimate gross aggregate annual savings of printing and mailing 
costs as the aggregate annual printing and mailing costs multiplied 
by the percentage of funds expected to rely on rule 30e-3: 90% x 
$256,194,844 = $230,575,360. We recognize that these cost savings 
represent a small fraction of assets under management of registered 
management companies. See supra note 340 and accompanying text.
---------------------------------------------------------------------------

    Second, after considering comments regarding printing and mailing 
costs for funds that rely on rule 30e-3, and after considering 
modifications to the final rule from the proposal, we have revised the 
estimated costs of relying on rule 30e-3. As we discuss in greater 
detail in Section III.D.1 below, we now estimate that, after the first 
year of reliance on rule 30e-3, aggregate annual costs of relying on 
the rule will be approximately $89.2 million, yielding aggregate annual 
net cost savings of approximately $141.4 million, or approximately 55% 
of the annual printing and mailing costs under the existing 
requirements.\373\ In addition, prior to the effectiveness of rule 30e-
3, we expect funds to incur aggregate costs of compliance with the 
disclosure amendments of the final rule of approximately $8.2 million 
in the first year and $4.8 million in the second year.\374\
---------------------------------------------------------------------------

    \373\ Annual printing and mailing costs under the existing 
requirements were estimated to be $256,194,844. See supra note 353. 
We estimated that 90% of funds will rely on rule 30e-3, which would 
result in an estimated annual gross savings of $230,575,360. See 
supra note 372.
    After the first year of reliance on rule 30e-3, the aggregate 
annual compliance cost of rule 30e-3 is estimated to be $89,202,128. 
See infra note 393.
    Annual savings from rule 30e-3, net of compliance costs, as a 
share of annual printing and mailing costs under the existing 
requirements are estimated to be: $230,575,360 - $89,202,128 = 
$141,373,232. $141,373,232 / $256,194,844 = 55%.
    The revised estimates also reflect revised estimates of the 
number of funds updated to reflect industry figures and revised 
requirements of the final rule.
    \374\ See infra notes 419-420.

                          Potential Aggregate Cost Savings From Reliance on Rule 30e-3
----------------------------------------------------------------------------------------------------------------
                                                                    Transition       Year 1 ($      Year 2 + ($
                   Source of cost/cost savings                       period ($      million per     million per
                                                                     million)          year)           year)
----------------------------------------------------------------------------------------------------------------
Gross savings from rule 30e-3 \375\.............................  ..............           230.6           230.6
Costs of complying with rule 30e-3 \376\........................           -13.0           -93.9           -89.2
Prominent disclosures \377\.....................................           -13.0  ..............  ..............
Website accessibility requirements \378\........................  ..............            -3.2            -2.7
Notice preparation \379\........................................  ..............           -14.3           -10.2
Printing and mailing costs (Notices and paper requests) \380\...  ..............           -76.3           -76.3
Net savings from rule 30e-3 \381\...............................           -13.0           136.7           141.4
----------------------------------------------------------------------------------------------------------------

    If a smaller percentage of funds than the 90% we estimate 
ultimately rely on rule 30e-3, the aggregate net cost savings from rule 
30e-3 will accordingly be lower. Further, as discussed above, some 
commenters have indicated that funds can presently rely on electronic 
delivery of shareholder reports pursuant to Commission guidance.\382\ 
We note that funds that choose to rely on rule 30e-3 may continue to 
use electronic delivery pursuant to Commission guidance for some of 
their shareholder reports. We estimate cost savings relative to the 
baseline of the average printing and mailing costs under the 
requirements that exist today, which factors in the current use of 
electronic delivery under Commission guidance for reports to some 
investors. If aggregate printing and mailing costs incurred by funds 
that do not rely on rule 30e-3 continue to decrease over time, for 
instance as a result of growth of electronic delivery, either as part 
of broad industry trends or as a result of the amendments to rule 498 
permitting funds to include electronic delivery instructions with a 
summary prospectus, annual printing and mailing cost savings under rule 
30e-3 in future years may be lower than estimated.
---------------------------------------------------------------------------

    \375\ See supra note 372.
    \376\ See infra notes 392 and 393.
    \377\ $13.0 million = $8.2 million + $4.8 million. See infra 
notes 419-420 and infra Section III.D.1.d.
    \378\ See infra note 396 and infra Section III.D.1.a.
    \379\ See infra note 402 and infra Section III.D.1.b.
    \380\ See infra note 408 and infra Section III.D.1.c
    \381\ $136.7 million = $230.6 million - $93.9 million. $141.4 
million = $230.6 million - $89.2 million. Rounding may affect 
totals.
    \382\ See supra note 348 and accompanying and following text.
---------------------------------------------------------------------------

    There likely is variation across individual funds both in existing 
printing and mailing costs and in cost savings and compliance costs 
that are expected on an initial or ongoing basis from rule 30e-3, 
depending on the extent of reliance on electronic delivery under 
Commission guidance. Although we cannot comprehensively quantify such 
differences, for instance, because of uncertainty about the future rate 
of growth in the use of electronic delivery under Commission guidance 
by funds that choose to rely on rule 30e-3, we recognize that funds 
that rely on rule 30e-3 may realize smaller net cost savings if they 
rely to a greater extent on electronic delivery of shareholder reports 
under existing Commission guidance.
2. Increased Access to and Review of Portfolio Information and 
Shareholder Reports
    To the extent that funds elect to rely on rule 30e-3, the rule will 
also increase the electronic accessibility to investors of portfolio 
investment information from the first and third fiscal quarters (or 
from the second and fourth fiscal quarters if a shareholder report 
contained a summary schedule of portfolio holdings) that might 
otherwise be only available on EDGAR, which in turn may result in 
greater investor review of that information. In addition, because the 
portfolio information must be publicly available on a website in the 
same location as the shareholder reports required to be posted on the 
website, the rule could further increase the likelihood that both 
existing investors and potential future fund investors review the 
portfolio information for the first and third quarters when they review 
the shareholder reports. To the extent that investors seeking 
information about an individual fund are likely to visit the specified 
website, having many of a fund's important shareholder documents in a 
single location on the fund's website could increase the visibility of, 
and facilitate access to, that information for current and future 
investors.
    Importantly, the rule will increase website accessibility of 
shareholder

[[Page 29188]]

reports to investors. Although among the funds expected to rely on rule 
30e-3, approximately 90% of funds are estimated to make their 
shareholder reports publicly available online (consistent with the 
proportion of funds estimated to rely on rule 498, which requires the 
posting of shareholder reports on the fund's website), for the 
remaining funds that do not currently rely on rule 498, relying on rule 
30e-3 may make shareholder reports more accessible to the public, to 
the extent that they do not already post shareholder reports on their 
websites, which may result in greater investor review of the 
information contained therein.\383\ Funds that presently rely on rule 
498 will likely experience smaller benefits of increased access and 
review of fund information by investors. However, such funds may still 
experience net cost savings from no longer printing and mailing 
shareholder reports, as well as the benefits of website accessibility 
of fund portfolio holdings information.
---------------------------------------------------------------------------

    \383\ See infra note 557 and accompanying text. 11,367 funds 
estimated to rely on rule 30e-3 - 9,057 funds estimated to rely on 
rule 498 = 2,310 funds estimated to rely on rule 30e-3 and do not 
rely on rule 498.
---------------------------------------------------------------------------

    Greater use of shareholder reports and portfolio information by 
current and potential future investors could result in more informed 
investment decisions and an increase in competition among funds for 
investor capital. A better understanding of fund investment strategies, 
portfolio composition, and investment risks could also result in a more 
efficient allocation of capital across funds and other investments. An 
increase in the ability of investors to access and review information 
about different funds also could increase the competition among funds 
for investor capital.
    Furthermore, during the extended transition period, funds intending 
to rely on rule 30e-3 will be required to include prominent disclosures 
on the cover page or beginning of their summary, and cover pages of 
their statutory prospectuses, and annual and semi-annual shareholder 
reports for up to two years before beginning to deliver Notices under 
the rule.\384\ These prominent disclosures during the extended 
transition period are expected to enhance investors' overall awareness 
of the upcoming changes in the shareholder report delivery format 
options under rule 30e-3, including the fact that investors will be 
able to retain delivery of their reports in paper if they should so 
desire. The prominent disclosures are also expected to notify investors 
if their fund intends to rely on the rule and provide investors wishing 
to continue to receive paper shareholder reports additional 
opportunities to make that election. Some funds that intend to rely on 
the rule may decide not to include these temporary prominent 
disclosures. For example, for existing funds that delay to make the 
election to rely on rule 30e-3 until 2021, the earliest these funds 
would be able to rely on the rule would be January 1, 2022. Although 
such funds would not be required to include prominent disclosures 
during the last year of the extended transition period as a condition 
of reliance on the rule, their investors may realize some of the 
benefit of increased awareness of the changes in the shareholder report 
delivery regime under rule 30e-3 to the extent that these investors 
hold positions in other funds, including funds with the same sponsor, 
that had made such prominent disclosures during the extended transition 
period.
---------------------------------------------------------------------------

    \384\ See supra Section II.B.2.d.
---------------------------------------------------------------------------

    Further, as discussed in Section II.B.3 above, in a change from the 
proposal, we are permitting funds that elect to rely on rule 30e-3 to 
incorporate in the Notice, in addition to a website address, other 
equivalent methods or means to facilitate shareholder access to the 
website address. Such methods or means could include, for example, a 
Quick Response Code (QR code) or similar information that leads to the 
required website address. This change is expected to provide additional 
optional methods by which investors can access shareholder reports on 
the website, which, depending on the method, could result in a 
reduction in the effort and time required for investors to access the 
shareholder report.
    Finally, as discussed in Section II.B.3 above, in a change from the 
proposal, the final rule permits a Notice to include pictures, logos, 
or similar design elements so long as the design is not misleading and 
the information is clear, as well as additional information about the 
fund, so long as it is limited to information contained in the 
shareholder report for which Notice is being given.\385\ This provision 
could facilitate the addition of content by funds that attracts 
additional investor attention to the Notice, yet by its terms does not 
obscure important information contained in the Notice. Further, the 
flexibility provided to funds to include content from the shareholder 
report in the Notice may result in investors who may otherwise not 
review the shareholder report seeing useful information from such 
reports.
---------------------------------------------------------------------------

    \385\ See rule 30e-3(c)(3).
---------------------------------------------------------------------------

D. Costs

    Funds that rely on rule 30e-3 will incur costs to comply with the 
rule's conditions. These and other costs are discussed below. Because 
reliance on rule 30e-3 will be optional, a particular fund is not 
expected to rely on the rule if the costs to the fund to rely on the 
rule exceed its benefits. Funds that deem the costs of meeting the 
conditions of rule 30e-3 to exceed the benefits of this optional rule 
are expected to elect not to rely on the rule and therefore not incur 
any compliance costs associated with rule 30e-3. Among investors in 
funds that elect to rely on the rule, investors with a preference for 
paper delivery that fail to express it may be less likely to review the 
information in the reports because it is not presented in their 
preferred format.
    As we discussed in Section II.E above, we are adopting an extended 
transition period with staged effective dates. This will defer the time 
when the costs of compliance with rule 30e-3 discussed in Sections 
III.D.1.a through III.D.1.c below will be incurred.
1. Compliance Costs
    Relative to the baseline, funds relying on the new rule will incur 
compliance costs associated with satisfying the conditions of the rule, 
as discussed below. To the extent possible, we have attempted to 
quantify these costs.
    We have made various modifications to the requirements of the final 
rule from the proposal, as described in Section II above, in part to 
address issues raised by commenters. To increase investor awareness of 
a fund's intention to rely on rule 30e-3 and to inform investors of the 
upcoming changes in the transmission method, in a change from the 
proposal, we are adopting an extended transition period with staged 
effective dates and a temporary condition requiring funds to include 
during the extended transition period certain disclosures on summary 
prospectuses, statutory prospectuses and shareholder reports for up to 
two years prior to the date a fund would begin sending Notices in 
reliance on the rule. As a result of this provision, the compliance 
costs for funds that rely on rule 30e-3 will be higher than the 
compliance costs that would have been incurred under the proposal, as 
discussed in Sections III.D.1.c and III.D.1.d below.
    However, we have also made modifications from the proposal as a 
result of which the compliance costs will be lower than the compliance 
costs

[[Page 29189]]

that would have been incurred under the proposal. In particular, in a 
change from the proposal, we are no longer requiring funds to provide 
the Initial Statement. Therefore, the cost estimates are revised from 
the proposal to reflect the elimination of the burden of preparing the 
Initial Statement.\386\ Further, we are permitting the combination of 
Notices with other Notices, expanding documents that may accompany 
Notices, and eliminating reply cards with respect to Notices. 
Permitting Notices to be bundled with additional types of materials 
under the final rules may result in lower postage costs, compared to 
the postage costs that would have been incurred under the proposal, by 
reducing the need for a separate mailing, although other costs 
associated with the Notice would still be incurred.\387\ Eliminating 
reply cards for Notices is also expected to result in lower costs 
compared to the costs that would have been incurred under the 
proposal.\388\
---------------------------------------------------------------------------

    \386\ We estimate that requiring an Initial Statement would have 
resulted in additional preparation, printing, mailing, and 
processing costs of approximately $41.5 million in the aggregate in 
the first year and $13.8 million in the aggregate in each subsequent 
year.
    In the Proposing Release, preparing one Initial Statement was 
estimated to require 1.5 burden hours in the first year and 0.5 
burden hours in each subsequent year, with 25% of that burden 
carried by outside counsel. See Proposing Release, supra note 14, at 
33679. We retain this estimate. Using updated salary figures, we 
monetize internal personnel time at $353 per hour and outside 
counsel time at $401 per hour. See infra notes 404, 509. Using 
updated salary figures, preparing the Initial Statement would have 
cost approximately $548 (1.5 x (0.75 x $353 + 0.25 x $401)) in the 
first year and $183 (0.5 x (0.75 x $353 + 0.25 x $401)) in each 
subsequent year.
    In the Proposing Release, we estimated printing and mailing 
costs for one Notice or Initial Statement to be $1,000. See 
Proposing Release, supra note 14, at 33680. In light of the comments 
on the proposal, we have revised our estimate of the printing and 
mailing costs for one Notice to $3,106. See infra note 525. Thus, we 
are similarly revising the estimated printing and mailing cost for 
the first Initial Statement to $3,106. In the Proposing Release, we 
estimated that the cost in each subsequent year would be one-third 
of the cost for the first year because Initial Statements would only 
be sent to new shareholders. See Proposing Release, supra note 14, 
33680. We retain this estimate.
    Based on updated industry figures, we now estimate that 11,367 
funds will elect to rely on rule 30e-3. See infra note 478. Thus, 
the aggregate cost is estimated to be $41,535,018 (11,367 x ($548 + 
$3,106)) in the first year and $13,848,795 (11,367 x ($183 + $3,106 
x \1/3\)) in each subsequent year.
    One commenter estimated cost savings from the elimination of the 
Initial Statement to be approximately $60 million. See Broadridge 
Meeting Memo II, at 6.
    \387\ Similar to the proposal, the Notice is permitted to 
accompany a current summary prospectus, statutory prospectus, 
statement of additional information, or Notice of internet 
Availability of Proxy Materials under rule 14a-16. As proposed, rule 
14a-16 is amended to permit the bundling of Notices with Notices of 
internet Availability of Proxy Materials. In addition, the final 
rule also permits the Notice to accompany one or more Notices for 
other funds; the investor's account statement; and in the case of a 
fund that is available as an investment option in a variable annuity 
or variable life insurance contract, the contract, the contract's 
statutory prospectus, or the contract's statement of additional 
information.
    \388\ See supra note 173 and accompanying text.
---------------------------------------------------------------------------

    As we discuss in Section II.B.3 above, in a modification from the 
proposal, we are permitting funds to incorporate content from the 
shareholder report in Notices relating to shareholder reports required 
to be transmitted under rule 30e-1. However, funds may incur additional 
costs for incorporating content from the shareholder report into the 
Notice and filing such Notices with reports on Form N-CSR, as well as 
potentially increase their printing and mailing costs, depending on the 
length of the Notice. We expect that funds will only elect to include 
content from shareholder reports in Notices if they believe the 
benefits to funds and investors outweigh the increase in their costs of 
preparing and distributing Notices with additional content. Likewise, 
funds may choose to deploy certain additional optional methods to 
facilitate access of shareholder reports (e.g., QR codes) if they 
believe the benefits to funds and investors outweigh the additional 
costs to do so.
    As discussed in Section IV.C below, we have reflected these 
modifications, as well as commenter input, in the revised burden 
estimates for the Notice for purposes of the Paperwork Reduction Act of 
1995, which we incorporate in the cost analysis below.
    We have also specified that the schedule of portfolio investment 
information as of the end of the first and third fiscal quarters must 
be presented in a manner consistent with the reporting requirements of 
Regulation S-X. As most funds have established procedures in place to 
prepare and review such disclosures and familiarity with the disclosure 
requirements, this provision should not result in significant 
compliance costs.
    As we discuss below, we have also revised certain assumptions 
underlying our estimates. First, we have revised our estimate of the 
number of funds that will rely on rule 30e-3 upward to 11,367 to 
reflect updates to the industry data figures that were utilized in the 
Proposing Release.\389\ We note that, similar to our discussion of the 
benefits in Section III.C.1, if a smaller number of funds choose to 
rely on rule 30e-3 than we estimate, the above estimates would 
overstate the actual costs incurred in the aggregate by the funds that 
rely on rule 30e-3.
---------------------------------------------------------------------------

    \389\ See supra note 344 and accompanying text; infra note 478.
---------------------------------------------------------------------------

    Second, where applicable, we have attempted to address comments 
related to our estimates. Two commenters stated that the proposal 
underestimated the costs under rule 30e-3 (for instance, processing 
fees for broker-held accounts) and thus overestimated the net cost 
savings expected under rule 30e-3.\390\ However, to be conservative in 
our estimates, we have revised upward our estimate of the printing and 
mailing costs that funds will incur under rule 30e-3, as discussed in 
Sections III.D.1.c and IV.B below.
---------------------------------------------------------------------------

    \390\ See ICI Comment Letter III; Broadridge Comment Letter I. 
As noted above, we approved amendments to NYSE rules that clarify 
the application of certain processing fees paid to financial 
intermediaries. See supra notes 32 to 36 and accompanying text.
---------------------------------------------------------------------------

    In the Proposing Release, we estimated that compliance costs of 
rule 30e-3 would be, in the aggregate, approximately $32 million each 
year, with approximately $16 million in additional one-time costs being 
incurred in the first year following the effective date (resulting in 
aggregate compliance costs of approximately $48 million in the first 
year).\391\ We now estimate that these compliance costs will be, in the 
aggregate, approximately $93.9 million in the first year following the 
effective date \392\ and approximately $89.2 million each following 
year on an ongoing basis.\393\ Individual components of these aggregate 
estimated costs are analyzed in Sections III.D.1.a through III.D.1.c 
below. In addition, as discussed in Section III.D.1.d below, during the 
approximately two years before the effective date of rule 30e-3, we 
estimate that the disclosure requirements related to rule 498 and 
amendments to registration statements will result in aggregate costs to 
funds that intend to rely upon rule 30e-3 of approximately $8.2 million 
in the first year \394\ and $4.8 million in the second year.\395\
---------------------------------------------------------------------------

    \391\ See Proposing Release, supra note 14, at nn.717-718.
    \392\ The estimate of $93,867,993 is based upon the following 
calculations: $3,231,520 associated with website accessibility 
requirements + $14,341,169 associated with Notice preparation + 
$76,295,304 in printing, mailing, and processing costs. See infra 
notes 396, 402, 408.
    \393\ The estimate of $89,202,128 is based upon the following 
calculations: $2,711,680 associated with website accessibility 
requirements + $10,195,144 associated with Notice preparation + 
$76,295,304 in printing, mailing, and processing costs. See infra 
notes 396, 402, 408.
    \394\ See infra note 419.
    \395\ See infra note 420.

