In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms, as well as amendments to existing rules and forms, to enhance transparency and modernize reporting requirements for registered investment companies. The SEC adopted new Form N-PORT (and rescinded Form N-Q), which requires registered investment companies and exchange-traded funds organized as unit investment trusts, but not money market funds and small business investment companies, to report information about their monthly portfolio holdings to the SEC in a structured data format. The SEC also adopted new Form N-CEN (and rescinded Form N-SAR), which requires registered investment companies, other than face-amount certificate companies, to annually report certain census-type information to the SEC in a structured data format. In addition, the SEC adopted amendments to Regulation S-X, which require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments.
This memorandum provides a brief summary of the new requirements and the respective compliance dates, certain of which begin in June and August 2017, as indicated below. A summary of compliance dates is also presented in a table at the end of this memorandum.
New Form N-PORT
Form N-PORT requires registered investment companies and exchange-traded funds organized as unit investment trusts, but not money market funds and small business investment companies, to report detailed portfolio holdings information, including derivatives, to the SEC on a monthly basis in a structured data format1 no later than 30 days after the close of each month. Although the form must be filed monthly, only information reported for the last month of a fund’s fiscal quarter will be made public (with the exception of certain discrete information items2), and then only after 60 days after the end of the fund’s fiscal quarter.3
In addition to requiring reporting of a fund’s complete portfolio holdings on a position-by-position basis,4 Form N-PORT requires extensive information currently not required by Forms N-Q and N-CSR. New information required by Form N-PORT includes, among other things, the following:
- for certain debt concentrated-funds, portfolio-level risk metrics that would provide measurements of a fund’s exposure to changes in interest rates, credit spreads and asset prices;5
- detailed position-level information on convertible securities, repurchase and reverse purchase agreements and derivatives;
- information on securities lending activity, including counterparties and any non-cash collateral;
- information on monthly returns for each of the preceding three months;
- flow information (i.e., sales and redemption data) during each of the preceding three months; and
- information on investments in controlled foreign corporations for the purpose of investing in certain types of instruments, such as, but not limited to, commodities.
Rescission of Form N-Q and Amendments to Certification Requirements for Form N-CSR
The SEC rescinded Form N-Q because reports on Form N-PORT for the first and third fiscal quarters make similar reports on Form N-Q unnecessarily duplicative. The SEC recognized in adopting Form N-PORT, however, that the structured data provided in the report might not be as useful to individual investors, who might prefer that portfolio holdings schedules for the first and third quarters continue to be presented using the form and content specified by Regulation S-X, consistent with requirements for Form N-Q and shareholder reports. Thus, with respect to Form N-PORT filings for the end of the first and third quarters of a fund’s fiscal year, a fund is required to include, no later than 60 days after the end of the reporting period, an exhibit disclosing the fund’s complete portfolio holdings prepared in accordance with Regulation S-X, as of the close of the period covered by the report.
In connection with the SEC’s implementation of the Sarbanes-Oxley Act of 2012, Form N-Q and Form N-CSR require the principal executive and financial officers of a fund to make quarterly certifications relating to (1) the accuracy of information reported to the SEC and (2) disclosure controls and procedures and internal control over financial reporting. Rescission of Form N-Q eliminates the certifications for a fund’s first and third fiscal quarters. Because Form N-CSR currently requires the certifications for portfolio schedules to be reported for only the second and fourth fiscal quarters, the SEC has adopted amendments to Form N-CSR to require that the certifications cover the full semi-annual period addressed in the Form N-CSR filing.
Compliance Dates: June 1, 2018 for funds that are part of a complex with $1 billion or more in assets; June 1, 2019 for all other funds.6
New Form N-CEN
New Form N-CEN, a new annual reporting form to be used by registered funds to report certain census-type information to the SEC, replaces Form N-SAR, the semi-annual form currently used to report fund census information. Form N-CEN is required to be filed annually within 75 days of the end of the fund’s fiscal year, rather than semi-annually as is currently required by Form N-SAR. An investment company offering multiple series with different fiscal year ends must file a separate report covering all series with the same fiscal year end. Form N-CEN is required to be filed in XML format, replacing the current MS-DOS format of N-SAR, through the SEC’s EDGAR database. The SEC believes that reporting in a structured data format will enhance the ability of the SEC and the public to aggregate and analyze information across all funds.
