Alert December 07, 2016

SEC Adopts New Rules to Modernize and Enhance Information Reported by Registered Investment Companies

Summary

On October 13, 2016, the U.S. Securities and Exchange Commission (SEC) adopted new rules and forms and amended current rules and forms under the Investment Company Act of 1940 (1940 Act) to significantly expand the information required to be reported by registered investment companies (the Modernization Reporting Requirements).[1] The Modernization Reporting Requirements are designed to modernize the reporting regime under the 1940 Act and to enhance the SEC’s ability to collect, analyze, and monitor portfolio composition and census information with respect to funds.[2]

Central to the Modernization Reporting Requirements is the creation of two new form-types, Form N-PORT and Form N-CEN, and amendments to Regulation S-X. On a monthly basis, funds (with certain exceptions) will be required to report their portfolio-wide and portfolio-level holdings on Form N-PORT. Annually, funds will be required to report certain census-type information on Form N-CEN. Both Form N-PORT and Form N-CEN must be filed in a structured data (Extensible Markup Language or XML) format, making such data immediately available for analysis by the SEC. Among other changes, the Modernization Reporting Requirements also amended Regulation S-X, which will require standardized, enhanced disclosure about derivatives in fund financial statements, and certain existing forms like N-1A, N-3 and N-CSR, which will require certain new reporting such as a fund’s securities lending activities. Each of these topics is discussed in more detail in this client alert, along with other new requirements.

On the same day, the SEC also adopted regulatory changes to establish liquidity risk management programs and to permit certain open-end funds to use “swing pricing” (the Liquidity Risk Management and Swing Pricing Rules). For more information on the adoption of the Liquidity Risk Management and Swing Pricing Rules, please view Goodwin’s client alert on the Liquidity Risk Management and Swing Pricing Rules.

Form N-PORT

The SEC stated in the Adopting Release of the Modernization Reporting Requirements that one of the purposes of Form N-PORT is to provide the SEC with information regarding fund portfolios to better monitor trends in the fund industry, including investment strategies funds are pursuing, the investment risks that funds undertake, and how different funds might be affected by changes in market conditions. Form N-PORT will replace existing Form N-Q and will require registered investment companies (except for money market funds and small business investment companies) and exchange traded funds (ETFs) organized as unit investment trusts (UITs) to provide portfolio holdings information, information about the use of derivatives, information about securities lending activities, and other data to the SEC on a monthly basis in an XML format. The XML format is intended to enhance the ability of the SEC, as well as investors and other potential users, to analyze portfolio data both on a fund-by-fund basis and also across the fund industry.

Form N-PORT incorporates information currently required by Form N-Q and certain additional information, discussed further below. Accordingly, with the adoption of Form N-PORT the SEC has rescinded Form N-Q. However, unlike Form N-Q, which is currently filed only for a fund’s first and third fiscal quarters, Form N-PORT is required to be filed no later than 30 days after the preceding month’s end. As noted, Form N-PORT will be required to be filed monthly, but generally only information reported for the third month of each fund’s fiscal quarter will be publicly available, and that information will not be made public until 60 days after the end of the fiscal quarter.

A fund must provide portfolio-wide and position-level holdings information as of the close of the preceding month. Funds with multiple series will be required to file a report for each series separately, even if certain information is identical for multiple series. Generally, Form N-PORT requires a fund to provide the following information:

General Information

A fund is required to provide general information, including the fund’s Legal Entity Identifier (LEI). Funds that have not yet obtained an LEI will be required to obtain one, which includes a one-time set-up fee and an annual maintenance fee.

Assets and Liabilities

A fund is required to provide information regarding its assets and liabilities, including total assets, total liabilities and net assets. In addition, funds must specifically report:

  • the aggregate value of any “miscellaneous securities” held in its portfolio on an investment-by-investment basis, although such information will be nonpublic and will be used by the SEC only;
  • any assets invested in a controlled foreign corporation (CFC), including each underlying investment in a CFC; and
  • any liabilities related to (1) borrowings attributable to amounts payable for notes payable, bonds and similar debt, (2) payables for investments purchased either (a) on a delayed delivery, when-delivered, or other firm commitment basis, or (b) on a standby commitment basis, and (3) liquidation preference of outstanding preferred stock issued by the fund.