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[[Page 29190]]

a. Website Accessibility of Shareholder Reports and Other Materials
    Funds that rely on rule 30e-3 in the aggregate are expected to 
incur costs of approximately $3.2 million in the first year of relying 
on rule 30e-3 and $2.7 million in each subsequent year to make the 
shareholder reports and portfolio information publicly accessible at a 
specified website.\396\
---------------------------------------------------------------------------

    \396\ See infra notes 399, 400. In the first year: $3,003,520 + 
$228,000 = $3,231,520. In each subsequent year: $2,711,680.
---------------------------------------------------------------------------

    We estimate that funds that elect to rely on rule 30e-3 will incur, 
in the aggregate, approximately 9,386 burden hours during the first 
year of relying on rule 30e-3 and 8,476 burden hours each following 
year to comply with the website posting requirements of the rule.\397\ 
Based on an estimated wage rate of about $320 per hour,\398\ we 
estimate the aggregate paperwork related expenses for funds associated 
with the internal hour burden imposed by the website accessibility 
conditions of rule 30e-3 to be approximately $3.0 million during the 
first year and $2.7 million each following year.\399\
---------------------------------------------------------------------------

    \397\ See infra notes 488-489.
    \398\ The Commission estimates the wage rate associated with 
these burden hours based on salary information for the securities 
industry compiled by the Securities Industry and Financial Markets 
Association. The estimated wage figure is based on published rates 
for senior programmers, modified to account for an 1,800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead, and adjusted to account for the 
effects of inflation, yielding an effective hourly rate of $320. See 
Securities Industry and Financial Markets Association, Report on 
Management & Professional Earnings in the Securities Industry 2013.
    \399\ $3,003,520 = 9,386 burden hours x $320 per hour. 
$2,711,680 = 8,476 burden hours x $320 per hour.
---------------------------------------------------------------------------

    In the aggregate, we estimate that the total external cost for 
funds to comply with the website posting requirements of the rule will 
be approximately $228,000 during the first year, with the external cost 
in subsequent years likely to be negligible.\400\ With respect to those 
funds that currently have websites, we estimate that the website 
posting requirements of the rule will not result in incremental 
external costs.\401\ If funds that do not currently have websites incur 
ongoing external website development costs, aggregate costs of website 
accessibility will be higher than we estimate.
---------------------------------------------------------------------------

    \400\ $228,000 = 114 funds x $2,000 per fund. See infra note 492 
(estimating, as we did in the Proposing Release, that each fund that 
does not currently have a website will incur a one-time external 
cost of $2,000 to develop a website) and infra note 495 (estimating 
114 funds do not currently have websites). In the Proposing Release 
we also estimated that no cost would be incurred in subsequent years 
by funds that do not currently have a website. See Proposing 
Release, supra note 14, at 33678, nn.811-812 and accompanying text. 
We did not receive comments on these estimates and are therefore 
retaining these assumptions.
    \401\ See infra note 494 and accompanying text.
---------------------------------------------------------------------------

b. Notice Preparation
    We estimate that funds will incur, in the aggregate, approximately 
$14.3 million in the first year of relying on rule 30e-3 and 
approximately $10.2 million in each subsequent year in costs to prepare 
and review Notices and to file Notices with additional content with 
reports on Form N-CSR.\402\
---------------------------------------------------------------------------

    \402\ See infra notes 405-407. In the first year: $14,341,169 
($9,028,328 + $3,421,467 + $1,891,374). In each following year: 
$10,195,144 ($6,019,003 + $2,284,767 + $1,891,374).
---------------------------------------------------------------------------

    We estimate that funds that elect to rely on rule 30e-3 will incur, 
in the aggregate, an internal hour burden of approximately 25,576 hours 
in the first year and 17,051 hours each following year in connection 
with the Notice conditions of the rule.\403\ Based on an estimated wage 
rate of about $353 per hour for compliance attorneys,\404\ we estimate 
the total paperwork related expenses for funds associated with the 
internal hour burden imposed by the Notice conditions of rule 30e-3 
will be approximately $9.0 million in the first year of relying on rule 
30e-3 and $6.0 million each following year.\405\ These estimates 
reflect the changes we are making to the Notice requirements relative 
to the proposal, including eliminating the requirement of including a 
direct URL to the shareholder report, eliminating the reply card 
requirement, permitting Notices to be incorporated into or combined 
with other Notices, expanding the ability to combine Notices with other 
mailings, as well as removing the filing requirement, except for 
Notices that contain content from the shareholder report, and allowing 
funds to include optional content from the shareholder report in the 
Notice.
---------------------------------------------------------------------------

    \403\ See infra notes 504 (estimating 2.25 hours in the first 
year) and 505 (estimating 1.5 hours for each following year). 2.25 
hours in the first year x 11,367 funds = 25,576 hours. 1.5 hours 
each following year x 11,367 funds = 17,051 hours.
    \404\ In the Proposing Release, we estimated that the internal 
hour burden required to comply with the requirements concerning 
preparation of the Initial Statement and Notice would be incurred at 
the rate of $334 per hour. This estimate was based on the rate for 
compliance attorneys in SIFMA's Management and Professional Earnings 
in the Securities Industry 2013, modified by Commission staff to 
account for an 1,800-hour work year and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead. See 
Proposing Release, supra note 14, at n.717.
    We did not receive any comments on our proposed estimate of the 
proportion of the time required to prepare Initial Statements and 
Notices that would be carried out by outside counsel, and we are 
maintaining that estimate today. We are, however, updating our 
estimate of the hourly rate for the work carried out by compliance 
attorneys based on updated salary estimates to $353 per hour.
    \405\ 25,576 hours x $353 per hour = $9,028,328. 17,051 hours x 
$353 per hour = $6,019,003.
---------------------------------------------------------------------------

    The incremental annual costs of filing Notices with additional 
content with reports on Form N-CSR are estimated to be approximately 
$1.9 million, using burden estimates for purposes of the PRA.\406\
---------------------------------------------------------------------------

    \406\ The aggregate internal burden is estimated as 5,358 hours. 
See infra note 579. We monetize it at the rate of $353 for 
compliance attorneys. See supra note 404. The aggregate cost is 
estimated to be $1,891,374 (5,358 hours x $353).
---------------------------------------------------------------------------

    Finally, we estimate that external costs related to the Notice 
requirements of rule 30e-3 will be, in the aggregate, approximately 
$3.4 million in the first year and $2.3 million each following 
year.\407\
---------------------------------------------------------------------------

    \407\ See infra note 512 (estimating outside counsel costs 
associated with the Notice of about $301 in the first year and about 
$201 in subsequent years). $301 in the first year for the Notice x 
11,367 funds = $3,421,467 in the first year. $201 each following 
year for the Notice x 11,367 funds = $2,284,767 each following year.
---------------------------------------------------------------------------

c. Printing and Mailing Costs
    We estimate that funds that rely on rule 30e-3 will incur, in the 
aggregate, approximately $76.3 million per year in printing and mailing 
costs for Notices and costs of delivery of shareholder reports in paper 
form upon shareholder request.\408\ These estimates are inclusive of 
processing fee costs, and have been adjusted in response to comments 
received on these estimates and other considerations.\409\
---------------------------------------------------------------------------

    \408\ See infra notes 414 and 530. $70,611,804 + $5,683,500 = 
$76,295,304.
    \409\ See infra Section IV.C.
---------------------------------------------------------------------------

    In a change from the proposal, funds will not be required to 
prepare and mail the Initial Statement. Therefore, the cost estimates 
are revised from the proposal to reflect the elimination of the Initial 
Statement printing, mailing and processing costs. The cost estimates 
are further revised to reflect changes we are making to the Notice 
requirements relative to the proposal, including eliminating the reply 
card requirement, permitting Notices to be incorporated into or 
combined with other Notices, as well as expanding the ability to 
combine Notices with other mailings. The estimates further incorporate 
certain revisions to the assumptions, relative to the proposal, based 
on the input we have received from commenters. In particular, we have 
revised the baseline assumption about the magnitude of printing and 
mailing costs as a share of the total external cost of compliance with 
rules 30e-1 and 30e-2, from one-third in the proposal, to two-thirds, 
as explained below.\410\
---------------------------------------------------------------------------

    \410\ See infra note 544 and accompanying text.

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[[Page 29191]]

    Further, in light of the above comments on the estimates in the 
Proposing Release and the modifications we are making today (including 
eliminating the reply card requirement for Notices, permitting Notices 
to accompany other Notices and other types of documents, and permitting 
funds to include optional content from the shareholder report in the 
Notice),\411\ we have determined to increase our estimate of the 
percentage of annual printing and mailing costs (including processing 
fees) associated with shareholder reports that will be associated with 
the printing and mailing of each Notice from 10% in the proposal to 
15%, as explained below.\412\
---------------------------------------------------------------------------

    \411\ See supra notes 32-36 and accompanying text; infra note 
521.
    \412\ See infra note 517 and accompanying and following text and 
infra Section IV.B.
---------------------------------------------------------------------------

    We now estimate that each fund that relies upon rule 30e-3 will 
incur an external cost of approximately $6,212 per year for printing 
and mailing Notices.\413\ In the aggregate, funds are estimated to 
incur approximately $70.6 million per year to print and mail 
Notices.\414\
---------------------------------------------------------------------------

    \413\ See infra notes 525-526 and accompanying text.
    \414\ Id. $3,106 x 2 Notices per year x 11,367 funds = 
$70,611,804.
---------------------------------------------------------------------------

    In addition, under rule 30e-3, investors will have the option to 
request shareholder reports and other materials to be delivered in 
paper form and also to request paper copies for individual documents 
even if they do not request paper delivery for all documents. Funds 
that rely on rule 30e-3 will therefore incur expenses related to 
printing and mailing shareholder reports and other materials for those 
shareholders. We estimate that funds that elect to rely on rule 30e-3 
will incur, in the aggregate, annual external costs of approximately 
$5.7 million to comply with the rule's requirements to print and mail 
shareholder reports upon request.\415\
---------------------------------------------------------------------------

    \415\ See infra note 530.
---------------------------------------------------------------------------

    In connection with tracking shareholder requests for paper under 
rule 30e-3, funds and intermediaries may incur costs to implement and 
maintain systems to record shareholder preferences for paper delivery 
and requests for paper copies of shareholder reports under rule 30e-
3.\416\ As discussed above, we believe that existing systems for 
electronic delivery could generally be leveraged in order to establish 
new processes and procedures for delivery of shareholder reports under 
rule 30e-3.\417\ The costs associated with implementing these systems 
may depend on funds' and intermediaries' existing systems for tracking 
investor preferences for electronic delivery. Given this variation, we 
do not have data on the extent of potential system updates that funds 
and intermediaries would need to implement.
---------------------------------------------------------------------------

    \416\ See supra note 239 and accompanying text.
    \417\ See supra Section II.C.2. We note that the rule's approach 
to provide shareholders the option to request paper copies is 
generally similar to the operational approach currently used by many 
funds and intermediaries for the delivery of other fund materials. 
For example, paper copies of disclosure documents (including 
shareholder reports) may currently be requested when some 
shareholders have elected electronic delivery for some, but not all 
communications.
---------------------------------------------------------------------------

    The modifications made from the proposal, including the elimination 
of the Initial Statement, the tracking of delivery preferences at the 
account rather than position level, and the permanent nature of the 
opt-in to paper delivery, are expected to reduce operational 
complexities and make it easier for existing systems to be leveraged 
for purposes of tracking investor preferences for paper delivery under 
rule 30e-3. Further, the extended transition period, added in a change 
from the proposal, is expected to provide funds and intermediaries 
additional time to implement the necessary system changes.
    We recognize that certain changes from the proposal, such as 
eliminating the requirement to mail the Initial Statement, eliminating 
the reply card, and adding required prominent disclosures on summary 
and statutory prospectuses and shareholder reports, may affect the 
number of investors who elect paper delivery due to changes to investor 
awareness regarding the option to request paper delivery under rule 
30e-3, resulting in different printing and mailing costs under rule 
30e-3 than estimated above. However, we are not able to quantify these 
effects due to uncertainty about the number of investors who may elect 
paper delivery as a result of these changes.
d. Disclosure Amendments to Rule 498 and Registration Forms
    In a modification from the proposal, we are amending rule 498 and 
certain fund registration forms setting forth a temporary condition 
requiring funds to include during the extended transition period 
certain disclosures on summary prospectuses, statutory prospectuses, 
and shareholder reports for up to two years prior to the date a fund 
would begin sending Notices in reliance on the rule. During the 
extended transition period, funds intending to rely on rule 30e-3 as 
early as permitted will include prominent disclosures on the cover page 
or beginning of their summary prospectuses, and cover pages of their 
statutory prospectuses and shareholder reports for a period of up to 
two years.\418\ We estimate that these disclosures will result in 
aggregate incremental costs prior to the effective date of rule 30e-3 
of approximately $8.2 million in the first year \419\ and approximately 
$4.8 million in the second year.\420\
---------------------------------------------------------------------------

    \418\ See new paragraph (b)(1)(vii) of rule 498; new paragraph 
(a)(5) to Item 1 of Form N-1A; new paragraph (d)(8) to Item 27 of 
Form N-1A; new paragraph 1.l to Item 1 of Form N-2; new instruction 
6.g to Item 24 of Form N-2; new paragraph (a)(xi) to Item 1 of Form 
N-3; new instruction 6(vii) to Item 28(a) of Form N-3; new paragraph 
(a)(x) to Item 1 of Form N-4; new paragraph (a)(6) to Item 1 of Form 
N-6.
    \419\ $8,151,936 = $7,144,872 associated with amendments to rule 
498 and Form N-1A + $454,400 associated with amendments to Form N-2 
+ $9,372 associated with amendments to Form N-3 + $422,592 
associated with amendments to Form N-4 + $120,700 associated with 
amendments to Form N-6. See infra notes 430, 437, 442, 445, and 448.
    \420\ $4,837,088 = $4,286,980 associated with amendments to rule 
498 and Form N-1A + $272,640 associated with amendments to Form N-2 
+ $5,680 associated with amendments to Form N-3 + $211,296 
associated with amendments to Form N-4 + $60,492 associated with 
amendments to Form N-6. See infra notes 430, 437, 442, 445, and 448.
---------------------------------------------------------------------------

    As described above, the condition will take effect on January, 1, 
2019 and expire on January 1, 2022.\421\ Depending on when existing 
funds make the election to rely on rule 30e-3 and begin incorporating 
prominent disclosures in their summary and statutory prospectuses and 
shareholder reports, the number of fund documents on which individual 
funds will be required to include prominent disclosures, the time when 
funds are required to begin tracking investor opt-outs, and the 
associated cost, as well as the time that will elapse before the fund 
is allowed to begin delivering Notices in reliance on rule 30e-3, will 
vary, as detailed above.\422\ Differences in the timing of when funds 
may begin to realize cost savings under rule 30e-3 may potentially have 
competitive effects during the extended transition period.
---------------------------------------------------------------------------

    \421\ See supra Sections II.B.2.f and II.B.3.
    \422\ Id.
---------------------------------------------------------------------------

    However, for existing funds, the application of these provisions 
during the extended transition period and the associated costs and 
benefits will be determined by the timing of the fund's own decision to 
rely on rule 30e-3 and to begin informing investors of the fund's 
intent to rely on rule 30e-3 by including prominent disclosures on fund 
documents during the extended transition period (e.g., whether to begin 
informing investors of the fund's intent to rely on rule 30e-3 
immediately after

[[Page 29192]]

the rule becomes effective on January 1, 2019, or for new funds from 
the date the fund first publicly offers its shares; or whether to 
postpone relying on rule 30e-3 and informing investors of the fund's 
intent to rely on rule 30e-3 through prominent disclosures on fund 
documents). Similarly, an existing fund's decision to postpone relying 
on rule 30e-3 during the extended transition period will reduce the 
number of prominent disclosures that the fund will need to include on 
fund documents during the extended transition period before being able 
to rely on rule 30e-3, thus potentially reducing the cost of related 
disclosure amendments to the fund. For existing funds, the incremental 
reduction in the cost of compliance with the requirement to include 
prominent disclosures on an additional fund document mailing is 
expected to be small relative to the opportunity cost of delaying the 
realization of cost savings from reliance on rule 30e-3. Overall, we 
anticipate that existing funds that are considering whether to rely on 
rule 30e-3 will weigh the costs and benefits of doing so early versus 
late during the extended transition period and will select the option 
that provides the most benefit.
    The final rule provides funds the flexibility to make the election 
to rely on rule 30e-3 at the time that is most appropriate for the 
fund's specific circumstances while including prominent disclosure 
requirements during the extended transition period to enhance investor 
awareness of the upcoming changes in the shareholder report delivery 
framework. Such flexibility is expected to enable funds to select the 
most efficient manner of shareholder report delivery and for funds that 
elect to rely on the rule, the most efficient approach to transition to 
rule 30e-3.
    The final rule allows new funds that enter the industry in January 
2021 or later to begin relying on rule 30e-3 immediately from the date 
the fund first publicly offers its shares without having to provide 
prominent disclosures, which is different from the application of the 
rule to funds in existence during 2019-2020 that will have had to 
provide up to two years of prominent disclosures, and incur the 
associated cost, as a condition of relying on rule 30e-3 beginning on 
January 1, 2021. In this respect, existing funds wishing to rely on the 
rule beginning on January 1, 2021 will incur a cost that funds newly 
formed on or after that date will not. Moreover, those existing funds 
that delay their decision to rely on the rule (that is, those that 
decide after January 1, 2019) may incur the opportunity cost due to not 
being able to begin relying on the rule starting January 1, 2021. 
Although in that respect, existing and new funds are treated 
differently, we note that all funds that decide to rely on the rule as 
early as possible--either before January 1, 2019 or at their 
inception--will be treated similarly.
Rule 498 and Form N-1A Estimates
    We estimate that there are 11,181 funds that file Form N-1A,\423\ 
including 10,063 funds that will rely on rule 30e-3, of which 9,057 
funds also rely on rule 498.\424\ We estimate that the remaining 1,006 
funds do not rely on rule 498.\425\
---------------------------------------------------------------------------