Form N-CEN streamlines and updates information reported to the SEC to reflect its current information needs. New information required by Form N-CEN includes, among other things, the following:
- identifying information about the fund’s chief compliance officer;
- detailed information on securities lending activity;
- information on fund directors, including director names and whether a director is an “interested person”;
- information on financial support from affiliated entities;
- identification of a fund’s reliance on exemptive orders;
- information on net asset value error corrections;
specific information on the classes of open-end management companies, including information on the number of classes authorized, added and terminated during the reporting period and identifying
- information for each share class outstanding;
- identifying information on a fund’s pricing vendors;
- information on investments in controlled foreign corporations;
- any changes to the fund’s independent public accountant since the last filing;7
- additional information on a fund’s expense limitation agreements, including whether any fees waived are subject to recoupment; and
- information specific to exchange-traded funds and exchange-traded managed funds.
Compliance Date: June 1, 20188Amendments to Regulation S-X
Amendments to Regulation S-X require enhanced and standardized disclosures in financial statements that are required in fund registration statements and shareholder reports, including financial statements for business development companies. The amendments, among other things, require fund financial statements to include specific information related to derivatives, similar to the information about derivatives that is required in monthly portfolio reports on Form N-PORT. The amendments to Regulation S-X are intended to provide investors with clear and consistently presented disclosures across funds concerning fund investments in derivatives.
Amendments to Articles 6 and 12 of Regulation S-X require new, standardized disclosures regarding fund holdings in open futures contracts, open forward foreign currency contracts, and open swap contracts, and additional disclosures regarding fund holdings of written and purchased option contracts.
These amendments to Regulation S-X also update the disclosures for other investments, including disclosures for investments in and advances to fund affiliates, and modify the rules prescribing the general form and content of fund financial statements. The amendments renumber the current schedules in Article 12 of Regulation S-X and divide the reporting of derivatives currently on Schedule 12-13 into separate schedules.
Compliance Date: August 1, 20179
Increased Disclosure Concerning Securities Lending Activities
The SEC also adopted amendments to Form N-1A, Form N-3 and Form N-CSR (for closed-end funds).10 The amendments require disclosures relating to fund securities lending activities, including income and fees from securities lending, and the fees paid to securities lending agents in the prior fiscal year. These requirements with respect to fees increase the comparability of securities lending fees between funds and allow investors to better understand the income generated from, as well as the expenses associated with, a fund’s securities lending activities.
Compliance Date: August 1, 201711
Additional Disclosure and Reporting Requirements for Form N-1A, Form N-PORT and Form N-CEN
As we previously reported to you in our “Memorandum: SEC Adopts Liquidity Risk Management Program Requirements” dated October 21, 2016, the SEC has adopted rules to enhance liquidity risk management by open-end funds, including mutual funds and exchange-traded funds. Many funds are required to comply with the liquidity risk management program requirements on December 1, 2018. These rules are not substantively addressed in this memorandum, except as discussed below with respect to certain upcoming disclosure changes to Form N-1A, Form N-PORT and Form N-CEN.
Amendments to the Form N-1A registration form used by open-end funds require funds to describe their procedures for redeeming fund shares, including the number of days following receipt of shareholder redemption requests in which the fund typically expects to pay redemption proceeds to redeeming shareholders, and the methods the fund typically uses to meet redemption requests, including whether those methods are used regularly or only in stressed market conditions.
Compliance Date: All initial registration statements on Form N-1A, and all post effective amendments that are annual updates to effective registration statements on Form N-1A, must comply with the new form provisions beginning June 1, 2017.
Amendments to Form N-PORT require a fund to report the aggregated percentage of its portfolio represented in each of the four liquidity classification categories. Funds also are required to report position-level liquidity classification information and information regarding a fund’s highly liquid investment minimum to the SEC on a confidential basis.