Portfolio-Level Risk Metrics

A fund is required to provide portfolio-level risk metrics (e.g., interest rate risk and credit spread risk), such that if the average value of a fund’s exposure to debt instruments for the previous three months, in the aggregate, exceeds 25% or more of the fund’s net asset value (NAV), then the fund must provide:

  • for each currency for which the fund had a value of 1% or more of the fund’s NAV, the change in value of the fund’s portfolio resulting from a (1) one basis point (0.01%) change and (2) 100 basis point (1%) change in interest rates for each of the following maturities: 3 months, 1 year, 5 years, 10 years, and 30 years; and
  • the change in value of the fund's portfolio resulting from a one basis point (0.01%) change in credit spreads where the shift is applied to the option adjusted spread, aggregated by investment grade and non-investment grade exposures, for each of the following maturities: 3 months, 1 year, 5 years, 10 years, and 30 years.

Securities Lending

A fund is required to provide information regarding its securities lending counterparties, including the name, LEI and aggregate value of all securities on loan to that counterparty. In addition, on an investment-by-investment level, a fund will be required to report: (1) whether any portion of the investment was on loan by the fund, and, if so, the value of the investment on loan; (2) whether any amount of the investment represented reinvestment of the cash collateral and, if so, the dollar amount of such reinvestment; and (3) whether any portion of the investment represented non-cash collateral treated as part of the fund’s assets and received to secure loaned securities and, if so, the value of such non-cash collateral.

Return Information

A fund is required to provide performance return information, including the monthly total returns of the fund, and each class of the fund, for each of the preceding three months. In addition, a fund must report, for each of the preceding three months, monthly net realized gain (or loss) and net change in unrealized appreciation (or depreciation) attributable to derivatives for certain categories.

Flow Information

A fund is required to report fund flow information, including aggregate dollar amounts for (1) shares sold (including exchanges but excluding reinvestment of dividends and distributions); (2) shares sold in connection with reinvestments of dividends and distributions; and (3) shares redeemed or repurchased (including exchanges), during each of the preceding three months.

Schedule of Portfolio Investments

A fund is required to report certain information on an investment-by-investment basis about each investment held by the fund and its consolidated subsidiaries as of the close of the preceding month. Funds will be required to report information that will apply to all investments, such as the investment’s identification, amount, payoff profile, asset and issuer type, country of investment or issuer, fair value level, and whether the investment was a restricted security, as well as, as applicable, additional information related to specific types of investments, such as debt securities, repurchase and reverse repurchase agreements, derivatives, and securities lending.

A fund is required to report certain basic information about each investment held by the fund and its consolidated subsidiaries, including:

  • Additional information about the issuer and the security, such as the issuer’s name and LEI and the title of the issue or description of the investment;
  • The amount of each investment as of the end of the reporting period, including the currency in which the investment was denominated, and, if not denominated in U.S. dollars, the exchange rate used to calculate value;
  • The payoff profile of the investment, indicating whether the investment is held long or short (or not applicable);
  • The asset type for the investment (e.g., short-term investment vehicle, repurchase agreement, equity-common, equity-preferred, debt, derivative-commodity, etc.);
  • Whether the investment is a restricted security;
  • Whether the investment is categorized by the fund as a Level 1, Level 2, or Level 3 fair value measurement in the fair value hierarchy under generally accepted accounting principles; and
  • The country in which the issuer is organized and, if different, the country that corresponds to the country of investment or issuer based on the concentrations of the investment’s risk and economic exposure.

A fund is required to report certain specific information about debt securities, convertible securities and repurchase and reverse repurchase agreements, including:

  • For each debt security held by the fund, the maturity date and coupon (reporting the annualized interest rate and indicating whether fixed, floating, variable, or none), whether the security is currently in default, whether interest payments for the security are in arrears or whether any coupon payments have been legally deferred by the issuer, as well as whether any portion of the interest is paid in kind;
  • For each convertible security held by the fund, whether the conversion is mandatory or contingent, the conversion ratio, information about the asset into which the debt is convertible; and the ratio of the change in the value of the option to the change in the value of the asset into which the debt is convertible (delta); and
  • For repurchase and reverse repurchase agreements, the transaction category (repurchase and reverse repurchase), whether the transaction is cleared by a central counterparty, the name and LEI (if any) of the over-the-counter counterparty, repurchase rate, whether the repurchase agreement is tri-party (to distinguish from bilateral transactions), the maturity date, the principal amount and value of collateral, and the category of investments that most closely represents the collateral.