    \423\ See infra note 556.
    \424\ See infra note 557 and accompanying text.
    \425\ See infra note 559 and accompanying text.
---------------------------------------------------------------------------

    We estimate that funds will incur, in the aggregate, 9,057 hours in 
the first year and 4,529 hours in the second year to satisfy the 
disclosure requirements associated with the amendments to rule 
498.\426\ We further estimate that the funds that rely on rule 30e-3 
but not rule 498 will incur, in the aggregate, 1,006 hours in the first 
year and 503 hours in the second year to comply with the amendments to 
Form N-1A relating to prospectuses.\427\ In addition, we estimate that 
funds that will rely on rule 30e-3 and that file Form N-1A will incur, 
in the aggregate, 15,095 hours in the first year and 10,063 in the 
second year to comply with the amendments to Form N-1A relating to 
annual and semi-annual reports.\428\
---------------------------------------------------------------------------

    \426\ See infra note 558.
    \427\ See infra note 559.
    \428\ See infra note 560.
---------------------------------------------------------------------------

    Based on an estimated wage rate of about $284 per hour,\429\ we 
estimate the total paperwork related expenses for funds relying upon 
rule 30e-3 and associated with the amendments to rule 498 and Form N-1A 
will be approximately $7.1 million in the first year and approximately 
$4.3 million in the second year.\430\
---------------------------------------------------------------------------

    \429\ The estimated wage figure is based on published rates for 
intermediate accountants and attorneys, modified to account for an 
1,800-hour work-year and multiplied by 5.35 to account for bonuses, 
firm size, employee benefits, and overhead, and adjusted to account 
for the effects of inflation. See supra note 398. Based on adjusted 
industry data, we estimate a rate of $166 per hour for intermediate 
accountants and $401 per hour for attorneys. We further estimate 
that work would be divided equally between intermediate accountants 
and attorneys, yielding a rate of $284 per hour (($166 + $401) / 2).
    \430\ (9,057 + 1,006 + 15,095) hours x $284 per hour = 
$7,144,872. (4,529 + 503 + 10,063) hours x $284 per hour = 
$4,286,980.
---------------------------------------------------------------------------

Form N-2 Estimates
    We estimate that there are 711 closed-end funds that file Form N-
2,\431\ including 640 funds that will rely on rule 30e-3.\432\ We 
estimate that these funds will incur, in the aggregate, 640 hours in 
the first year and 320 hours in the second year to satisfy the 
disclosure requirements associated with the amendments to Form N-2 
relating to statutory prospectuses.\433\ In addition, we estimate these 
funds will incur, in the aggregate, 960 hours in the first year and 640 
hours in the second year to comply with the amendments to Form N-2 
relating to annual and semi-annual reports.\434\ Based on an estimated 
wage rate of about $284 per hour,\435\ we estimate the total paperwork 
related expenses for funds relying upon rule 30e-3 and associated with 
the amendments to Form N-2 will be approximately $0.5 million in the 
first year and approximately $0.3 million in the second year.\436\
---------------------------------------------------------------------------

    \431\ See infra note 562 and accompanying text.
    \432\ See infra note 563.
    \433\ See infra note 564.
    \434\ See infra note 565.
    \435\ See supra note 429.
    \436\ (640 + 960 hours) x $284 per hour = $454,400. (320 + 640 
hours) x $284 per hour = $272,640.
---------------------------------------------------------------------------

Form N-3 Estimates
    We estimate that there are 14 funds that file Form N-3,\437\ 
including 13 funds that will rely on rule 30e-3.\438\ We estimate that 
these funds will incur, in the aggregate, 13 hours in the first year 
and 7 hours in the second year to satisfy the disclosure requirements 
associated with the amendments to Form N-3 relating to statutory 
prospectuses.\439\ In addition, we estimate that these funds will 
incur, in the aggregate, 20 hours in the first year and 13 hours in the 
second year to comply with the amendments to Form N-3 relating to 
annual and semi-annual reports.\440\ Based on an estimated wage rate of 
about $284 per hour,\441\ we estimate the total paperwork related 
expenses for these funds will be approximately $9,372 in the first year 
and $5,680 in the second year.\442\
---------------------------------------------------------------------------

    \437\ See infra note 567 and accompanying text.
    \438\ See infra note 568.
    \439\ See infra note 569.
    \440\ See infra note 570.
    \441\ See supra note 429.
    \442\ (13 + 20 hours) x $284 per hour = $9,372. (7 + 13 hours) x 
$284 per hour = $5,680.
---------------------------------------------------------------------------

Form N-4 Estimates
    As we discuss below, we estimate funds that will rely on rule 30e-3 
will make 1,488 filings of Form N-4, with the total annual hour burden 
associated with the amendments to Form N-4 of 1,488 hours in the first 
year and 744 hours in the second year.\443\ Based on an estimated wage 
rate of about $284 per

[[Page 29193]]

hour,\444\ we estimate the total paperwork related expenses for these 
funds will be approximately $422,592 in the first year and $211,296 in 
the second year.\445\
---------------------------------------------------------------------------

    \443\ See infra notes 572-573 and accompanying and following 
text.
    \444\ See supra note 429.
    \445\ 1,488 x $284 = $422,592. 744 x $284 = $211,296.
---------------------------------------------------------------------------

Form N-6 Estimates
    As we discuss below, we estimate funds that will rely on rule 30e-3 
will make 425 filings of Form N-6, with the total annual hour burden 
associated with the amendments to Form N-6 of 425 hours in the first 
year and 213 hours in the second year.\446\ Based on an estimated wage 
rate of about $284 per hour,\447\ we estimate the total paperwork 
related expenses for these funds will be approximately $120,700 in the 
first year and $60,492 in the second year.\448\
---------------------------------------------------------------------------

    \446\ See infra notes 574-575 and accompanying and following 
text.
    \447\ See supra note 429.
    \448\ 425 x $284 = $120,700. 213 x $284 = $60,492.
---------------------------------------------------------------------------

2. Other Costs
    Although we believe that the provisions of the final rule enable 
investors to receive shareholders reports in the format they prefer, 
that website availability of shareholder reports and portfolio 
information is consistent with many investors' preferences,\449\ and 
that the final rule may promote improved access to and consumption of 
portfolio information, as discussed above,\450\ we acknowledge that 
there may be some investors who would prefer to receive paper copies 
but may not notify their fund of that preference.\451\ To this end, 
several commenters pointed out that internet access and use among 
Americans was not universal.\452\ Those investors without home internet 
access, depending on their ability and preference to access shareholder 
reports and portfolio investment information electronically, might 
experience a reduction in their ability to access shareholder reports 
and portfolio investment information if they do not elect to receive 
paper reports. Further, some commenters have asserted that some 
investors with internet access may be less likely to review their 
shareholder reports made available online than shareholder reports 
delivered in paper form.\453\
---------------------------------------------------------------------------

    \449\ See, e.g., supra notes 43, 96, and 97, and accompanying 
text.
    \450\ See supra Section III.C.2.
    \451\ See supra note 98; supra Section II.A.2.
    \452\ See supra note 49. But see supra notes 41-42 and 
accompanying text (discussing increasing internet usage, including 
among previously underserved demographic groups).
    \453\ Commission staff lacks data to assess the extent to which 
investors review information provided in either paper or electronic 
format. One commenter provided survey evidence, suggesting that, 
less than half of the respondents read all of the disclosure but a 
significant portion of respondents read or skim some of the 
disclosure. See Broadridge Meeting Memo I, at 9 (citing the 2016 
True North Market Insights Study, according to which (1) 21% of 
respondents reported reading paper reports thoroughly and 53% 
reported skimming the reports, and (2) 36% of respondents reported 
always looking at the annual and semi-annual reports received in the 
mail, 31% of respondents reported doing so most of the time, and 26% 
of respondents reported doing so some of the time; the 2015 FINRA 
National Financial Capability Study, according to which 28% of 
respondents reported reading disclosure documents regarding 
investments and 58% of respondents reported skimming the disclosure 
documents; the 2015 Forrester Research and Broadridge Custom Survey, 
according to which 24% of respondents reported looking at 
shareholder reports always, 26% of respondents most of the time, and 
37% of respondents sometimes; and the 2006 ICI Study: Understanding 
Investor Preferences for Mutual Fund Information, according to which 
10% of respondents reported reading all shareholder reports, 17% of 
respondents reported reading most, 24% of respondents reported 
reading some, and 26% of respondents reported reading very little of 
the shareholder reports they receive).
     However, another commenter suggested that surveys about 
readership may be unreliable because respondents may misstate their 
readership, because surveys did not ask respondents specifically 
about whether they read the reports, and because surveys often have 
methodological problems that lead to a likely overstatement of the 
baseline readership. The commenter also expressed skepticism that 
``large number[s] of individual investors are avid readers of their 
paper shareholder reports'' due to the length and technical nature 
of the reports, especially when published on a consolidated basis, 
and argued that it is thus not possible to conclude that fewer 
investors would read reports online. See ICI Comment Letter III. In 
another letter, this commenter stated that, based on an investor 
survey, ``fewer than half of mutual fund shareholders still review 
some printed materials for information about their fund investments, 
and over two-thirds of these individuals likewise access online 
materials to gather information on their fund investments.'' See 
Comment Letter of Investment Company Institute (Jul. 8, 2016) (``ICI 
Comment Letter IV'').
---------------------------------------------------------------------------

    To the extent that a reduction in the review of shareholder reports 
by such investors decreases how informed they are about funds, it could 
potentially decrease their ability to efficiently allocate capital 
across funds and other investments. A decrease in the ability of 
investors to access and review information about different funds could 
also decrease the competition among funds for investor capital. 
However, these potential effects will be attenuated to the extent that 
investors rely on other sources of information and disclosures, in 
addition to shareholder reports, to obtain information about funds.
    In a change from the proposal, after considering the input from 
commenters, we are not requiring pre-paid reply cards to be sent 
together with Notices,\454\ nor are we requiring funds to mail an 
Initial Statement.\455\ These changes may reduce the likelihood, 
compared to the proposal, that investors who prefer to access reports 
in paper form will elect to receive reports in that form, which in turn 
would potentially reduce the likelihood that investors will review the 
information in reports, and similarly may result in less well-informed 
investment decisions and potential adverse effects on the efficiency of 
capital allocation across funds.
---------------------------------------------------------------------------

    \454\ See supra note 174.
    \455\ See supra Section II.B.2.b.
---------------------------------------------------------------------------

    However, we have sought to mitigate such potential adverse effects 
in the final rule.\456\ For example, the final rule contains a Notice 
requirement and permits the Notice to include multiple means through 
which an investor can elect paper reports.\457\ To help ensure that 
current investors that may be accustomed to receiving shareholder 
reports in paper through the mail have advance notice of a fund's 
intent to rely on rule 30e-3, the final rule also includes an extended 
transition period with a temporary condition that requires funds to 
include prominent disclosures during the extended transition period in 
various fund documents prior to sending Notices pursuant to the 
rule.\458\ In addition, to further simplify the process for investors 
with a preference for paper delivery to make such an election, under 
the final rule, an investor's election for paper reports is required to 
be applied at the investor account level, rather than the fund position 
level.\459\
---------------------------------------------------------------------------

    \456\ See supra Section II.B.2.
    \457\ See supra Section II.B.2.b.
    \458\ See supra Sections II.B.2.f and II.B.3.
    \459\ See supra Section II.B.2.d.
---------------------------------------------------------------------------

    In a change from the proposal, the final rule permits a Notice to 
include additional information about the fund, so long as it is limited 
to information contained in the shareholder report for which Notice is 
being given.\460\ To the extent that investors only review Notices and 
to the extent that investors do not find the additional content from 
the report included in the Notice to be a sufficient description of 
fund operations, it may result in a less complete investor review of 
information about the fund. However, the requirement that the Notice 
describe means by which investors may access the complete shareholder 
report and the requirement that additional content included in the 
Notice be limited to information from the shareholder report

[[Page 29194]]

are expected to partly mitigate this concern.
---------------------------------------------------------------------------

    \460\ See supra Section II.B.2.b.ii.
---------------------------------------------------------------------------

    In addition, although we expect investors to benefit from a 
reduction in printing and mailing costs borne by their funds, we 
recognize that some investors may incur printing costs due to manually 
printing specific documents of their choosing.\461\ Investors that 
print out their own materials would likely incur greater costs than 
they would otherwise indirectly bear if the printing and mailing costs 
of those materials were borne collectively by all investors of the 
fund. We note, however, that investors have the option to request paper 
copies directly instead of manually printing materials, and we expect 
investors who regularly print out their own copies of shareholder 
reports and for whom such printing is burdensome or costly to elect 
paper delivery.
---------------------------------------------------------------------------

    \461\ See Shareholder Choice Regarding Proxy Materials Release, 
supra note 18, at 42231, 42234. The Shareholder Choice Regarding 
Proxy Materials Release estimated that approximately 10% of all 
shareholders print out proxy materials at home at a unit cost that 
was approximately 25% higher than the average cost of printing and 
mailing each copy under the paper delivery regime ($7.05 / $5.64 = 
1.25). Printing costs for shareholder reports and proxy materials 
may differ and printing costs in absolute terms have decreased over 
time. According to one commenter, the cost to the fund of printing 
and mailing a shareholder report under the existing requirements is 
$0.70 per report. See ICI Comment Letter I. However, it remains 
likely that individual shareholders who manually print reports will 
incur a higher cost per report relative to the cost incurred by a 
fund due to the economies of scale. It is not clear how many 
shareholders will manually print shareholder reports, and thus, what 
the aggregate incremental cost impact on shareholders will be.
---------------------------------------------------------------------------

    It is possible that funds that choose to rely on rule 30e-3 could 
be at a competitive disadvantage if investors choose funds based on 
their preference for the default of paper delivery. Funds for which 
such competitive effects outweigh the cost savings from reliance on 
rule 30e-3 can choose not to rely on rule 30e-3.
    Rule 30e-3 and related rule and form amendments could also 
potentially have costs extending beyond the asset management industry. 
Some commenters expressed concern about the long-term effects of rule 
30e-3 on other industries, including the paper industry.\462\ The 
commenters, however, did not provide specific data on or estimates of 
the rule's potential impact on those industries. Even in the absence of 
rule 30e-3 and related amendments to rule 498 and registration forms, 
continued future growth of electronic delivery in reliance on existing 
Commission guidance might result in a continued decrease in the number 
of shareholder reports being delivered in paper form, so the potential 
future effects on the paper industry may be influenced by factors 
outside of rule 30e-3 and related rule and form amendments. 
Furthermore, notwithstanding these potential impacts, we continue to 
believe that rule 30e-3 will modernize and enhance the manner in which 
shareholder reports are made available to investors, resulting in 
savings in printing and mailing costs that are borne by funds, and 
ultimately, by fund shareholders, and overall greater accessibility of 
shareholder reports and other related information. Moreover, under rule 
30e-3 investors will have the ability to request delivery of 
shareholder reports and other materials in paper form.
---------------------------------------------------------------------------

    \462\ See, e.g., Baesman Comment Letter; Sandstrom Comment 
Letter; Gherman Comment Letter; Snader Comment Letter; Jaffe Comment 
Letter.
---------------------------------------------------------------------------

E. Alternatives

    Commission staff has also examined different ways in which the 
information that funds provide to investors could be made more 
accessible while still promoting the ability of investors to receive 
these important documents via their preferred method. Some of these 
alternatives are discussed throughout the release to explain why the 
Commission ultimately chose to adopt the rule in its current state. We 
discuss below several additional alternatives that the Commission 
considered.
    As an alternative, we considered whether we should eliminate the 
Notice requirement, as suggested by one commenter.\463\ Eliminating the 
Notice would provide greater cost savings to funds and their investors 
than the final rule we are adopting today. We estimate that this 
alternative would result in additional aggregate savings of Notice 
preparation, printing, and mailing costs of approximately $86.8 million 
in the first year and approximately $83.8 million in each subsequent 
year.\464\ However, we believe that doing so would reduce investor 
awareness of the online shareholder reports, which would run counter to 
our objective of promoting the accessibility of these important fund 
documents. While funds will necessarily incur costs to distribute 
Notices, as discussed above,\465\ we continue to believe that it is 
important for investors to receive the Notice, as it will alert them to 
the availability of a shareholder report online and will provide them 
with information on how to obtain a paper copy of the report.
---------------------------------------------------------------------------

    \463\ See supra Section II.B.2.b.
    \464\ See supra notes 402 and 408: $86,767,898 ($75,993,264 + 
$10,774,634) in the first year and $83,797,114 ($75,993,264 + 
$7,803,850) in each following year.
    \465\ See supra Section III.D.1.
---------------------------------------------------------------------------

