On October 13, 2016, the Securities and Exchange Commission (SEC) adopted rules, forms, and amendments to certain existing rules and forms to modernize and enhance the reporting and disclosure obligations of registered investment companies^[1] The new rules seek to improve the quality of information available to investors and allow the SEC to more effectively collect and utilize the data reported by funds. The new rules are also intended to enhance the SEC’s ability to monitor risks in the asset management industry.

The new rules require registered investment companies (other than money market funds and small business investment companies (SBICs)) to report their portfolio holdings on a monthly basis on the new Form N-PORT (although only quarterly N-PORT filings would be publicly available) in lieu of reporting such holdings on a quarterly basis on Form N-Q. Newly adopted Form N-CEN will replace Form N-SAR, and will require affected registered investment companies to annually report certain census-type information. The adopted rule amendments update Regulation S-X^[2] to require standardized, more detailed disclosure in registered investment company financial statements, including specific information relating to derivatives. The adopted form amendments to Forms N-1A, N-3, and N-CSR will require certain disclosures regarding securities lending activities. The SEC rescinded current Forms N-Q and N-SAR.

I.   Form N-PORT

The adopted rules require that all registered investment companies and unit investment trusts operating as exchange-traded funds, other than money market funds^[3] and SBICs, report portfolio holdings on a monthly basis on Form N-PORT no later than 30 days after the close of each month. Although Form N-PORT is required to be filed monthly, the adopted rules only require that a fund’s quarter-end filings be made publicly available, and then only following a 60-day lag period. However, the following information will not be made publicly available on a fund’s quarter-end Form N-PORT:

• Certain liquidity information on portfolio investments required under new Rule 22e-4 under the 1940 Act

• Information related to country of risk and economic exposure

• Delta

• Miscellaneous securities and explanatory notes related to any of the foregoing

Form N-PORT replaces current Form N-Q, which requires funds to report portfolio holdings for their first and third fiscal quarters.

Form N-PORT requires funds to report certain risk metrics so that the SEC and investors can better understand exposures to potential changes in market conditions. Specifically, in addition to certain general identifying information^[4], Form N-PORT solicits information as to a fund’s assets and liabilities, exposure to changes in interest rates, credit spreads and asset prices, whether through investments in debt securities or in derivatives, as well as information concerning a fund’s repurchase agreements, securities lending activities, and counterparty exposures.^[5] Funds are required to report detailed information about each derivative contract in its portfolio, including the category of the derivative, counterparty information, term, payoff profile, expiration date, and principal amount. Form N-PORT also elicits information concerning the liquidity and pricing of a fund’s portfolio investments, as well as information regarding fund flows and monthly total returns. Form N-PORT will require certain information to be reported on an investment-by-investment basis rather than for a fund as a whole.

In response to certain comments, the SEC added an instruction to Form N-PORT clarifying that in reporting information on Form N-PORT, a fund may respond using its own methodology and the conventions of its service provider, so long as those methodologies and conventions are consistent with how the fund reports internally and to current and prospective shareholders.

To facilitate the aggregation and analysis of any such collected fund data, the adopted rules require that Form N-PORT be filed electronically in the standardized Extensible Markup Language (XML) format, as has become required with certain other SEC form filings.^[6] Registrants offering multiple series will be required to file a report for each series separately.

II.  Form N-CEN

Adopted Form N-CEN replaces Form N-SAR, and requires all registered investment companies (except face-amount certificate companies) to report detailed census-type information on an annual basis. This new form streamlines and updates information currently reported to the SEC under Form N-SAR. Form N-CEN must be filed within 75 days of the end of a registered investment company’s fiscal year, rather than semi-annually as is currently required by Form N-SAR for most funds.

While many of the information items on Form N-SAR carry forward to Form N-CEN, the new adopted form also includes a host of new information items, including:

• Background information about the registrant, such as its LEI number, CIK number, the fund’s public website, and location of books and records

• Whether the registrant issues a class of securities registered under the Securities Act of 1933

• Information regarding a fund’s board of directors^[7]

• Various information relating to a fund’s chief compliance officer (CCO),^[8] including the name and Employer Identification Number (EIN) of any entity other than the fund or an affiliated person of the fund that provides compensation to the CCO

• Information regarding securities lending activities^[9]

• Whether the fund received financial support from an affiliated entity

• Whether the fund relied upon any exemptive orders and the corresponding release number(s)

• Whether an independent public auditor issued an unqualified opinion

• Information concerning potential accounting issues identified by a fund’s accountant

• Certain information for index funds

• Whether an open-end fund made any payments to shareholders or reprocessed shareholder accounts as a result of an NAV error

• Information pertaining to each of an open-end fund’s separate classes

• Whether a fund is an ETF, exchange-traded managed fund (ETMF), index fund, inverse fund, interval fund, fund of funds, master-feeder fund, money market fund, or target date fund, among other choices

• Further detailed information if a fund is either an ETF or ETMF^[10]

• Information concerning rights offerings and secondary offerings by a closed-end fund or SBIC

As with new Form N-PORT, the SEC’s adopted rules require that Form N-CEN be filed electronically in the standardized XML format.

