A Small Entity Compliance Guide[1]

Introduction

On October 13, 2016, the 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 new rules improve the access and quality of information available to the SEC and investors about fund investments. The rules also enable the SEC to more effectively collect and use data, as well as enhance its ability to conduct more targeted examinations, which would ultimately benefit investors.

On December 8, 2017, the SEC adopted a temporary final rule that requires funds in larger fund groups to maintain in their records the information that is required to be included in Form N-PORT, in lieu of filing reports with the Commission, until April 2019. Smaller fund groups are required to begin submitting reports on Form N-PORT by April 30, 2020.

On February 27, 2019, the Commission adopted interim final rule and form amendments that modified the timing requirements for filing monthly reports on Form N-PORT. As a result of these amendments, funds are required to file a report on Form N-PORT for each month in the fund’s fiscal quarter not later than 60 days after the end of that fiscal quarter. The monthly report on Form N-PORT for the third month of the quarter will continue to become publicly available except the items identified in General Instruction F of Form N-PORT. In addition, the Commission amended rule 30b1-9 and Form N-PORT to require funds, no later than 30 days after the end of each month, to maintain in their records the information that is required to be included in Form N-PORT.

Highlights

Portfolio Reporting

The SEC adopted a new monthly portfolio reporting form, Form N-PORT, to be used by registered funds other than money market funds and small business investment companies to report monthly data to the SEC on a quarterly basis within60 days after fiscal quarter end. Information reported for the last month of each fund’s fiscal quarter will be made public upon filing, with the exception of certain discrete information items.

Form N-PORT requires reporting of a fund’s complete portfolio holdings on a position-by-position basis. Funds 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. The form also requires additional portfolio level information that will facilitate risk analyses and other SEC oversight. For example, Form N-PORT requires reporting of certain risk metric calculations that measure a fund’s exposure and sensitivity to changing market conditions, such as changes in asset prices, interest rates, or credit spreads.

To avoid duplication with the information that will be reported on Form N-PORT, the SEC is rescinding Form N-Q, on which funds currently report for their first and third fiscal quarters their portfolio holdings prepared in accordance with Regulation S-X. To ensure the continued availability of such reports for investors, each fund must attach its portfolio holdings for the last month of its first and third fiscal quarters to Form N-PORT, prepared in accordance with Regulation S-X. In addition, to fill the gap in certification that would otherwise occur with the rescission of Form N-Q, the SEC is amending the form of certification in Form N-CSR to require each certifying officer to state that he or she has disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal half-year, rather than the registrant’s most recent fiscal quarter as currently required by the form.

Census Reporting

The SEC also adopted a new annual reporting form, Form N-CEN, to be used by registered funds to annually report certain census-type information to the SEC. Form N-CEN replaces the form currently used to report fund census information (Form N-SAR). Funds will report at the registrant level, with responses to certain portions of the form submitted separately for each series. Reports are 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 for most funds.

Form N-CEN includes many of the same data elements as Form N-SAR, but, in order to improve the quality and utility of information reported, replaces those items that are outdated or of limited usefulness with items that the SEC believes to be of greater relevance today. Also, Form N-CEN streamlines and updates information reported to the SEC to reflect current information needs, such as requiring more information on exchange-traded funds and securities lending. Where possible, Form N-CEN also reflects the elimination of items that are reported on other SEC forms, or are available elsewhere.

Structured Data Format

Funds are required to report portfolio and census information on Forms N-PORT and N-CEN in an Extensible Markup Language (“XML”) structured data format, which improves the ability of the SEC and the public to aggregate and analyze information across all funds and to link the reported information with information from other sources.

Reporting on Fund Financial Statements

The SEC also adopted amendments to Regulation S-X that 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. Among other things, the amendments 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.

Additionally, in order to make fund derivatives holdings easier to review, the amended rules require derivative disclosures to be displayed prominently in the financial statements, rather than in the notes.

Increased Disclosure Concerning Securities Lending Activities

The SEC also adopted amendments to Form N-1A (for open-end funds), Form N-3 (for separate accounts offering variable annuity contracts which are organized as management investment companies), and Form N-CSR (for closed-end funds). 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 specific requirements with respect to fees increase the comparability of securities lending fees between funds.

Compliance Dates

• Form N-PORT. For Form N-PORT, the compliance date for larger entities—namely, funds that together with other investment companies in the same “group of related investment companies” have net assets of $1 billion or more as of the end of the most recent fiscal year of the fund—is June 1, 2018.[2] These funds will be required to submit their first reports on EDGAR by April 30, 2019. Before then, funds in larger fund groups that are subject to the June 1, 2018 compliance date must satisfy their reporting obligation by maintaining in their records the information required to be included in reports on Form N-PORT instead of submitting the information via EDGAR. The compliance date for smaller entities is March 1, 2020. This results in funds filing their first reports on Form N-PORT no later than April 30, 2019 for larger fund groups or April 30, 2020 for smaller fund groups, reflecting data as of March 31 of that year. The Commission will permit funds to file test submissions on a voluntary basis during a trial period.
• Form N-CSR and Form N-Q. The compliance date for the amendments to the certification requirements of Form N-CSR is March 1, 2020 for smaller entities. Form N-Q and related rules referencing Form N-Q are rescinded two months later, on May 1, 2020. These two months are intended to allow funds sufficient time to satisfy Form N-Q’s 60-day filing requirements with regard to their final filing on Form N-Q for the reporting period preceding their first filing on Form N-PORT.
• Form N-CEN and Form N-SAR. For Form N-CEN, the compliance date is June 1, 2018. Form N-SAR will be rescinded concurrently, together with related rules referencing Form N-SAR. The Commission will permit funds to file test submissions on a voluntary basis during a trial period.
• Regulation S-X and Securities Lending Disclosures. For Regulation S-X and the disclosures in Forms N-1A, N-3, and N-CSR concerning securities lending activities, the compliance date was August 1, 2017.

Other Resources

The adopting release for the investment company reporting modernization rules, including Forms N-CEN and N-PORT, can be found on the Commission’s website at https://www.sec.gov/rules/final/2016/33-10231.pdf. A temporary final rule release concerning the compliance dates for reporting on Form N-PORT can be found on the Commission’s website at https://www.sec.gov/rules/final/2017/33-10442.pdf. An interim final rule release concerning the reporting on Form N-PORT can be found on the Commission’s website at https://www.sec.gov/rules/interim/2019/ic-33384.pdf. The proposing release for the rules can be found on the Commission’s website at https://www.sec.gov/rules/proposed/2015/33-9776.pdf.

Contacting the Commission

The Commission’s Division of Investment Management is happy to assist small entities with questions regarding the investment company reporting modernization rules.

Questions may be directed to the Division of Investment Management’s Office of Chief Counsel by e-mail at IMOCC@sec.gov or by telephone at (202) 551-6825.