    As another alternative, we could have required or permitted the 
Notice, which meets the content requirements in the final rule, or 
alternatively, additional content requirements as described below, to 
be sent via email, as suggested by some commenters.\466\ This 
alternative would result in savings of printing and mailing costs for 
funds of up to approximately $76.0 million per year if all Notices are 
sent by email instead of in paper form.\467\ The email manner of 
delivery of the Notice under this alternative would not be expected to 
affect the costs of preparing the Notice content. However, for 
investors that have not opted into electronic delivery, information on 
email addresses that a fund can use to deliver Notices may be missing 
or out of date, and we are unable to estimate the costs to an average 
fund of updating and compiling email lists under the alternative of 
email distribution of Notices to all shareholders. We lack data on the 
percent of fund investors that have not opted into electronic delivery 
for whom funds have up-to-date email contact information because funds 
are not required to disclose such information and it is not available 
to us from other sources.
---------------------------------------------------------------------------

    \466\ See supra notes 141-144.
    \467\ See supra 408.
---------------------------------------------------------------------------

    Nevertheless, as discussed above, we continue to believe that it is 
important for investors to receive the Notice, as it will 
contemporaneously alert them to the availability of a shareholder 
report online. A Notice will also provide investors with information on 
how to obtain a paper copy of the report, which makes it easier for 
investors with a preference for paper to request shareholder reports in 
paper. The benefits from requiring the Notice to be in paper form 
include, for example, that there may be instances where an investor 
provided his or her email for certain limited purposes without 
necessarily intending to receive shareholder reports or notices of 
reports through email.\468\
---------------------------------------------------------------------------

    \468\ See supra note 145 and accompanying paragraph.
---------------------------------------------------------------------------

    In a modification from the proposal, we are permitting funds to 
incorporate content from their shareholder reports into Notices 
relating to shareholder reports required to be transmitted under rule 
30e-1, as discussed in greater detail in Section II.B.2.b.ii above. As 
alternatives, we considered, as a condition of reliance on rule 30e-3, 
either (1) limiting the types of content from the shareholder report 
that is

[[Page 29195]]

permitted to be incorporated into the Notice, or (2) specifying 
additional types of content from the shareholder report that are 
required to be incorporated into the Notice.\469\ Relative to the final 
rule, both alternatives could result in greater standardization of 
additional Notice content, potentially facilitating investor review and 
comparison of information in such Notices across funds and thus 
potentially enabling better informed investment decisions, to the 
extent that investors rely on information from shareholder reports 
relative to other sources of information and disclosures. The second 
alternative also could make information from shareholder reports more 
accessible to those investors that may otherwise not review shareholder 
reports.
---------------------------------------------------------------------------

    \469\ For an additional discussion of the reasons for the 
approach chosen for the Notice, see supra Section II.B.2.b.ii.
---------------------------------------------------------------------------

    However, both alternatives would limit the flexibility of funds to 
tailor Notice content to include the types of information from 
shareholder reports that may be more relevant and valuable for 
investors in the specific fund, potentially affecting how useful the 
Notice content is to those investors.
    Further, if the additional information required to be included in 
Notices under the second alternative is more extensive than the 
information that funds would otherwise elect to include in Notices 
under the final rule, the second alternative could increase Notice 
preparation, printing, and mailing costs, which would be passed on to 
fund investors, relative to the final rule.
    We also recognize that the number of funds that rely on rule 30e-3 
may decrease under this alternative in the event that funds find rule 
30e-3 to be less advantageous as a result of increased Notice 
preparation, printing, and mailing costs. Overall, we believe that the 
Notice provisions of the final rule permit sufficient flexibility for 
funds to present additional information from the shareholder report in 
Notices sent to investors without imposing additional burdens and costs 
on those funds that would not expect their investors to find such 
information to be of added value.
    We are adopting a temporary condition of reliance on rule 30e-3 
that requires funds intending to rely on rule 30e-3 to provide 
prominent disclosures on certain fund documents for up to two years 
during the extended transition period. As an alternative, we could 
require all funds, including funds that elect to rely on rule 30e-3 
after the temporary condition expires, to provide two years of 
prominent disclosures on certain fund documents prior to being able to 
rely on rule 30e-3. This alternative may benefit some investors in 
funds that elect to rely on rule 30e-3 in the future by increasing 
their awareness of the fund's intent to rely on rule 30e-3. However, 
this benefit is likely to decrease as time elapses since the rule's 
effective date and an increasing number of investors becomes aware of 
the industry-wide changes in the shareholder report delivery framework 
under rule 30e-3, including as a result of receiving prominent 
disclosures on fund documents and Notices under rule 30e-3 sent by 
other funds in which investors hold positions. This alternative likely 
would reduce the benefits to funds, and in turn, to fund investors, 
relative to the final rule, by retaining on an indefinite basis a two-
year delay in the ability of funds to realize printing and mailing cost 
savings from rule 30e-3. This alternative also would result in higher 
costs of prominent disclosures being incurred by funds, and in turn, 
fund investors, beyond the end of the extended transition period.

IV. Paperwork Reduction Act

    New rule 30e-3 contains a ``collection of information'' within the 
meaning of the Paperwork Reduction Act of 1995 (the ``PRA'').\470\ In 
addition, the new rule and other amendments will impact the collections 
of information under rules 30e-1 and 30e-2, rule 498 under the 
Securities Act, and Forms N-1A, N-2, N-3, N-4, N-6, and N-CSR.
---------------------------------------------------------------------------

    \470\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    The titles for the existing collections of information are: ``Rule 
30e-1 under the Investment Company Act of 1940, Reports to Stockholders 
of Management Companies'' (OMB Control No. 3235-0025); ``Rule 30e-2 (17 
CFR 270.30e-2) pursuant to Section 30(e) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-29(e)), Reports to Shareholders of Unit 
Investment Trusts'' (OMB Control No. 3235-0494); ``Rule 498 under the 
Securities Act of 1933, Summary Prospectuses for Open-End Management 
Investment Companies'' (OMB Control No. 3235-0648); ``Form N-1A under 
the Securities Act of 1933 and under the Investment Company Act of 
1940, Registration Statement of Open-End Management Investment 
Companies'' (OMB Control No. 3235-0307); ``Form N-2 under the 
Investment Company Act of 1940 and Securities Act of 1933, Registration 
Statement of Closed-End Management Investment Companies'' (OMB Control 
No. 3235-0026); ``Form N-3 under the Securities Act of 1933 and under 
the Investment Company Act of 1940, Registration Statement of Separate 
Accounts Organized as Management Investment Companies'' (OMB Control 
No. 3235-0316); ``Form N-4 under the Securities Act of 1933 and under 
the Investment Company Act of 1940, Registration Statement of Separate 
Accounts Organized as Unit Investment Trust'' (OMB Control No. 3235-
0318); ``Form N-6 under the Securities Act of 1933 and under the 
Investment Company Act of 1940, Registration Statement of Separate 
Accounts Organized as Unit Investment Trust'' (OMB Control No. 3235-
0503); and ``Form N-CSR under the Securities Exchange Act of 1934 and 
under the Investment Company Act of 1940, Certified Shareholder Report 
of Registered Management Investment Companies'' (OMB Control No. 3235-
0570). The title for the new collection of information is: ``Rule 30e-3 
under the Investment Company Act of 1940, internet Availability of 
Reports to Shareholders'' (OMB Control No. 3235-0758).
    We published notice soliciting comments on the collection of 
information requirements in the Proposing Release and submitted the 
proposed collection of information to the Office of Management and 
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5 
CFR 1320.11. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid control number.
    The Commission is adopting new rule 30e-3 under the Investment 
Company Act and certain related amendments. This reform is designed to 
modernize the manner in which periodic information is transmitted to 
investors, which we believe will improve investors' experience while 
reducing expenses associated with printing and mailing shareholder 
reports that are borne by investment companies and ultimately their 
investors. We discuss below the collection of information burdens 
associated with this reform.
    New rule 30e-3 will provide certain funds with an optional method 
to satisfy requirements to transmit shareholder reports by making such 
reports and certain other materials publicly accessible on a website, 
provided that certain other conditions are satisfied.\471\ Reliance on 
the rule is voluntary; however, compliance with the rule's conditions 
is mandatory for funds relying on the rule. Responses to the

[[Page 29196]]

information collections will not be kept confidential.
---------------------------------------------------------------------------

    \471\ See rule 30e-3.
---------------------------------------------------------------------------

A. Availability of Shareholder Report and Other Materials

    Rule 30e-3 provides that a fund may satisfy its obligations to 
transmit a report to shareholders if certain conditions set forth in 
the rule are satisfied. Among these conditions are the requirements 
that the fund's shareholder report, any report with respect to the fund 
for the prior reporting period that was transmitted to shareholders of 
record pursuant to rule 30e-1 or rule 30e-2, and in the case of a 
report relating to a fund other than a money market fund or an SBIC, 
the fund's complete portfolio holdings as of the close of its most 
recent first and third fiscal quarters, be publicly accessible, free of 
charge, at a specified website address.\472\
---------------------------------------------------------------------------

    \472\ Rule 30e-3(b)(1)(i)-(iii). While we are modifying Exchange 
Act rule 14a-16 to include the Notice with respect to fund documents 
that may accompany the Notice of Internet Availability of Proxy 
Materials, the incidental burden that this may impose is covered 
under the existing Paperwork Reduction Act for ``Proxy Statements--
Regulation 14(A) (Commission Rules 14a-1 through 14a-21 and Schedule 
14A)'' (OMB Control No. 3235-0059). Accordingly, we are not 
modifying those estimates at this time.
---------------------------------------------------------------------------

Internal Hours Burden
    In the Proposing Release, we estimated that 11,957 funds could rely 
on proposed new rule 30e-3.\473\ Of these funds, we estimated that 90% 
of these entities (or 10,761 funds) would rely on proposed rule 30e-
3.\474\ Of these 10,761, we estimated that approximately 90% of these 
entities (or 9,634 funds) are currently posting shareholder reports on 
their websites (similar to the approximate proportion of funds expected 
to rely on rule 30e-3 that rely on the summary prospectus rules and 
thus already post shareholder reports on their websites). With respect 
to these entities, we estimated that annual compliance with the posting 
requirements of proposed rule 30e-3 would require a half hour burden 
per entity.\475\
---------------------------------------------------------------------------

    \473\ Proposing Release, supra note 14, at 33678. This estimate 
included 9,259 mutual funds (including money market funds), 1,403 
ETFs (1,411 ETFs less 8 UIT ETFs), 568 closed-end funds, and 727 
UITs (including UIT ETFs) based on Investment Company Institute 
(``ICI'') statistics, Form N-SAR filings, and internal SEC data as 
of December 31, 2014. See ICI statistics available at https://www.ici.org/research/stats.
    \474\ Proposing Release, supra note 14, at 33678. Open-end funds 
relying on the summary prospectus rule, rule 498 under the 
Securities Act, are required to post their annual and semi-annual 
reports online. See rule 498(e)(1) [17 CFR 230.498(e)(1)].
    \475\ Because each of these funds was already required to have a 
website and to post its annual and semi-annual shareholder reports 
on this website, we estimated that proposed rule 30e-3 would only 
result in each of these funds incurring a half hour burden per year 
to post their first and third quarter portfolio holdings on their 
websites, including in the first year of compliance with the rule.
---------------------------------------------------------------------------

    We have revised our estimate of the number of funds that may rely 
on rule 30e-3 upward from 11,957 to 12,630 to reflect updates to the 
industry data figures that were utilized in the Proposing Release.\476\ 
We did not receive any comments on our proposed estimate of the 
proportion of funds that would rely on the new rule, or on our proposed 
estimate of the burden hours associated with the posting requirements 
of rule 30e-3 for funds that already post shareholder reports on their 
websites. We received one comment consistent with our proposed estimate 
that 90% of funds currently post shareholder reports on their 
websites.\477\ Therefore, we are maintaining those estimates today, 
with adjustments to reflect the updated industry data figures since the 
Proposing Release. Thus, we estimate that 11,367 funds will rely on 
rule 30e-3,\478\ and, of those, 10,230 are funds that already post 
shareholder reports on their websites.\479\ Accordingly, with respect 
to these 10,230 funds, we estimate that annual compliance with the 
posting requirements of rule 30e-3 will require a half hour burden per 
fund.
---------------------------------------------------------------------------

    \476\ We estimate that there are 9,360 mutual funds, 1,821 
exchange-traded funds (1,829 ETFs less 8 UIT ETFs), 711 closed-end 
funds, 14 funds that could file registration statements or 
amendments to registration statements on Form N-3, and 724 UITs. 
This estimate is based on data reported on Form N-SAR filed with the 
Commission as well as Investment Company Institute statistics as of 
December 31, 2017, available at https://www.ici.org/research/stats. 
9,360 + 1,821 + 711 + 14 + 724 = 12,630.
    \477\ Generally consistent with this estimate, one commenter 
stated that Summary Prospectuses were used in 2014 by over 82% of 
the fund CUSIPs for distributions comprising over 90% of the mailed 
volume. See Broadridge Comment Letter I.
    \478\ See supra note 476. We continue to estimate, similar to 
the proposal, that 90% of funds will rely on the final rule. 12,630 
funds that could rely x 0.90 proportion estimated to rely = 11,367 
funds estimated to rely.
    \479\ 11,367 funds relying on the rule x 0.90 = 10,230 funds 
that are estimated to rely on rule 30e-3 and already post 
shareholder reports on their websites.
---------------------------------------------------------------------------

    In the Proposing Release, of the remaining funds estimated to rely 
on proposed rule 30e-3, we further estimated that approximately 90% of 
those funds (or 1,014 funds) already had a website.\480\ With respect 
to these funds, we estimated that the posting requirements of proposed 
rule 30e-3 would require a burden of one and a half hours per fund to 
post the required documents online, both in the first year and annually 
thereafter.\481\ For the remaining 10% of funds (or 113 funds) that we 
estimated would rely on the proposed rule but that do not have a 
website,\482\ we estimated initial compliance with the posting 
requirements would require approximately 24 hours per fund of internal 
staff time to develop a web page and post the required documents on the 
web page.\483\ In addition, we estimated that each of these funds would 
spend approximately four hours of professional time to maintain and 
update a web page with the required information on a quarterly 
basis.\484\
---------------------------------------------------------------------------

    \480\ Proposing Release, supra note 14, at 33678.
    \481\ Id.
    \482\ This estimate is based on the following calculation: 
(10,761 funds and - 9,634 open-end funds relying on the summary 
prospectus rule) x 10% = 113 funds.
    \483\ Id.
    \484\ Id.
---------------------------------------------------------------------------

    We did not receive any comments on our estimates in the Proposing 
Release of the proportion of those funds that would rely on the 
proposed rule and already have a website but that do not rely on the 
summary prospectus rule today, the burden of the website posting 
requirements for funds not relying on the summary prospectus rule that 
have a website, and the burden of the website posting requirements for 
funds that do not have a website, and we are maintaining those 
estimates today, with adjustments to reflect the updated industry 
figures since the Proposing Release. Thus, we estimate that, of the 
1,137 funds estimated to rely on the new rule but that do not rely on 
the summary prospectus rule,\485\ 1,023 funds already have a website 
and each such fund will incur 1.5 burden hours per year as a result of 
the posting requirement,\486\ and that 114 do not have a website and 
each such fund will incur 24 burden hours as a result of the posting 
requirement.\487\
---------------------------------------------------------------------------

    \485\ 11,367 funds relying on the rule - 10,230 funds using a 
summary prospectus that are estimated to rely on rule 30e-3 = 1,137 
funds.
    \486\ (11,367 funds estimated to rely - 10,230 funds relying on 
summary prospectus rule) x 0.90 proportion estimated to have a 
website = 1,023 funds.
    \487\ 11,367 funds estimated to rely - 10,230 funds relying on 
summary prospectus rule - 1,023 funds with a website = 114 funds.
---------------------------------------------------------------------------

    Accordingly, we estimate that the posting requirements will result 
in an average annual hour burden of about 0.83 hours per fund in the 
first year of compliance \488\ and about 0.75 hours per

[[Page 29197]]

fund for each of the next two years.\489\ Amortized over three years, 
the average annual hour burden will be about 0. 78 hours per fund.\490\ 
In sum, we estimate that the posting requirements of rule 30e-3 will 
impose an average total annual hour burden of about 8,866 hours on 
applicable funds.\491\
---------------------------------------------------------------------------

    \488\ ((10,230 funds relying on the summary prospectus rule x 
0.5 hours per fund per year) + (1,023 funds with a website but not 
relying on the summary prospectus rule x 1.5 hours per fund or UIT 
per year) + (114 funds without a website x 24 hours in the first 
year)) / (11,367 funds estimated to rely) = (5,115 hours for funds 
relying on the summary prospectus rule + 1,535 hours for funds with 
a website but not relying on the summary prospectus rule + 2,728 
hours for funds without a website) / (11,367 funds estimated to 
rely) = 9,378 total hours / 11,367 funds estimated to rely = 0.83 
hours per fund.
    \489\ ((10,230 funds relying on the summary prospectus rule x 
0.5 hours per fund per year) + (1,023 funds with a website but not 
relying on the summary prospectus rule x 1.5 hours per fund or UIT 
per year) + (114 funds without a website x 4 hours per fund per 
quarter x 4 quarters per year)) / (11,367 funds estimated to rely) = 
(5,115 hours for funds relying on the summary prospectus rule + 
1,534 hours for funds with a website but not relying on the summary 
prospectus rule + 1,818 hours for funds without a website) / (11,367 
funds estimated to rely) = 8,468 total hours / 11,367 funds 
estimated to rely = 0.75 hours per fund.
    \490\ (0.83 hours per fund in the first year + (0.75 hours per 
fund each year thereafter x 2 years)) / 3 years = 0.78 hours per 
fund per year.
    \491\ 0.78 hours per fund per year x 11,367 funds estimated to 
rely = 8,866 hours.
---------------------------------------------------------------------------

External Cost Burden
    In the Proposing Release, we estimated that certain funds would 
bear an external cost burden in complying with the rule. The external 
cost burden is the cost of goods and services purchased in connection 
with complying with the rule, which, with respect to the posting 
requirements, will include costs associated with development of a 
website. With respect to those funds that would rely on proposed rule 
30e-3 but that do not currently have a website, we estimated that the 
posting requirements of the proposed rule would result in an external 
cost burden of $2,000 per fund in the first year to develop a website 
but no cost burden in subsequent years.\492\ We further estimated that 
the amortized annual external cost burden associated with developing a 
website would be $667.\493\ With respect to those funds that currently 
have websites, we estimated that the posting requirements of the 
proposed rule would not result in any external costs.\494\ We did not 
receive any comments on these proposed estimates, and we are 
maintaining them today, with adjustments to reflect the updated 
industry data figures since the Proposing Release. Accordingly, in the 
aggregate, we estimate that the annual total external cost burden with 
respect to these funds will be $76,038.\495\
---------------------------------------------------------------------------