III.  Amendments to Regulation S-X

The adopted amendments to Regulation S-X require registered investment companies, as well as business development companies (BDCs), to include in their financial statements a standardized schedule containing detailed information about derivatives investments. In particular, the adopted amendments require the presentation of standardized disclosures regarding fund holdings in various open futures, forward and swap contracts, as well as for any written and purchased option contracts.

The adopted amendments also require this disclosure be placed prominently in a fund’s financial statements, rather than allowing such schedules to be placed in the notes to the financial statements. The adopted rule release emphasizes that the derivatives disclosures required by amended Regulation S-X are similar to the corresponding derivatives disclosure requirements adopted in connection with Form N-PORT.

IV.  Amendments to Forms N-1A and N-CSR

The new rule requires a fund to include certain disclosures about its securities lending activities, including income and expenses, in its statement of additional information pursuant to Form

N-1A for an open-end fund and in its report on Form N-CSR for a closed-end fund. A fund must disclose a description of the services provided by its securities lending agent(s) during the most recent fiscal year, the gross and net income from its securities lending activities, fees paid to a securities lending agent from a revenue split and as additional fees paid for certain services outside of a revenue split (including fees paid for cash collateral management services, administrative services, and indemnification), and rebates paid to securities borrowers.

V.  Proposed Rule 30e-3

The SEC initially proposed the adoption of new 1940 Act rule 30e-3, which would have provided registered investment companies with the option to satisfy shareholder reporting requirements by posting such reports online. The SEC determined not to adopt proposed rule 30e-3 at this time. The SEC noted that while it plans to continue to consider how to promote electronic transmission to those who might prefer it, the substantial public comments generated by the rule proposal raised issues that the SEC believes warrant further consideration.

VI.  Compliance Dates

The compliance date for Form N-PORT is June 1, 2018, for fund groups with more than $1 billion in assets, and June 1, 2019, for groups with less. The compliance date for Form N-CEN for all funds is June 1, 2018. The compliance date for the amendments to Regulation S-X and Forms N-1A and N-CSR for all funds is August 1, 2017.

_{1] Adopted SEC rule entitled “Investment Company Reporting Modernization”; SEC Release Nos. 33-10231; 34-79095; IC-32314, October 13, 2016.}

_{[2] See rule 1-01, et seq of Regulation S-X [17 CFR 210.1-01, et seq]. Regulation S-X prescribes the form and content of financial statements required in registration statements and shareholder reports.}

_{[3] See Money Market Fund Reform, Investment Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060, 10082 (Mar. 4, 2010)]. Money market funds are currently required to report portfolio information on a monthly basis on Form N-MFP, transmitted using the same XML format adopted for new Forms N-PORT and N-CEN.}

_{[4] Funds will need to provide the Legal Entity Identifier (LEI) number of the registrant and series; therefore, funds or registrants that have not yet obtained an LEI will be required to obtain one. It is anticipated that having an LEI will aid in the consistent identification that will assist the linkage of data reported on Form N-PORT with data from other filings and sources that will be reported elsewhere as LEIs become more widely used by regulators and the financial industry.}

_{[5] In connection with repurchase agreements and reverse repurchase agreements, Item C.10 of adopted Form N-PORT requires additional detail, including: identifying counterparty information, repurchase rate, maturity date, and the principal amount, value, and asset category of securities subject to the repurchase agreement. With respect to a fund’s securities lending activities, Item B.4 requires identifying counterparty information along with the corresponding amount of all securities on loan to each counterparty. Item C.12 requires other various position-level information, including the value of reinvested cash collateral received for loaned securities, the value of portfolio securities representing non-cash collateral received for loaned securities, and the value of any portion of a portfolio security on loan. Identifying counterparty information would also be required for each derivate position in a fund’s portfolio, under Item C.11.b.}

_{[6] See endnote 3 above.}

_{[7] With respect to a fund’s directors, adopted Form N-CEN requires the reporting of each director’s full name, central registration depository (CRD) number (if any), independence status, and the 40 Act file number of any other registered investment company for which the director also serves as a director.}

_{[8] Adopted Form N-CEN solicits the full name, CRD number, address, and telephone number of a fund’s CCO, as well as confirmation regarding whether the CCO has changed since the previous filing.}

_{[9] Adopted Form N-CEN requires information pertaining to any securities lending agent retained or other cash collateral management service provider, as well as the types of fees paid to such entities.}

_{[10] Part E of adopted Form N-CEN specifically addresses ETFs and ETMFs, soliciting additional information including the exchanges on which a fund is listed, identifying information of any broker-dealers that have contracted with the fund to purchase or redeem creation units, and various dollar amount and fee related information concerning creation unit activity during the reporting period.}