Amendments to Form N-CEN require funds to disclose information regarding the use of lines of credit and interfund borrowing and lending, and require an exchange-traded fund (“ETF”) to report if it is an in-kind ETF under the rule. Amendments related to swing pricing12 will add a new item to Form N-CEN that will require a fund to report information regarding the use of swing pricing, including a fund’s swing factor upper limit, to the extent a fund chooses to implement swing pricing.
Compliance Date for Additional Form N-PORT and Form N-CEN Reporting Requirements (Except Requirements Related to Swing Pricing): December 1, 2018 for funds that, combined with other funds in the same complex, have net assets of $1 billion or more as of the end of the most recent fiscal year; June 1, 2019 for all other funds.
Compliance Date for Amendments Related to Swing Pricing, Including Form N-CEN Reporting Requirements: November 19, 2018
Summary of Compliance Dates
|Amendments to Form N-1A (Fund Redemption Policies – Liquidity Risk Management Rules)||June 1, 2017|
|Amendments to Regulation S-X (Derivatives and Other Disclosures)||August 1, 2017|
|Amendments to Form N-1A, Form N-3 and Form N-CSR (Securities Lending Activities)||August 1, 2017|
|New Form N-PORT||June 1, 2018 for funds that are part of a complex with $1 billion or more in assets; June 1, 2019 for all other funds.|
|Form N-CSR Certification Amendment||June 1, 2018 for funds that are part of a complex with $1 billion or more in assets; June 1, 2019 for all other funds.|
|New Form N-CEN||June 1, 2018|
|Additional Disclosure and Reporting Requirements for Form N-CEN (Swing Pricing)13||November 19, 2018|
|Additional Disclosure and Reporting Requirements for Form N-PORT and Form N-CEN (Additional Liquidity-Related Reporting Requirements)||December 1, 2018 for funds that, combined with other funds in the same complex, have net assets of $1 billion or more as of the end of the most recent fiscal year; June 1, 2019 for all other funds.|
1 Funds are required to report portfolio information on Form N-PORT in an Extensible Markup Language (“XML”) structured data format through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database.
2 The SEC does not intend to make public any information reported with regard to country of risk and economic exposure, delta, or miscellaneous securities, or explanatory notes related to any of those topics that is identifiable to any particular fund or adviser.
3 The SEC has determined to maintain as nonpublic all reports filed on Form N-PORT for the first six months following June 1, 2018, but portfolio information attached as exhibits to Form N-PORT for the first and third quarters of a fund’s fiscal year will still be made public.
4Funds must report portfolio information on the same basis used to calculate their NAV (i.e., generally as of trade date plus one day (“T+1 accounting”)), as opposed to as of the trade date (“T+0 accounting”), which is required for financial reporting purposes.
5 Applicable to a fund if the average value of the fund’s debt instruments, or derivatives that provide notional exposure to debt instruments or interest rates, exceeds more than 25% of the fund’s net asset value.
6 Thus, a larger fund would file its first report on Form N-PORT, reflecting data as of June 30, 2018, no later than July 30, 2018; a smaller fund would file its first report on Form N-PORT, reflecting data as of June 30, 2019, no later than July 30, 2019. The final filing on Form N-Q for any fund is for the reporting period preceding its first filing on Form N-PORT.
7 This information is currently required to be reported semi-annually in Form N-SAR.
8 Form N-SAR will be rescinded on June 1, 2018, corresponding to the compliance date for Form N-CEN.
9 Shareholder reports filed on or after August 1, 2017 must comply with the new disclosure requirements.
10 The amendments require funds to include these disclosures in the Statement of Additional Information and closed-end funds to include these disclosures in response to new Item 12 of Form N-CSR.
11 Shareholder reports and registration statements filed on or after August 1, 2017 should comply with the new disclosure requirement.
12 On October 13, 2016, the SEC amended Rule 22c-1 under the Investment Company Act of 1940 to permit, but not require, an open-end fund (other than an ETF or a money market fund) to implement “swing pricing.” Swing pricing allows a fund to adjust its net asset value to pass on to purchasing or redeeming shareholders the costs incurred arising from their purchases or sales.
13 Applicable to a fund that elects to implement swing pricing.