    \492\ Proposing Release, supra note 14, at 33678.
    \493\ Id.
    \494\ Id.
    \495\ 114 funds without a website x $667 per fund = $76,038.
---------------------------------------------------------------------------

B. Proposed Initial Statement

    As proposed, rule 30e-3 would have permitted an optional method to 
satisfy requirements to transmit shareholder reports by posting reports 
online with respect to a particular investor only if either the 
investor previously consented to this optional method of website 
availability or the investor's consent could be inferred under certain 
conditions specified in the rule.\496\ One of the proposed conditions 
for inferring consent would have provided that an Initial Statement be 
transmitted to an investor at least 60 days before reliance on the rule 
with respect to that investor informing the investor that future 
shareholder reports available on a website until the investor provides 
notification that he or she wished to receive paper copies of reports 
in the future. As discussed above, we have modified the proposed rule 
to eliminate the Initial Statement requirement, which will affect the 
aggregate estimated burdens associated with rule 30e-3. In the 
Proposing Release, we estimated that the Initial Statement would result 
in 0.69 average annual burden hours per fund and $555 in average annual 
cost burden per fund,\497\ which is eliminated by the modification in 
the final rule to not adopt the proposed Initial Statement requirement.
---------------------------------------------------------------------------

    \496\ See proposed rule 30e-3(c).
    \497\ Proposing Release, supra note 14, at 33679-80.
---------------------------------------------------------------------------

C. Notice

    Proposed rule 30e-3 would have required a Notice be sent to 
investors within 60 days of the close of the reporting period covered 
by the related report. Under the final rule, a Notice is required to be 
sent to investors within 70 days of the close of the reporting period 
to which the report relates.\498\ The proposed rule would have also 
required that the form of the Notice be filed with the Commission not 
later than 10 days after the Notice is sent to investors.\499\ However, 
the final rule will require that only if a fund's Notice includes any 
content from the report to which it relates, a copy of the Notice must 
be filed as part of the fund's report on Form N-CSR.\500\
---------------------------------------------------------------------------

    \498\ See proposed rule 30e-3(d); rule 30e-3(c).
    \499\ See proposed rule 30e-3(d)(7).
    \500\ Item 1(b) of Form N-CSR; see also infra Section IV.G.
---------------------------------------------------------------------------

    As discussed in Section IV.A above and as we estimated in the 
proposal, we estimate that 90% of all eligible funds (or 11,367 funds) 
will choose to rely on new rule 30e-3.\501\
---------------------------------------------------------------------------

    \501\ See supra note 478 and accompanying text.
---------------------------------------------------------------------------

Internal Hours Burden
    For those funds relying on the rule, in the Proposing Release we 
estimated that each fund will require two hours to prepare and file the 
first Notice in the first year and an hour for each subsequent 
notice.\502\ Of this time, we estimated that 75% of the preparation 
time required would be incurred by the fund internally and that 25% of 
the burden would be carried out by outside counsel retained by the 
fund.\503\
---------------------------------------------------------------------------

    \502\ Proposing Release, supra note 14, at 33679.
    \503\ Id.
---------------------------------------------------------------------------

    We did not receive any comments on our proposed estimates of the 
time required to prepare Notices, or on the estimated proportion of the 
preparation time required to prepare Notices that would be carried out 
internally or by outside counsel. As discussed above, the requirements 
regarding the Notice in the final rule, including removing the direct 
URL to the shareholder report and the reply card requirement, 
permitting Notices to be incorporated into or combined with other 
Notices, expanding the ability to combine Notices with other mailings, 
as well as removing the filing requirement (other than for Notices that 
include content from the report to which it relates as discussed in 
Section IV.F below), will collectively affect the estimated burden 
associated with the preparation of Notices. We are maintaining our 
estimate of the 75% preparation time that would be incurred by the fund 
internally, the first Notice in the first year required hours of two 
hours, and our estimate of subsequent Notice required hours of one hour 
to account for an increase in some funds that may include content from 
the shareholder report in the Notice.
    Accordingly, we estimate that the Notice will result in an average 
annual hour burden of about 2.25 hours per fund in the first year \504\ 
and about 1.5 hours per fund in each subsequent year.\505\ Amortized 
over three years, the average annual hour burden associated with the 
Notice would be about 1.75 hours per fund.\506\ We have also made 
adjustments to these estimates to reflect the updated industry data 
figures since

[[Page 29198]]

the Proposing Release. In sum, we estimate that the Notice requirements 
of rule 30e-3 will impose an average total annual hour burden of about 
19,892 hours on applicable funds.\507\
---------------------------------------------------------------------------

    \504\ (2 hours per first Notice + 1 hour per subsequent Notice x 
1 subsequent Notice in the first year) x 0.75 proportion internal 
hour burden = 2.25 hours per fund.
    \505\ (1 hour per subsequent Notice x 2 subsequent Notices in 
subsequent years) x 0.75 proportion internal hour burden = 1.5 hours 
per fund.
    \506\ (2.25 hours per fund in the first year + (1.5 hours each 
year thereafter x 2 years)) / 3 years = 1.75 hours per fund.
    \507\ 1.75 hours per fund per year for the Notice x 11,367 funds 
estimated to rely = 19,892 hours per year.
---------------------------------------------------------------------------

External Cost Burden
    In addition, we estimate that funds will incur external costs if 
they rely on rule 30e-3. The external cost burden is the cost of goods 
and services purchased in connection with complying with the rule, 
which, with respect to the Notice, we have estimated would include the 
costs associated with outside counsel and printing and mailing costs.
    In the Proposing Release, we estimated that 25% of the time 
required to comply with the requirements concerning preparation of the 
Notice would be carried out by outside counsel retained by the fund at 
a rate of $380 per hour.\508\ We did not receive any comments on our 
proposed estimate of the proportion of the time required to prepare 
Notices that would be carried out by outside counsel, and we are 
maintaining that estimate today. We are, however, updating our estimate 
of the hourly rate for the work carried out by outside counsel based on 
updated industry data to $401 per hour.\509\ Accordingly, we estimate 
that outside counsel costs associated with the Notice will result in an 
average cost burden per fund of about $301 in the first year,\510\ 
about $201 in subsequent years,\511\ and amortized over three years, 
about $234.\512\ In sum, we estimate that the outside counsel costs 
related to the Notice requirements of rule 30e-3 will impose an annual 
average total cost burden of about $2,659,878 on applicable funds.\513\
---------------------------------------------------------------------------

    \508\ Proposing Release, supra note 14, at 33679. This estimate 
was based on the rate for attorneys in SIFMA's Management and 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead. We note that, in the Proposing Release, we 
considered the external cost burden of the notice and initial 
statement requirements jointly. See Proposing Release, supra note 
14, at 33679-80. In this release, we have discussed the effect of 
the eliminated initial statement requirement on the burden estimates 
separately above. See supra Part IV.B.
    \509\ This estimate is from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by the Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead.
    \510\ (2 hours per first Notice + 1 hour per subsequent Notice x 
1 subsequent Notice in the first year) x 0.25 proportion external 
cost x $401 per hour = $301 per fund in the first year.
    \511\ (1 hour per subsequent Notice x 2 subsequent Notices in 
subsequent years) x 0.25 proportion external cost x $401 per hour = 
$201 per fund in subsequent years.
    \512\ ($301 per fund in the first year + ($201 per fund in 
subsequent years x 2 years)) / 3 years = $234 per fund.
    \513\ $234 per fund per year for the Notice x 11,367 funds 
estimated to rely = $2,659,878 per year.
---------------------------------------------------------------------------

    We estimated in the Proposing Release that the external costs 
associated with rules 30e-1 and 30e-2 (the rules relating to 
shareholder reports) would be $31,061 and $20,000, respectively.\514\ 
These costs account for preparation and transmission of shareholder 
reports twice a year in paper to investors. We also estimated that one-
third of these external costs would be attributed to printing and 
mailing shareholder reports.\515\ Although commenters did not opine on 
the estimated proportion of total external costs associated with rules 
30e-1 and 30e-2 associated with printing and mailing expenses, as 
discussed below, some did provide estimates of the total costs of print 
and mail delivery that suggest that our estimated proportion of those 
costs may have been understated. Therefore, we have determined to 
revise our estimate upwards to two-thirds, which yields overall 
printing and mailing expenses that are more similar to those estimated 
by commenters compared to the estimates in the Proposing Release.\516\
---------------------------------------------------------------------------

    \514\ Proposing Release, supra note 14, at 33680.
    \515\ Id.
    \516\ See infra note 544 and accompanying text.
---------------------------------------------------------------------------

    We estimated in the Proposing Release that the Notice would require 
lower printing and mailing costs given the significantly smaller size 
of the documents. Specifically, we estimated that each Notice would 
require 10% of the annual printing and mailing costs associated with 
paper shareholder reports.\517\
---------------------------------------------------------------------------

    \517\ Proposing Release, supra note 14, at 33680.
---------------------------------------------------------------------------

    We note that some commenters specifically discussed the processing 
fees for broker-held accounts separately from other printing and 
mailing costs, while, in the Proposing Release, our estimates for 
printing and mailing were meant to encompass all of those costs more 
broadly.\518\ Some commenters indicated that the total reduction in 
external cost burden may depend on the amount of processing fees 
incurred by funds in connection with the print and mail delivery costs 
associated with the conditions of rule 30e-3. As discussed above, NYSE 
rule amendments clarify the processing fees applicable to transmission 
of Notices under rule 30e-3.\519\
---------------------------------------------------------------------------

    \518\ See, e.g., ICI Comment Letter II.
    \519\ See supra notes 32-36 and accompanying text.
---------------------------------------------------------------------------

    Some commenters also suggested that the costs associated with the 
proposed reply card requirements may have been understated.\520\ The 
final rule reflects modifications from the proposed rule to eliminate 
the reply card requirement for Notices and have made other 
modifications in light of public comments--such as permitting Notices 
to accompany other Notices and other types of documents--that we 
believe will reduce the printing and mailing costs of the final rule's 
conditions relative to the proposal. The final rule also reflects 
modifications from the proposal to permit the inclusion of content from 
the shareholder report in the Notice and eliminated the Notice filing 
requirement except when the Notice includes such content.\521\
---------------------------------------------------------------------------

    \520\ See, e.g., ICI Comment Letter II.
    \521\ See supra notes 221-222 and accompanying text. If the 
Notice includes content from the report to which it relates, a copy 
of the Notice must be filed as an exhibit to Form N-CSR, as 
discussed below. See infra Section IV.F.
---------------------------------------------------------------------------

    In light of the above comments on the estimates in the Proposing 
Release and the modifications we are making today, we have determined 
to increase our estimate of the percentage of annual printing and 
mailing costs (including processing fees) associated with shareholder 
reports that will be associated with the printing and mailing of each 
Notice from the 10% that we had originally proposed to 15%.
    We also estimate, as we did in the Proposing Release, that there 
would be no other external costs attributable to the Notice.\522\ As we 
explained in the Proposing Release, in estimating the external costs, 
we took a conservative approach by using 10% of the $10,000 estimated 
costs for printing and mailing shareholder reports \523\ (which, as 
discussed above is approximately one-third of the estimated external 
costs associated with management companies' shareholder reports) to 
calculate the external cost of preparing and mailing a Notice as 
compared to a shareholder report. As noted in the Proposing Release, 
these estimated costs for fund shareholder reports are higher than the 
estimated external costs associated with UITs' shareholder 
reports.\524\
---------------------------------------------------------------------------

    \522\ Proposing Release, supra note 14, at 33680.
    \523\ $31,061 / 3 = $10,354.
    \524\ Proposing Release, supra note 14, at 33680.
---------------------------------------------------------------------------

    We did not receive any comments on this proposed estimate, and we 
are maintaining it today, except that we are revising the share of 
expenses upward from one-third to two-thirds. Thus, we estimate that 
the external cost burden associated with each Notice will be about 
$3,106.\525\
---------------------------------------------------------------------------

    \525\ $31,061 external costs per shareholder report x \2/3\ 
share of external costs attributable to printing and mailing 
(including processing fees) x 0.15 proportion of complete report 
printing and mailing costs (including processing fees) applicable to 
Notices = $3,106 external costs per Notice.

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

[[Page 29199]]

    Because each fund relying on rule 30e-3 will be required, in the 
final rule, to send two Notices in the first year, we estimate that the 
external costs for the first year on a per fund will be $6,212.\526\ 
Likewise, we estimate that in subsequent years, annual external costs 
on a per fund will be $6,212 as each fund will continue to be required 
to send two Notices per year. As such, amortized over three years, we 
estimate that the Notice will be $6,212 annual cost burden per fund. In 
sum, we estimate that the printing and mailing costs related to the 
Notice requirements of rule 30e-3 will impose an average annual total 
cost burden of $70,611,804 on applicable funds.\527\ Accordingly, 
together with the costs associated with outside counsel, we estimate 
that the Notice requirements of the rule will impose an average annual 
total cost burden of $73,271,682.\528\
---------------------------------------------------------------------------

    \526\ $3,106 external costs per Notice x 2 Notices in the first 
year = $6,212 per fund in external costs in the first year.
    \527\ $6,212 per year per fund for the Notice x 11,367 funds 
expected to rely = $70,611,804 per year.
    \528\ $2,659,878 outside counsel expenses + $70,611,804 per year 
printing and mailing expenses (including processing fees) = 
$73,271,682 per year.
---------------------------------------------------------------------------

D. Delivery Upon Request

    We estimated in the Proposing Release that funds may incur external 
costs in connection with the requirement to provide a shareholder 
report upon request of an investor. We estimated that the annual costs 
associated with printing and mailing these reports would be $500 per 
fund.\529\ We did not receive any comments on this proposed estimate, 
and we are maintaining it today, with adjustments to reflect the 
updated industry data figures since the Proposing Release. Accordingly, 
we estimate that the aggregate annual external costs associated with 
printing and mailing shareholder reports upon request will be 
$5,683,500.\530\
---------------------------------------------------------------------------

    \529\ Proposing Release, supra note 14, at 33678.
    \530\ $500 per fund x 11,367 funds estimated to rely = 
$5,683,500.
---------------------------------------------------------------------------

    In total, rule 30e-3 will impose an average total annual hour 
burden of 28,610 hours on applicable funds \531\ and a total annual 
external cost burden of $79,031,220 on applicable funds.\532\
---------------------------------------------------------------------------

    \531\ 8,718 hours for the posting requirements + 19,892 hours 
for the Notice requirements = 28,610 hours.
    \532\ $76,038 for posting + $73,271,682 for the Notice 
requirements + $5,683,500 for the printing and mailing upon request 
requirements = $79,031,220.
---------------------------------------------------------------------------

E. Impact on Information Collections for Rules 30e-1 and 30e-2

    We estimate, as we did in the Proposing Release, that rule 30e-3 
will have the effect of reducing the external cost burden associated 
with rules 30e-1 and 30e-2. Rule 30e-1 requires a fund to transmit 
shareholder reports to its investors.\533\ Rule 30e-2 requires UITs 
that invest substantially all of their assets in shares of a fund to 
send their investors shareholder reports containing applicable 
information and financial statements required to be included in reports 
for the underlying fund.\534\
---------------------------------------------------------------------------

    \533\ Rule 30e-1(a).
    \534\ Rule 30e-2(a).
---------------------------------------------------------------------------

    In the Proposing Release, we estimated, with respect to rule 30e-1, 
that each fund currently incurs an annual hourly burden of 84 hours and 
an annual external cost burden of $31,061 per fund.\535\ Additionally, 
with respect to rule 30e-2, we estimated that each UIT currently incurs 
an annual hourly burden of 121 hours per UIT and an annual external 
cost burden of $20,000 per UIT.\536\
---------------------------------------------------------------------------

    \535\ Proposing Release, supra note 14, at 33680.
    \536\ Id.
---------------------------------------------------------------------------

    In connection with recent amendments to Regulation S-X, which 
prescribes the form and content of fund financial statements, we 
estimated that each fund would incur 2.5 additional burden hours per 
year after the first year to comply with rule 30e-1.\537\ In connection 
with those amendments to Regulation S-X, we also estimated that each 
UIT to which the amendments apply would incur 2.5 additional burden 
hours per year after the first year to comply with rule 30e-2.\538\
---------------------------------------------------------------------------

    \537\ Reporting Modernization Adopting Release, supra note 14, 
at text following n.1562. We did not estimate any changes to the 
external cost burden in connection with those amendments. Id.
    \538\ Reporting Modernization Adopting Release, supra note 14, 
at text accompanying n.1579.
---------------------------------------------------------------------------

    As discussed above, we continue to estimate that 90% of all funds 
will rely on rule 30e-3.\539\ In the Proposing Release, we estimated 
that the hourly burden associated with rule 30e-1 or rule 30e-2 would 
not change as a result of proposed rule 30e-3.\540\ We did not receive 
any comments on this proposed estimate, and we are maintaining it 
today. However, in the Proposing Release we estimated that, for those 
funds that rely on proposed rule 30e-3, the external cost burden would 
decrease.\541\ Specifically, we estimated that for funds relying on 
rule 30e-3, one-third of the external costs currently attributed to 
rule 30e-1 relate to printing and mailing costs, which would not be 
applicable to funds (excluding UITs) relying on the rule, and thus 
their annual cost burden related to rule 30e-1 would decrease from 
$31,061 to about $20,707.\542\ Additionally, we similarly estimated 
that for UITs relying on the rule, one-third of the external costs 
currently attributed to rule 30e-2 relate to printing and mailing 
costs, which would not be applicable to UITs relying on proposed rule 
30e-3, and thus their annual cost burden related to rule 30e-2 would 
decrease from $20,000 to about $13,333.\543\
---------------------------------------------------------------------------

    \539\ See supra note 501 and accompanying text.
    \540\ Proposing Release, supra note 14, at 33680.
    \541\ Id.
    \542\ $31,061 per fund (excluding UITs) per year in external 
costs x \2/3\ proportion not attributable to printing and mailing 
expenses = $20,707 per fund per year in external costs.
    \543\ $20,000 per UIT per year in external costs x \2/3\ 
proportion not attributable to printing and mailing expenses = 
$13,333.
---------------------------------------------------------------------------

    Although commenters did not opine on the proposed estimate of the 
proportion of total external costs associated with rules 30e-1 and 30e-
2 associated with printing and mailing expenses, some did provide 
estimates of the current total costs of print and mail delivery that 
suggest that our estimated proportion of those costs may have been 
understated, and we have determined to revise our estimate upwards to 
two-thirds, which yields overall printing and mailing expenses that are 
more similar to those estimated by commenters compared to the estimates 
in the Proposing Release.\544\ Therefore, we estimate that, for the 90% 
of funds estimated to rely on rule 30e-3, the annual external burden 
associated with rule 30e-1 will decrease from $31,061 to $10,354 per 
fund (excluding UITs),\545\ and the annual external burden associated 
with rule 30e-2 will decrease from $20,000 to $6,667 per UIT.\546\
---------------------------------------------------------------------------

    \544\ See, e.g., ICI Comment Letter I.
    \545\ $31,061 per fund (excluding UITs) per year in external 
costs x \1/3\ proportion not attributable to printing and mailing 
expenses = $10,354 per fund (excluding UITs) per year in external 
costs.
    \546\ $20,000 per UIT per year in external costs x \1/3\ 
proportion not attributable to printing and mailing expenses = 
$6,667 per UIT per year in external costs.
---------------------------------------------------------------------------

    We have also made adjustments to these estimates to reflect updated 
industry data since the Proposing Release regarding the number of 
funds. Accordingly, we estimate that for the 90% of funds estimated to 
rely on rule 30e-3 the total annual external cost burden for rule 30e-1 
will be $110,943,110,\547\ and the total annual external cost burden 
for all funds under

[[Page 29200]]

rule 30e-1 will be $147,936,761.\548\ Additionally, we estimate that 
for the 90% of UITs estimated to rely on rule 30e-3 the total annual 
external cost burden for rule 30e-2 will be $4,346,884,\549\ and the 
total annual external cost burden for all UITs under rule 30e-2 will be 
$5,786,884.\550\
---------------------------------------------------------------------------

    \547\ 10,715 funds expected to rely x $10,354 external costs per 
fund expected to rely = $110,943,110 in external costs for funds 
expected to rely.
    \548\ ((11,906 total funds - 10,715 funds expected to rely) x 
$31,061 in external costs for funds not expected to rely) + 
$110,943,110 in external costs for funds expected to rely = 
$147,936,761 in external costs.
    \549\ 652 UITs expected to rely x $6,667 external costs per UIT 
expected to rely = $4,346,884 in external costs for UITs expected to 
rely.
    \550\ ((724 total UITs - 652 UITs expected to rely) x $20,000 in 
external costs for UITs not expected to rely) + $4,346,884 in 
external costs for UITs expected to rely = $5,786,884 in external 
costs.
---------------------------------------------------------------------------

F. Related Disclosure Amendments

    In a change from the proposal, as discussed above, we are amending 
rule 498 under the Securities Act and certain fund registration forms 
to require that funds intending to rely on rule 30e-3 prior to January 
1, 2022 include prominent disclosures on the cover page or beginning of 
their summary prospectuses, and cover pages of their statutory 
prospectuses, and annual and semi-annual reports, for two years during 
the three-year period between January 1, 2019 and December 31, 
2021.\551\ With the exception of newly-formed funds, funds would 
generally provide these disclosures as described above.\552\ We believe 
that these disclosures will provide important information to both 
current and prospective investors in advance of the rule's effective 
date that not only notifies them of the intent of their fund to rely on 
the rule, but will also provide them with an overview of the rule's 
operation, including the fact that reports will be made available on a 
website and that they will be able to retain delivery of their reports 
in paper if they should so desire. Beginning January 1, 2022, these 
cover page disclosures will no longer be required.
---------------------------------------------------------------------------

    \551\ See new paragraphs (b)(1)(vi) and (b)(1)(vii) of rule 498. 
Similar statements will be required in other shareholder materials. 
See new paragraph (a)(5) to Item 1 of Form N-1A; new paragraph 
(d)(8) to Item 27 of Form N-1A; new paragraph 1.l to Item 1 of Form 
N-2; new instruction 6.g to Item 24 of Form N-2; new paragraph 
(a)(xi) to Item 1 of Form N-3; new instruction 6(vii) to Item 28(a) 
of Form N-3; new paragraph (a)(x) to Item 1 of Form N-4; new 
paragraph (a)(6) to Item 1 of Form N-6.
    \552\ See supra Section II.B.2.f.
---------------------------------------------------------------------------

    Currently, we estimate that funds have the following total annual 
burdens for compliance with: Rule 498 (15,798 hours), Form N-1A 
(1,596,749 hours), Form N-2 (73,250 hours), Form N-3 (2,500 hours), 
Form N-4 (343,117 hours), and Form N-6 (85,269 hours). Based on updated 
industry data figures and the amendments to rule 498 and the 
registration statements being adopted today, we have revised these 
estimates as follows.
    As discussed above, we estimate that there are 12,630 funds that 
could rely on rule 30e-3.\553\ Of this group, we estimate that 11,367 
funds will rely on rule 30e-3 and, of those, 10,230 are funds relying 
on the summary prospectus rule (rule 498 under the Securities 
Act).\554\ Pursuant to the amendments being adopted today, we further 
estimate that these funds will incur 1 burden hour for the first 
summary prospectus, statutory prospectus, or shareholder report 
reflecting these requirements and 0.5 hours for each additional summary 
prospectus, statutory prospectus, or annual and semi-annual report 
reflecting these requirements. These related disclosure requirements 
will only apply during the extended transition period, as described 
above. In light of the short period during which these additional 
requirements will be effective and the modest impact they are likely to 
have on external service providers such as website hosting services, 
outside counsel and auditors, and printing and mailing services, we do 
not expect them to result in additional expenses passed on to funds by 
their service providers in the form of additional external cost burden. 
Thus, we do not estimate there will be any external costs to comply 
with these disclosure requirements. In total, as discussed in more 
detail below, we estimate that the aggregate hour burden for all funds 
to comply with these disclosure requirements will be 14,272 hours per 
year.\555\
---------------------------------------------------------------------------

    \553\ This estimate of 12,630 funds includes 9,360 mutual funds, 
1,821 exchange-traded funds (1,829 ETFs less 8 UIT ETFs), 711 
closed-end funds, 14 funds that could file registration statements 
or amendments to registration statements on Form N-3, and 724 UITs 
and is based on data from Commission filings as well as Investment 
Company Institute statistics as of December 31, 2017, available at 
https://www.ici.org/research/stats.
    \554\ See supra note 478 and accompanying and following text 
(estimating that 90% of funds that could rely on rule 30e-3 will do 
so). 11,367 funds = 12,630 funds x 0.90.
    \555\ 14,272 hours = 13,401 hours for amendments to rule 498 and 
Form N-1A + 853 hours for amendments to Form N-2 + 18 hours for 
amendments to Form N-3. See infra notes 561, 566, 571.
---------------------------------------------------------------------------

Form N-1A and Rule 498
    We estimate that there are 11,181 funds that could file 
registration statements or amendments to registration statements on 
Form N-1A.\556\ Of this group, we estimate that 10,063 funds will rely 
on rule 30e-3, and, of those, 9,057 are funds relying on the summary 
prospectus rule.\557\ Consequently, we estimate that the amortized 
aggregate annual hour burden associated with the amendments to rule 498 
is 4,529 hours.\558\ We further estimate that 1,006 funds will rely on 
rule 30e-3 but not the summary prospectus rule, and thus the amortized 
aggregate annual hour burden associated with the amendments to Form N-
1A and relating to prospectuses is 503 hours.\559\ In addition, we 
estimate that the total annual hour burden associated with the 
amendments to Form N-1A and relating to shareholder reports is 8,386 
hours.\560\ In total, we estimate that the aggregate annual hour burden 
associated with the amendments to rule 498 will be 4,529 hours, while 
the aggregate annual hour burden associated with the amendments to Form 
N-1A will be 8,889 hours per year.\561\
---------------------------------------------------------------------------

    \556\ 11,181 funds = 9,360 mutual funds + 1,821 ETFs (1,829 ETFs 
less 8 UIT ETFs). See supra note 553.
    \557\ See supra note 478 and accompanying and following text. 
10,063 funds x 0.9 = 9,057 funds. We estimate that for funds that 
would rely on rule 30e-3 and rely upon rule 498, that the 
incremental burden hours associated with relying on rule 30e-3 in 
preparing and filing on Form N-1A would also include any burden 
change associated with rule 498.
    \558\ 9,057 funds x 1 hour in the first year = 9,057 hours. 
9,057 funds x 0.5 hours in the second year = 4,529 hours. 9,057 
funds x 0 hours in the third year = 0 hours. (9,057 + 4,529 + 0 
hours) / 3 years = 4,529 hours per year on an amortized basis.
    \559\ 10,063 funds - 9,057 funds = 1,006 funds. 1,006 funds x 1 
hour in the first year = 1,006 hours. 1,006 funds x 0.5 hours in the 
second year = 503 hours. 503 funds x 0 hours in the third year = 0 
hours. (1,006 + 503 + 0 hours) / 3 years = 503 hours per year on an 
amortized basis.
    \560\ 10,063 funds x (1 hour for the first report in the first 
year + 0.5 hours for the second report in the first year) = 15,095 
hours. 10,063 funds x 0.5 hours x 2 reports in the second year = 
10,063 hours. 10,063 funds x 0 hours in the third year = 0 hours. 
(15,095 + 10,063 + 0 hours) / 3 years = 8,386 hours per year on an 
amortized basis.
    \561\ 8,889 hours = 503 hours + 8,386 hours.
---------------------------------------------------------------------------

Form N-2
    We estimate that there are 711 funds that could file registration 
statements or amendments to registration statements on Form N-2.\562\ 
Of this group, we estimate that 640 funds will rely on rule 30e-3.\563\ 
Consequently, we estimate that the total annual hour burden associated 
with the amendments to Form N-2 and relating to prospectuses is 320 
hours.\564\ In addition, we estimate

[[Page 29201]]

that the total annual hour burden associated with the amendments to 
Form N-2 and relating to annual and semi-annual reports is 533 
hours.\565\ In total, we estimate that the aggregate annual hour burden 
associated with the amendments to Form N-2 will be 853 hours per 
year.\566\
---------------------------------------------------------------------------

    \562\ See supra note 553.
    \563\ See supra note 478 and accompanying and following text. 
711 funds x 0.9 = 640 funds.
    \564\ 640 funds x 1 hour in the first year = 640 hours. 640 
funds x 0.5 hours in the second year = 320 hours. 640 funds x 0 
hours in the third year = 0 hours. (640 + 320 + 0) / 3 years = 320 
hours per year on an amortized basis. The Commission notes that this 
is a conservative estimate because funds registered on Form N-2, in 
reliance of Investment Company Act rule 8b-16(b), on average prepare 
and file prospectuses less frequently than funds registered on Form 
N-1A.
    \565\ 640 funds x (1 hour for the first report in the first year 
+ 0.5 hours for the second report in the first year) = 960 hours. 
640 funds x 0.5 hours x 2 reports in the second year = 640 hours. 
640 funds x 0 hours in the third year = 0 hours. (960 + 640 + 0 
hours) / 3 years = 533 hours per year on an amortized basis.
    \566\ 853 hours = 320 hours + 533 hours.
---------------------------------------------------------------------------

Form N-3
    We estimate that there are 14 funds that could file registration 
statements or amendments to registration statements on Form N-3.\567\ 
Of this group, we estimate that 13 funds will rely on rule 30e-3.\568\ 
Consequently, we estimate that the total annual hour burden associated 
with the amendments to Form N-3 and relating to statutory prospectuses 
is 7 hours.\569\ In addition, we estimate that the total annual hour 
burden associated with the amendments to Form N-3 and relating to 
annual and semi-annual reports is 12 hours.\570\ In total, we estimate 
that the aggregate annual hour burden associated with the amendments to 
Form N-3 will be 18 hours per year.\571\
---------------------------------------------------------------------------

    \567\ See supra note 553.
    \568\ See supra note 478 and accompanying and following text. 14 
funds x 0.9 = 13 funds.
    \569\ 13 funds x 1 hour in the first year = 13 hours. 13 funds x 
0.5 hours in the second year = 7 hours. 13 funds x 0 hours in the 
third year = 0 hours. (13 + 7 + 0 hours) / 3 years = 7 hours per 
year on an amortized basis.
    \570\ 13 funds x (1 hour for the first report in the first year 
+ 0.5 hours for the second report in the first year) = 20 hours. 13 
funds x 0.5 hours x 2 reports in the second year = 13 hours. 13 
funds x 0 hours in the third year = 0 hours. (20 + 13 + 0 hours) / 3 
years = 11 hours per year on an amortized basis.
    \571\ 18 hours = 7 hours + 11 hours.
---------------------------------------------------------------------------

Form N-4
    We estimate that there are 1,653 responses on Form N-4 each year. 
Of this group, we estimate that 1,488 of the responses will be made by 
funds that will rely on rule 30e-3.\572\ Consequently, we estimate that 
the total annual hour burden associated with the amendments to Form N-4 
and relating to statutory prospectuses is 744 hours.\573\
---------------------------------------------------------------------------

    \572\ See supra note 478 and accompanying and following text. 
1,653 responses x 0.9 = 1,488 responses.
    \573\ 1,488 responses x 1 hour in the first year = 1,488 hours. 
1,488 responses x 0.5 hours in the second year = 744 hours. 1,488 
responses x 0 hours in the third year = 0 hours. (1,488 + 744 + 0 
hours) / 3 years = 744 hours per year on an amortized basis.
---------------------------------------------------------------------------

Form N-6
    We estimate that there are 472 responses on Form N-6 each year. Of 
this group, we estimate that 425 of the responses will be made by funds 
that will rely on rule 30e-3.\574\ Consequently, we estimate that the 
total annual hour burden associated with the amendments to Form N-6 and 
relating to statutory prospectuses is 213 hours.\575\
---------------------------------------------------------------------------

    \574\ See supra note 478 and accompanying and following text. 
472 responses x 0.9 = 425 responses.
    \575\ 425 responses x 1 hour in the first year = 425 hours. 425 
responses x 0.5 hours in the second year = 213 hours. 425 responses 
x 0 hours in the third year = 0 hours. (425 + 213 + 0 hours) / 3 
years = 213 hours per year on an amortized basis.
---------------------------------------------------------------------------

G. Form N-CSR

    In a modification from the proposal, as discussed above, we are 
amending Form N-CSR to require that for fund Notices that include 
content from the report to which it relates, a copy of the Notice must 
be filed as part of the fund's report on Form N-CSR.\576\ Under the 
existing collection of information, we estimate 172,899 aggregate 
annual burden hours to comply with Form N-CSR. Based on updated 
industry data figures and the amendments to Form N-CSR being adopted 
today, we have revised this estimate as follows.
---------------------------------------------------------------------------

    \576\ See supra Section II.B.2.b.ii.
---------------------------------------------------------------------------

    We estimate that there are 10,715 funds that will rely on rule 30e-
3 and could prepare Notices that include content from the report to 
which it relates.\577\ The decision to include content from the report 
in the Notice is optional, and at the fund's election, but if the fund 
decides to include such content, then the Notice must be filed with the 
Commission in reports on Form N-CSR. We believe that many funds--we 
estimate about half of those relying on rule 30e-3--will wish to 
include content from the shareholder report in the Notice that they 
believe is particularly informative to their investors. However, we 
also believe that many funds--we estimate about half--will wish to 
preserve the maximum cost savings allowed under the rule and will 
therefore wish to include in the Notice only that information that is 
required by the rule. We therefore estimate that 50% of fund Notices 
will include content from the shareholder report. Pursuant to the 
amendment being adopted today, we estimate that each of these funds 
would incur one annual burden hour to file the Notice as part of their 
reports on Form N-CSR (not including preparation of the Notice).
---------------------------------------------------------------------------

    \577\ 11,906 funds = 9,360 mutual funds + 1,821 ETFs (1,829 ETFs 
less 8 UIT ETFs) + 711 closed-end funds + 14 funds that could file 
registration statements or amendments to registration statements on 
Form N-3. See supra note 553. 11,906 funds relying on the rule x 
0.90 = 10,715 funds estimated to rely on rule 30e-3. See supra note 
478 and accompanying and following text.
---------------------------------------------------------------------------

    We estimate that of the 10,715 funds to rely on rule 30e-3 that 
could add content to the Notice from the report to which it relates, 
that 5,358 funds would add content from the shareholder Report to the 
Notice and would therefore be required to file such Notices with 
reports on Form N-CSR.\578\ Consequently, we estimate that the 
aggregate annual hour burden associated with the amendments to Form N-
CSR is 5,358 hours.\579\
---------------------------------------------------------------------------

    \578\ 10,715 funds x 0.5 = 5,358 funds.
    \579\ 5,358 funds x 1 hour per year = 5,358 hours.
---------------------------------------------------------------------------

V. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis (``FRFA'') has been 
prepared in accordance with Section 4(a) of the Regulatory Flexibility 
Act (``RFA'').\580\ It relates to new rule 30e-3, amendments to Forms 
N-1A, N-2, N-3, N-4, N-6, and N-CSR, amendments to rule 498 under the 
Securities Act, and amendments to rule 14a-16 under the Exchange Act. 
An Initial Regulatory Flexibility Analysis (``IRFA'') was prepared in 
accordance with the RFA and included in the Proposing Release.\581\ The 
Proposing Release included, and solicited comment on, the IRFA.
---------------------------------------------------------------------------

    \580\ 5 U.S.C. 604(a).
    \581\ See Proposing Release, supra note 14, at Section VI.
---------------------------------------------------------------------------

A. Need For and Objectives of the Rule, Rule Amendments and Form 
Amendments

    Rule 30e-3 is designed to modernize the manner in which periodic 
information is transmitted to investors. Rule 30e-3 will provide 
certain funds with an optional method to satisfy shareholder 
transmission requirements by making the reports and other materials 
publicly accessible on a website, provided that certain other 
conditions are satisfied. We believe the rule will improve investors' 
experience while reducing expenses associated with printing and mailing 
shareholder reports that are borne by investment companies and 
ultimately their investors.
    In connection with our adoption of rule 30e-3, we are also adopting 
related amendments to certain of our rules and forms. We are amending 
rule 498 and certain fund registration forms to require that funds 
intending to rely on rule 30e-3 include during the extended

[[Page 29202]]

transition period prominent disclosures on the cover page or beginning 
of their summary prospectuses and cover pages of their statutory 
prospectuses and shareholder reports as discussed above.\582\ We 
believe that these disclosures will provide important information to 
both current and prospective investors in advance of the rule's 
effective date that not only notifies them of the intent of their fund 
to rely on the rule, but will also provide them with an overview of the 
rule's operation, including the fact that reports will be made 
available on a website and that they will be able to retain delivery of 
their reports in paper if they should so desire. Beginning January 1, 
2022, these cover page and other prominent disclosures will no longer 
be required. We are also amending Form N-CSR to require the filing of 
fund Notices that include content from the shareholder report to enable 
Commission review of disclosure in the Notices in conjunction with its 
overall review of shareholder reports and other disclosure filings.
---------------------------------------------------------------------------

    \582\ See new paragraph (b)(1)(vii) of rule 498; new paragraph 
(a)(5) to Item 1 of Form N-1A; new paragraph (d)(8) to Item 27 of 
Form N-1A; new paragraph 1.l to Item 1 of Form N-2; new instruction 
6.g to Item 24 of Form N-2; new paragraph (a)(xi) to Item 1 of Form 
N-3; new instruction 6(vii) to Item 28(a) of Form N-3; new paragraph 
(a)(x) to Item 1 of Form N-4; new paragraph (a)(6) to Item 1 of Form 
N-6. See also supra Section II.B.2.f.
---------------------------------------------------------------------------

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on each aspect of 
the IRFA, including the number of small entities that would be affected 
by the proposed amendments, the existence or nature of the potential 
impact of the proposals on small entities discussed in the analysis and 
how to quantify the impact of the proposed rules. As discussed above, 
we received extensive comments regarding the potential costs and 
benefits of the proposals.\583\ However, we did not receive comments 
specifically addressing the impact of proposed rule 30e-3 and related 
amendments on small entities subject to the rule.
---------------------------------------------------------------------------

    \583\ See supra Section II.A.1.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rule

    An investment company is a small entity if, together with other 
investment companies in the same group of related investment companies, 
it has net assets of $50 million or less as of the end of its most 
recent fiscal year.\584\ Commission staff estimates that, as of 
December 31, 2017, approximately 88 registered investment companies, 
including 54 open- and 34 closed-end funds and 6 UITs are small 
entities.\585\
---------------------------------------------------------------------------

    \584\ 17 CFR 270.0-10(a).
    \585\ This estimate is derived from an analysis of data obtained 
from Morningstar Direct as well as data reported on Form N-SAR filed 
with the Commission for the period ending December 31, 2017.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The amendments will create, amend, and eliminate current reporting, 
recordkeeping and other compliance requirements for small entities.
    Rule 30e-3 is designed to provide funds with an optional method to 
satisfy requirements to transmit shareholder reports by posting reports 
online if they meet certain conditions.\586\ Funds that do not maintain 
websites or that otherwise wish to transmit shareholder reports in 
paper or pursuant to the Commission's existing electronic delivery 
guidance would continue to be able to satisfy their transmission 
requirements by those transmission methods.
---------------------------------------------------------------------------

    \586\ See supra Sections II.A and II.B.2.
---------------------------------------------------------------------------

    We estimate that approximately 88 registered investment companies 
are small entities that will rely on the rule.\587\ Because funds 
generally already maintain websites and send materials to shareholders, 
for most funds, no additional professional skills beyond those 
currently possessed by funds are generally needed to comply with the 
rule's conditions. However, some funds, including funds that are small 
entities, that do not currently have a website, would require 
professional skills to develop a web page and post the required 
documents, and as discussed above, we estimate for such funds an 
external burden cost of $2,000 per fund in the first year to develop a 
website and an initial 24 hours internal burden for staff to develop a 
web page and post the required documents on the web page. To the extent 
possible, we have attempted to quantify the costs and savings that will 
be experienced by small entities relying upon rule 30e-3. However, we 
note that the average costs and savings incurred by such small entities 
may in some cases be lower or higher than the costs and savings 
incurred by the average fund relying upon rule 30e-3.
---------------------------------------------------------------------------

    \587\ The Commission's estimate is based on data obtained from 
registrants' filings with the Commission on Form N-SAR.
---------------------------------------------------------------------------

    As discussed above, we estimate that reliance on rule 30e-3 will 
result in certain costs and benefits related to the website 
availability of shareholder reports for each fund, including small 
entities, with savings of approximately $20,285 per year for each fund 
with respect to their regulatory obligation to deliver shareholder 
reports to investors in savings related to printing and mailing costs 
for shareholder reports, and costs of $7,847 per year for each fund to 
implement new rule 30e-3 in costs related to website accessibility 
requirements, Notice preparation, and printing, mailing, and processing 
fees for the Notices.\588\
---------------------------------------------------------------------------

    \588\ See supra notes 372 (estimating aggregate annual gross 
savings to funds relying on rule 30e-3 of $230,575,360), 393 
(estimating aggregate annual gross costs of $89,202,128), 344 
(estimating 11,367 funds will rely upon rule 30e-3) and accompanying 
text. See generally Sections III.C and III.D. $230,575,360 / 11,367 
funds = $20,285 per fund. $89,202,128 / 11,367 funds = $7,847 per 
fund.
---------------------------------------------------------------------------

    We received no direct comments on the IRFA analysis of rule 30e-3 
but as discussed above, we received comments on the rule and projected 
expense savings from the rule. We have discussed these comments in our 
discussion of the final rule and our cost/benefit and PRA estimates 
above.\589\
---------------------------------------------------------------------------

    \589\ See generally Sections II, III.B-D, IV.C, and IV.E.
---------------------------------------------------------------------------

    We are amending rule 498 under the Securities Act and certain fund 
registration forms to require that funds intending to rely on rule 30e-
3 include prominent disclosures on the cover page (or beginning) of 
their summary prospectuses, statutory prospectuses, and shareholder 
reports in advance of the date on which funds could begin to rely upon 
the rule.\590\ We believe that these disclosures will provide important 
information to both current and prospective investors in advance of a 
fund's use of the rule that not only notifies them of the intent of 
their fund to rely on the rule, but also provides an overview of the 
rule's operation, including the fact that reports will be made 
available on a website and that they will be able to preserve delivery 
of their reports in paper if they should so desire. Beginning January 
1, 2022, these cover page disclosures will no longer be required. 
Similarly, we are amending rule 14a-16 under the Exchange Act, as 
proposed, to include a Notice required by rule 30e-3 among the 
materials that are permitted to accompany a Notice of internet 
Availability of Proxy Materials.\591\
---------------------------------------------------------------------------

    \590\ See supra Section II.B.2.f.
    \591\ See id.
---------------------------------------------------------------------------

    We estimate that the costs of these related disclosures will be 
$284-$721 in the first year and $142-$437 in each of the second and 
third years for each fund that relies upon rule 30e-3 and that could 
file registration statements or amendments to registration statements 
on Form N-1A (including funds that rely upon rule 498), Form N-2, Form

[[Page 29203]]

N-3, Form N-4, and Form N-6 (including 88 small entities).\592\
---------------------------------------------------------------------------

    \592\ See supra notes 425 (estimating 10,063 funds that could 
file registration statements or amendments to registration 
statements on Form N-1A and that will rely upon rule 30e-3), 430 
(estimating disclosure costs related to rule 30e-3 in the first year 
of $7,144,872 and in the each of the second and third years of 
$4,286,980). $7,144,872 / 10,063 funds = $710. $4,286,980 / 10,063 
funds = $426; see supra notes 432 (estimating 640 funds that could 
file registration statements or amendments to registration 
statements on Form N-2 and that will rely upon rule 30e-3), 436 
(estimating disclosure costs related to rule 30e-3 in the first year 
of $454,400 and in each of the second and third years of $272,640. 
$454,400 / 640 funds = $710. $272,640 / 640 funds = $426; supra note 
438 (estimating 13 funds that could file registration statements or 
amendments to registration statements on Form N-3 and that will rely 
upon rule 30e-3), 442 (estimating disclosure costs related to rule 
30e-3 in the first year of $9,372 and in each of the second and 
third years of $5,680). $9,372 / 13 funds = $721. $5,680 / 13 funds 
= $437; 443 (estimating 1,488 funds that could file registration 
statements or amendments to registration statements on Form N-4 and 
that will rely upon rule 30e-3), 445 (estimating disclosure costs 
related to rule 30e-3 in the first year of $422,592 and in the each 
of the second and third years of $211,296). $422,592 / 1,488 funds = 
$284. $211,296 / 1,488 funds = $142; 446 (estimating 425 funds that 
could file registration statements or amendments to registration 
statements on Form N-6 and that will rely upon rule 30e-3), 448 
(estimating disclosure costs related to rule 30e-3 in the first year 
of $120,700 and in the each of the second and third years of 
$60,492). $120,700 / 425 funds = $284. $60,492 / 425 funds = $142.
---------------------------------------------------------------------------

    We are amending Form N-CSR to require that for fund Notices that 
include content from the shareholder report to which it relates, a copy 
of the Notice must be filed as part of the fund's report on Form N-
CSR.\593\ We estimate that the costs for each such report that is filed 
(including those by 88 small entities) will be $2,677 in the first year 
and $1,903 in each subsequent year.\594\
---------------------------------------------------------------------------

    \593\ See supra Section II.B.2.b.ii.
    \594\ See supra notes 578 (estimating 5,358 funds that will file 
a Notice with content from the report it relates), 402 (estimating 
Form N-CSR preparation and filing costs related to rule 30e-3 in the 
first year of $14,341,169 and each following year of $10,195,144). 
$14,341,169 / 5,358 funds = $2,677. $10,195,144 / 5,358 funds = 
$1,903.
---------------------------------------------------------------------------

E. Agency Action To Minimize Effect on Small Entities

    The RFA directs the Commission to consider significant alternatives 
that would accomplish our stated objective, while minimizing any 
significant economic impact on small entities. The Commission 
considered the following alternatives for small entities in relation to 
our forms and form amendments and rules and rule amendments: (i) 
Establishing different reporting requirements or timetables that take 
into account resources available to small entities; (ii) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (iii) 
using performance rather than design standards; and (iv) exempting 
small entities from all or part of the proposal.
    Regarding the first alternative, we note that small entities 
currently follow the same requirements that larger entities do when 
delivering reports to shareholders. The Commission believes that 
establishing different reporting requirements or timetables for small 
entities to deliver reports to shareholders would not be consistent 
with the Commission's overarching goal of industry oversight and 
investor protection. We note that, because reliance on rule 30e-3 will 
be optional, similar to the proposal, a particular fund is not expected 
to rely on the rule if the costs to the fund to rely on the rule to 
that fund exceeds its benefits. Funds that do not rely on the rule will 
therefore not incur compliance costs.
    Regarding the second and third alternatives, we do not believe that 
clarification, consolidation, or simplification of compliance and 
reporting requirements, or performance rather than design standards, 
are appropriate in this context. In order to promote comparability and 
transparency, we believe that shareholder reports should be delivered 
to shareholders in a manner that will allow investors to better review 
and compare their investments across funds, including small entities. 
Therefore, we believe that it is appropriate in this context for 
shareholder reports to be delivered pursuant to uniform design, 
compliance, and reporting standards and requirements designed by the 
Commission. Further regarding clarification of compliance and reporting 
requirements for small entities, we note that we will publish a small 
entity compliance guide that will be posted on our website following 
adoption of rule 30e-3.
    Regarding the fourth alternative, we note that in addition to 
providing funds with an optional method to satisfy their obligations to 
deliver shareholder reports by posting reports online if they meet 
certain conditions, rule 30e-3 is designed with certain safeguards to 
respond to investor protection concerns. For example, the rule requires 
that the shareholder reports and other required materials are publicly 
accessible free of charge at a website address specified in the Notice, 
and includes provisions designed to preserve the ability of investors 
to elect to receive paper reports free of charge. Therefore, we believe 
that exempting small entities from all or part of the proposal would 
not be consistent with the Commission's overarching goal of industry 
oversight and investor protection.

VI. Statutory Authority

    We are adopting the rule and rule and form amendments contained in 
this document under the authority set forth in the Securities Act, 
particularly Sections 5, 6, 7, 10, and 19 thereof [15 U.S.C. 77a et 
seq.], the Exchange Act, particularly, Sections 3(b), 10, 13, 14, 15, 
and 36 thereof [15 U.S.C. 78a et seq.], the Investment Company Act, 
particularly, Sections 6, 8, 20, 24, 30, and 38 thereof [15 U.S.C. 80a 
et seq.], and 44 U.S.C. 3506, 3507.

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Organization and functions 
(Government agencies).

17 CFR Parts 230, 239, 240, 249, 270, and 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For reasons set forth in the preamble, title 17, chapter II of the 
Code of Federal Regulations is amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

Subpart N--Commission Information Collection Requirements Under the 
Paperwork Reduction Act: OMB Control Numbers

0
1. The authority citation for subpart N of part 200 continues to read 
as follows:

    Authority:  44 U.S.C. 3506; 44 U.S.C. 3507.


0
2. Effective January 1, 2019, amend Sec.  200.800 in paragraph (b) by 
adding an entry in numerical order by part and section number for 
``Rule 30e-3'', to read as follows:


Sec.  200.800   OMB control numbers assigned pursuant to the Paperwork 
Reduction Act.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                               17 CFR part
                                               or section
                                                  where      Current OMB
     Information collection requirement        identified    control No.
                                                   and
                                                described
------------------------------------------------------------------------
 
                                * * * * *
Rule 30e-3..................................    270.30e-3     3235-0758
 
                                * * * * *
------------------------------------------------------------------------


[[Page 29204]]

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
3. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *

0
4. Effective January 1, 2019, amend Sec.  230.498 by revising paragraph 
(b)(1)(v) and adding paragraphs (b)(1)(vi) and (vii) to read as 
follows.


Sec.  230.498   Summary Prospectuses for open-end management investment 
companies.

* * * * *
    (b) * * *
    (1) * * *
    (v) The following legend:
    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, reports to shareholders, and other 
information about the Fund online at [___]. You can also get this 
information at no cost by calling [___] or by sending an email request 
to [___].
    (A) The legend must provide a website address, other than the 
address of the Commission's electronic filing system; toll free (or 
collect) telephone number; and email address that investors can use to 
obtain the Statutory Prospectus and other information. The website 
address must be specific enough to lead investors directly to the 
Statutory Prospectus and other materials that are required to be 
accessible under paragraph (e)(1) of this section, rather than to the 
home page or other section of the website on which the materials are 
posted. The website could be a central site with prominent links to 
each document. The legend may indicate, if applicable, that the 
Statutory Prospectus and other information are available from a 
financial intermediary (such as a broker-dealer or bank) through which 
shares of the Fund may be purchased or sold.
    (B) If a Fund incorporates any information by reference into the 
Summary Prospectus, the legend must identify the type of document 
(e.g., Statutory Prospectus) from which the information is incorporated 
and the date of the document. If a Fund incorporates by reference a 
part of a document, the legend must clearly identify the part by page, 
paragraph, caption, or otherwise. If information is incorporated from a 
source other than the Statutory Prospectus, the legend must explain 
that the incorporated information may be obtained, free of charge, in 
the same manner as the Statutory Prospectus. A Fund may modify the 
legend to include a statement to the effect that the Summary Prospectus 
is intended for use in connection with a defined contribution plan that 
meets the requirements for qualification under section 401(k) of the 
Internal Revenue Code (26 U.S.C. 401(k)), a tax-deferred arrangement 
under section 403(b) or 457 of the Internal Revenue Code (26 U.S.C. 
403(b) or 457), or a variable contract as defined in section 817(d) of 
the Internal Revenue Code (26 U.S.C. 817(d)), as applicable, and is not 
intended for use by other investors.
    (vi) The Summary Prospectus may provide instructions describing how 
a shareholder can elect to receive prospectuses or other documents and 
communications by electronic delivery.
    (vii) A statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Fund's 
shareholder reports will no longer be sent by mail, unless you 
specifically request paper copies of the reports from the Fund [or from 
your financial intermediary, such as a broker-dealer or bank]. Instead, 
the reports will be made available on a website, and you will be 
notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Fund [or your financial intermediary] 
electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Fund [or your financial intermediary] that 
you wish to continue receiving paper copies of your shareholder reports 
by [insert instructions]. Your election to receive reports in paper 
will apply to all funds held with [the fund complex/your financial 
intermediary].
* * * * *

0
5. Effective January 1, 2021, amend Sec.  230.498 by:
0
a. Adding a sentence to the end of paragraph (b)(1)(v)(A); and
0
b. In paragraph (f)(2), adding the phrase ``a Notice under Sec.  
270.30e-3 of this chapter,'' after ``Statutory Prospectuses,''.
    The addition reads as follows:


Sec.  230.498   Summary Prospectuses for open-end management investment 
companies.

* * * * *
    (b) * * *
    (1) * * *
    (v) * * *
    (A) * * * If a Fund relies on Sec.  270.30e-3 of this chapter to 
transmit a report, the legend must also include the website address 
required by Sec.  270.30e-3(c)(1)(iii) of this chapter if different 
from the website address required by this paragraph (b)(1)(v)(A).
* * * * *


Sec.  230.498   [Amended]

0
6. Effective January 1, 2022, amend Sec.  230.498 by removing paragraph 
(b)(1)(vii).

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
7. The authority citation for part 239 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 
80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 
126 Stat. 312, unless otherwise noted.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
8. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 
sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *


Sec.  240.14a-16   [Amended]

0
9. Effective January 1, 2019, amend Sec.  240.14a-16 paragraph 
(f)(2)(iii) by adding the phrase ``a Notice under Sec.  270.30e-3 of 
this chapter,'' after ``Sec.  230.498(b) of this chapter,''.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
10. The authority citation for part 249 continues to read, in part, as 
follows:


[[Page 29205]]


    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
11. The authority citation for part 270 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless 
otherwise noted.
* * * * *

0
12. Effective January 1, 2019, add Sec.  270.30e-3 to read as follows:


Sec.  270.30e-3  Internet availability of reports to shareholders.

    (a) General. A Company may satisfy its obligation to transmit a 
report required by Sec.  270.30e-1 or Sec.  270.30e-2 (``Report'') to a 
shareholder of record if all of the conditions set forth in paragraphs 
(b) through (e), and (i) of this section are satisfied.
    (b) Availability of report to shareholders and other materials. (1) 
The following materials are publicly accessible, free of charge, at the 
website address specified in the Notice from the date the Company 
transmits the Report as required by Sec.  270.30e-1 or Sec.  270.30e-2 
until the Company next transmits a report required by Sec.  270.30e-1 
or Sec.  270.30e-2 with respect to the Fund:
    (i) Current report to shareholders. The Report.
    (ii) Prior report to shareholders. Any report with respect to the 
Fund for the prior reporting period that was transmitted to 
shareholders of record pursuant to Sec.  270.30e-1 or Sec.  270.30e-2.
    (iii) Complete portfolio holdings from reports containing a summary 
schedule of investments. If a report specified in paragraph (b)(1)(i) 
or (b)(1)(ii) of this section includes a summary schedule of 
investments (Sec.  210.12-12B of this chapter) in lieu of Schedule I--
Investments in securities of unaffiliated issuers (Sec.  210.12-12 of 
this chapter), the Fund's complete portfolio holdings as of the close 
of the period covered by the report, presented in accordance with the 
schedules set forth in Sec. Sec.  210.12-12 through 210.12-14 of 
Regulation S-X (Sec. Sec.  210.12-12 through 210.12-14 of this 
chapter), which need not be audited.
    (iv) Portfolio holdings for most recent first and third fiscal 
quarters. For a Fund other than a Fund that is regulated as a money 
market fund under Sec.  270.2a-7 or a small business investment company 
registered on Form N-5 (Sec. Sec.  239.24 and 274.5 of this chapter), 
the Fund's complete portfolio holdings as of the close of the Fund's 
most recent first and third fiscal quarters, if any, after the date on 
which the Fund's registration statement became effective, presented in 
accordance with the schedules set forth in Sec. Sec.  210.12-12 through 
210.12-14 of Regulation S-X [Sec. Sec.  210.12-12 through 210.12-14 of 
this chapter], which need not be audited. The complete portfolio 
holdings required by this paragraph (b)(1)(iv) must be made publicly 
available not later than 60 days after the close of the fiscal quarter.
    (2) The website address relied upon for compliance with this 
section may not be the address of the Commission's electronic filing 
system.
    (3) The materials that are accessible in accordance with paragraph 
(b)(1) of this section must be presented on the website in a format, or 
formats, that are convenient for both reading online and printing on 
paper.
    (4) Persons accessing the materials specified in paragraph (b)(1) 
of this section must be able to permanently retain, free of charge, an 
electronic version of such materials in a format, or formats, that meet 
the conditions of paragraph (b)(3) of this section.
    (5) The conditions set forth in paragraphs (b)(1) through (b)(4) of 
this section shall be deemed to be met, notwithstanding the fact that 
the materials specified in paragraph (b)(1) of this section are not 
available for a time in the manner required by paragraphs (b)(1) 
through (b)(4) of this section, provided that:
    (i) The Company has reasonable procedures in place to ensure that 
the specified materials are available in the manner required by 
paragraphs (b)(1) through (b)(4) of this section; and
    (ii) The Company takes prompt action to ensure that the specified 
documents become available in the manner required by paragraphs (b)(1) 
through (b)(4) of this section, as soon as practicable following the 
earlier of the time at which it knows or reasonably should have known 
that the documents are not available in the manner required by 
paragraphs (b)(1) through (b)(4) of this section.
    (c) Notice. A paper notice (``Notice'') meeting the conditions of 
this paragraph (c) must be sent to the shareholder within 70 days after 
the close of the period for which the Report is being made. The Notice 
may contain only the information specified by paragraphs (c)(1), (2), 
and (3) of this section, and may include pictures, logos, or similar 
design elements so long as the design is not misleading and the 
information is clear.
    (1) The Notice must be written using plain English principles 
pursuant to paragraph (d) of this section and:
    (i) Contain a prominent legend in bold-face type that states ``[An] 
Important Report[s] to [Shareholders] of [Fund] [is/are] Now Available 
Online and In Print by Request.'' The Notice may also include 
information identifying the Fund, the Fund's sponsor (including any 
investment adviser or sub-adviser to the Fund), a variable annuity or 
variable life insurance contract or insurance company issuer thereof, 
or a financial intermediary through which shares of the Fund are held.
    (ii) State that the Report contains important information about the 
Fund, including its portfolio holdings and financial statements. The 
statement may also include a brief listing of other types of 
information contained in the Report.
    (iii) State that the Report is available at the website address 
specified in the Notice or, upon request, by mail, and encourage the 
shareholder to access and review the Report.
    (iv) Include a website address where the Report and other materials 
specified in paragraph (b)(1) of this section are available. The 
website address must be specific enough to lead investors directly to 
the documents that are required to be accessible under paragraph (b)(1) 
of this section, rather than to the home page or section of the website 
other than on which the documents are posted. The website may be a 
central site with prominent links to each document. In addition to the 
website address, the Notice may contain any other equivalent method or 
means to access the Report or other materials specified in paragraph 
(b)(1) of this section.
    (v) Provide a toll-free (or collect) telephone number to contact 
the Company or the shareholder's financial intermediary, and:
    (A) Provide instructions describing how a shareholder may request a 
paper or email copy of the Report and other materials specified in 
paragraph (b)(1) of this section at no charge, and an indication that 
he/she will not otherwise receive a paper or email copy;
    (B) Explain that the shareholder can at any time elect to receive 
print reports in the future and provide instructions describing how a 
shareholder may make that election (e.g., by contacting the Company or 
by contacting the shareholder's financial intermediary); and
    (C) If applicable, provide instructions describing how a 
shareholder can elect

[[Page 29206]]

to receive shareholder reports or other documents and communications by 
electronic delivery.
    (2) The Notice may include additional methods by which a 
shareholder can contact the Company or the shareholder's financial 
intermediary (e.g., by email or through a website), which may include 
any information needed to identify the shareholder.
    (3) A Notice relating to a Report required by Sec.  270.30e-1 may 
include content from the Report if such content is set forth after the 
information required by paragraph (c)(1) of this section.
    (4) The Notice may not be incorporated into, or combined with, 
another document, except that the Notice may incorporate or combine one 
or more other Notices.
    (5) The Notice must be sent separately from other types of 
shareholder communications and may not accompany any other document or 
materials; provided, however, that the Notice may accompany:
    (i) One or more other Notices;
    (ii) A current Summary Prospectus, Statutory Prospectus, Statement 
of Additional Information, or Notice of Internet Availability of Proxy 
Materials under Sec.  240.14a-16 of this chapter;
    (iii) In the case of a Fund held in a separate account funding a 
variable annuity or variable life insurance contract, such contract or 
the Statutory Prospectus and Statement of Additional Information for 
such contract; or
    (iv) The shareholder's account statement.
    (6) A Notice required by this paragraph (c) will be considered 
transmitted to a shareholder of record if the conditions set forth in 
Sec.  270.30e-1(f), Sec.  270.30e-2(b), Sec.  240.14a-3(e), or Sec.  
240.14c-3(c) of this chapter are satisfied with respect to that 
shareholder.
    (d) Plain English requirements. (1) To enhance the readability of 
the Notice, plain English principles must be used in the organization, 
language, and design of the Notice.
    (2) The Notice must be drafted so that, at a minimum, it 
substantially complies with each of the following plain English writing 
principles:
    (i) Short sentences;
    (ii) Definite, concrete, everyday words;
    (iii) Active voice;
    (iv) Tabular presentation or bullet lists for complex material, 
whenever possible;
    (v) No legal jargon or highly technical business terms; and
    (vi) No multiple negatives.
    (e) Delivery of paper copy upon request. A paper copy of any of the 
materials specified in paragraph (b)(1) of this section must be 
transmitted to any person requesting such a copy, at no cost to the 
requestor and by U.S. first class mail or other reasonably prompt 
means, within three business days after a request for a paper copy is 
received.
    (f) Investor elections to receive future reports in paper. (1) This 
section may not be relied upon to transmit a Report to a shareholder if 
the shareholder has notified the Company (or the shareholder's 
financial intermediary) that the shareholder wishes to receive paper 
copies of shareholder reports at any time after the Company has first 
notified the shareholder of its intent to rely on the rule or provided 
a Notice to the shareholder.
    (2) A shareholder who has notified the Company (or the 
shareholder's financial intermediary) that the shareholder wishes to 
receive paper copies of shareholder reports with respect to a Fund will 
be deemed to have requested paper copies of shareholder reports with 
respect to:
    (i) Any and all current and future Funds held through an account or 
accounts with:
    (A) The Fund's transfer agent or principal underwriter or agent 
thereof for the same ``group of related investment companies'' as such 
term is defined in Sec.  270.0-10; or
    (B) A financial intermediary; and
    (ii) Any and all Funds held currently and in the future in a 
separate account funding a variable annuity or variable life insurance 
contract.
    (g) Delivery of other documents. This section may not be relied 
upon to transmit a copy of a Fund's currently effective Statutory 
Prospectus or Statement of Additional Information, or both, under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) as otherwise permitted 
by paragraph (d) of Sec.  270.30e-1.
    (h) Definitions. For purposes of this section:
    (1) Company means a Fund required to transmit a report to 
shareholders pursuant to Sec.  270.30e-1 or a unit investment trust 
required to transmit a report to shareholders pursuant to Sec.  
270.30e-2.
    (2) Fund means a registered management company and any separate 
series of the management company.
    (3) Statement of Additional Information means the statement of 
additional information required by Part B of the applicable 
registration form.
    (4) Statutory Prospectus means a prospectus that satisfies the 
requirements of section 10(a) of the Securities Act of 1933 (15 U.S.C. 
77(j)(a)).
    (5) Summary Prospectus means the summary prospectus described in 
paragraph (b) of Sec.  230.498 of this chapter.
    (i) Transition period. (1) A Company may rely on this section to 
first transmit a Report to a shareholder:
    (i) Beginning on January 1, 2021, if:
    (A) The Company has included the required statement on each 
prospectus, summary prospectus, annual report to shareholders, and 
semi-annual report to shareholders, as applicable, required to be 
delivered or transmitted to shareholders for the period beginning on 
the date the Company first publicly offers its shares, and ending on 
December 31, 2020; or
    (B) The Company first publicly offers its shares on or after 
January 1, 2021; or
    (ii) In all other cases, after the Company has included the 
required statement on each prospectus, summary prospectus, annual 
report to shareholders, and semi-annual report to shareholders, as 
applicable, required to be delivered or transmitted to shareholders for 
a period of two years or January 1, 2022, whichever comes first.
    (2) For purposes of this paragraph (i), a ``required statement'' 
means the statement regarding the Company's intent to rely on this 
section specified by:
    (i) Its applicable registration form, and
    (ii) In the case of a Fund that uses a summary prospectus, Sec.  
230.498 of this chapter.

    Note to Sec.  270.30e-3:  For a discussion of how the conditions 
and requirements of this rule may apply in the context of investors 
holding Fund shares through financial intermediaries, see Investment 
Company Release No. 33115 (June 5, 2018).


0
13. Effective January 1, 2022, amend Sec.  270.30e-3 by:
0
a. In paragraph (a), removing ``, and (i)''; and
0
b. Removing paragraph (i).

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
14. The authority citation for part 274 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, 
sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
* * * * *

0
15. Effective January 1, 2019, Form N-1A (referenced in Sec. Sec.  
239.15A and 274.11A) is amended by:
0
a. In Item 1, adding paragraph (a)(5); and
0
b. In Item 27, adding paragraph (d)(8).

[[Page 29207]]

    The additions read as follows:

    Note:  The text of Form N-1A does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-1A

* * * * *

Item 1. Front and Back Cover Pages

    (a) * * *
    (5) If applicable, the statement required by rule 498(b)(1)(vii) 
under the Securities Act.
* * * * *

Item 27. Financial Statements

* * * * *
    (d) * * *
    (8) Front Cover Page or beginning of Annual and Semi-Annual Report. 
Include on the front cover page or at the beginning of the annual or 
semi-annual report a statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Fund's 
shareholder reports like this one will no longer be sent by mail, 
unless you specifically request paper copies of the reports from the 
Fund [or from the your financial intermediary, such as a broker-dealer 
or bank]. Instead, the reports will be made available on a website, and 
you will be notified by mail each time a report is posted and provided 
with a website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Fund [or your financial intermediary] 
electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Fund [or your financial intermediary] that 
you wish to continue receiving paper copies of your shareholder reports 
by [insert instructions]. Your election to receive reports in paper 
will apply to all funds held with [the fund complex/your financial 
intermediary].
* * * * *

0
16. Effective January 1, 2022, Form N-1A (referenced in Sec. Sec.  
239.15A and 274.11A) is further amended by:
0
a. In Item 1, removing paragraph (a)(5); and
0
b. In Item 27, removing paragraph (d)(8).


0
17. Effective January 1, 2019, Form N-2 (referenced in Sec. Sec.  
239.14 and 274.11a-1) is amended by:
0
a. In Item 1, adding paragraph 1.l; and
0
b. In Item 24, adding Instruction 6.g.
    The additions read as follows:

    Note:  The text of Form N-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *

Item 1. Outside Front Cover

    1. * * *
    l. A statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Registrant's 
shareholder reports will no longer be sent by mail, unless you 
specifically request paper copies of the reports from the Registrant 
[or from your financial intermediary, such as a broker-dealer or bank]. 
Instead, the reports will be made available on a website, and you will 
be notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all funds held with [the fund complex/your 
financial intermediary].
* * * * *

Item 24. Financial Statements

* * * * *

Instructions

* * * * *
    6. * * *
    g. Include on the front cover page or at the beginning of the 
annual or semi-annual report a statement to the following effect, if 
applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Registrant's 
shareholder reports like this one will no longer be sent by mail, 
unless you specifically request paper copies of the reports from the 
Registrant [or from your financial intermediary, such as a broker-
dealer or bank]. Instead, the reports will be made available on a 
website, and you will be notified by mail each time a report is posted 
and provided with a website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all funds held with [the fund complex/your 
financial intermediary].
* * * * *

0
18. Effective January 1, 2022, Form N-2 (referenced in Sec. Sec.  
239.14 and 274.11a-1) is further amended by:
0
a. In Item 1, removing paragraph 1.l; and
0
b. In Item 24, removing Instruction 6.g.

0
19. Effective January 1, 2019, Form N-3 (referenced in Sec. Sec.  
239.17a and 274.11b) is amended by:
0
a. In Item 1, adding new paragraph (a)(xi); and
0
b. In Item 28(a), adding new Instruction 6(vii).
    The additions read as follows:

    Note: The text of Form N-3 does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-3

* * * * *

Item 1. Cover Pages

    (a) * * *
    (xi) A statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Registrant's 
shareholder reports will no longer be sent by mail, unless you 
specifically request paper copies of the reports from the Registrant 
[or from your financial intermediary, such as a broker-dealer or bank]. 
Instead, the reports will be made available on a website, and you will 
be notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and

[[Page 29208]]

you need not take any action. You may elect to receive shareholder 
reports and other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all funds held with [the fund complex/your 
financial intermediary].
* * * * *

Item 28. Financial Statements

    (a) * * *

Instructions

* * * * *
    6. * * *
    (vii) Include on the front cover page or at the beginning of the 
annual or semi-annual report a statement to the following effect, if 
applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the Registrant's 
shareholder reports like this one will no longer be sent by mail, 
unless you specifically request paper copies of the reports from the 
Registrant [or from your financial intermediary, such as a broker-
dealer or bank]. Instead, the reports will be made available on a 
website, and you will be notified by mail each time a report is posted 
and provided with a website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all funds held with [the fund complex/your 
financial intermediary].
* * * * *

0
20. Effective January 1, 2022, Form N-3 (referenced in Sec. Sec.  
239.17a and 274.11b) is amended by:
0
a. In Item 1, removing paragraph (a)(xi); and
0
b. In Item 28(a), removing Instruction 6(vii).

0
21. Effective January 1, 2019, Form N-4 (referenced in Sec. Sec.  
239.17b and 17 CFR 274.11c) is amended by adding new paragraph (a)(x) 
to Item 1.
    The additions read as follows:

    Note: The text of Form N-4 does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-4

* * * * *

Item 1. Cover Page

    (a) * * *
    (x) A statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the shareholder 
reports for portfolio companies [available under your contract] will no 
longer be sent by mail, unless you specifically request paper copies of 
the reports from the Registrant [or from your financial intermediary]. 
Instead, the reports will be made available on a website, and you will 
be notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all portfolio companies [available under your 
contract].
* * * * *

0
22. Effective January 1, 2022, Form N-4 (referenced in Sec. Sec.  
239.17b and 274.11c) is amended by removing paragraph (a)(x) of Item 1.

0
23. Effective January 1, 2019, Form N-6 (referenced in 17 CFR 239.17c 
and 17 CFR 274.11d) is amended by adding new paragraph (a)(6) to Item 
1.
    The additions read as follows:

    Note: The text of Form N-6 does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-6

* * * * *

Item 1. Front and Back Cover Pages

    (a) * * *
    (6) A statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the shareholder 
reports for portfolio companies [available under your contract] will no 
longer be sent by mail, unless you specifically request paper copies of 
the reports from the Registrant [or from your financial intermediary]. 
Instead, the reports will be made available on a website, and you will 
be notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from the Registrant [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform the Registrant [or your financial intermediary] 
that you wish to continue receiving paper copies of your shareholder 
reports by [insert instructions]. Your election to receive reports in 
paper will apply to all portfolio companies [available under your 
contract].
* * * * *

0
24. Effective January 1, 2022, Form N-6 (referenced in Sec. Sec.  
239.17c and 274.11d) is further amended by removing paragraph (a)(6) of 
Item 1.

0
25. Effective January 1, 2021, Form N-CSR (referenced in Sec. Sec.  
249.331 and 274.128) is amended by:
0
a. In Item 1, designating as paragraph (a) ``Include a copy of the 
report transmitted to stockholders pursuant to Rule 30e-1 under the Act 
(17 CFR 270.30e-1).''
0
b. In Item 1, adding new paragraph (b).
    The designation and addition read as follows:

    Note: The text of Form N-CSR does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-CSR

* * * * *

Item 1. Reports to Stockholders.

    (a) Include a copy of the report transmitted to stockholders 
pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1).
    (b) Include a copy of each notice transmitted to stockholders in 
reliance on Rule 30e-3 under the Act (17 CFR 270.30e-3) that contains 
disclosures

[[Page 29209]]

specified by paragraph (c)(3) of that rule.

    By the Commission.

    Dated: June 5, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-12423 Filed 6-21-18; 8:45 am]
BILLING CODE 8011-01-P

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