A fund is required to report certain additional information about each derivative contract in the fund’s portfolio, including:

  • The type of derivative instrument (e.g., forward, future, option, swaption, swap, warrant, other);
  • The name and LEI (if any) of the counterparty (including a central counterparty);
  • Specific terms and conditions of each derivative investment that are important to understanding the payoff profile of the derivative;
  • A description of the reference instrument, including name of issuer, title of issue, and relevant securities identifier;
  • If the reference instrument is an index or custom basket for which the components are publicly available on a website and are updated on that website no less frequently than quarterly, then the fund is required to identify the index and provide the index identifier, if any;
  • If the index’s components are not publicly available, and the notional amount of the derivative represents 1% or less of the NAV of the fund, then the fund is required to provide a description of the index;
  • If the index’s components are not publicly available, and the notional amount of the derivative represents more than 5% of the NAV of the fund, then the fund is required to provide the name, identifier, number of shares or notional amount or contract value as of the trade date, and value of every component in the index; and
  • If the index’s components are not publicly available, and the notional amount of the derivative represents more than 1%, but less than 5%, of the NAV of the fund, then the fund must provide the information required in the preceding bullet for only the top 50 components of the basket and those components that exceed 1% of the notional value of the index.

Miscellaneous Securities

As currently permitted by Regulation S-X, a fund has the option to identify and report certain investments as “miscellaneous securities,” provided, however, that such securities (1) in the aggregate do not exceed 5% of the of the total value of the fund’s portfolio investments, (2) are not restricted, (3) have been held for not more than one year prior to the date of the related balance sheet, and (4) have not previously been reported by name to the shareholders, or set forth in any registration statement, application, or report to shareholders or otherwise made available to the public.

Explanatory Notes

A fund has the option to provide explanatory notes relating to the filing, which could be used to explain, for example, assumptions that the fund made in responding to specific items in Form N-PORT or the fund’s internal methodologies and the conventions of its service providers in reporting information on Form N-PORT.

Exhibits

For Form N-PORT reports filed for the end of the first and third quarters of the fund’s fiscal year, the fund will be required to file a schedule the fund’s complete portfolio holdings as of the close of the period covered by the report and not more than 60 days after the close of such period. The portfolio holdings schedule will not be required to be reported in a structured data format.

Rescission of Form N-Q and Amendments to Form N-CSR Certification Requirements

Form N-PORT will require information that will be duplicative of information required on Form N-Q. Therefore, effective August 1, 2019, Form N-Q will be rescinded. The rescission of Form N-Q, however, eliminates the certifications required by Rule 30a-2(a) under the 1940 Act for the first and third fiscal quarters of a fund. Accordingly, the SEC adopted amendments to Form N-CSR to require each certifying officer to cover the most recent fiscal half-year, rather than the fund’s most recent fiscal quarter as currently required by Form N-CSR. Compliance with the amendments to Form N-CSR certification requirements is contingent on the size and timing of a fund’s compliance with Form N-PORT. See Compliance Dates below for more information.

Form N-CEN

The Modernization Reporting Requirements also adopted new Form N-CEN, which will replace Form N-SAR.  Form N-CEN requires all funds to report census-type information to the SEC on an annual basis. Funds must file Form N-CEN no later than 75 days after the fund's fiscal year-end (except for UITs, which will file such reports on a calendar year basis).  Funds will be required to complete Form N-CEN in a structured XML data format, which, like Form N-PORT, is expected to assist the SEC in aggregating, extracting, and analyzing fund-specific and overall industry trends. All funds will be required to complete Parts A and B of Form N-CEN, and file any attachments required under Part G of Form N-CEN. In addition, funds will be required to complete the following Parts, as applicable:

  • All management companies, other than small business investment companies (SBICs), will complete Part C;
  • Closed-end funds and SBICs will complete Part D;
  • ETFs (including those that are UITs) will complete Part E; and
  • UITs will complete Part F similar to the data that is currently reported on Form N-SAR.

Part A – General Information

Part A of Form N-CEN requires all funds to report the period covered and whether such period is less than 12 months.

Part B – Information about the Registrant

Part B of Form N-CEN requires certain background and other identifying information about the fund, including:

  • The fund’s name, 1940 Act filing number, CIK and LEI;
  • The fund’s address, telephone number and public website (if any);
  • The location of the fund’s books and records;[3]
  • Whether the fund issues a class of securities registered under the Securities Act of 1933;
  • Information about the fund’s directors, including each director’s name, CRD number (if any), whether he or she is an “interested person” (as defined by section 2(a)(19) of the 1940 Act) of the fund, and the 1940 Act file number of any other registered investment company for which the person also serves as a director;
  • The name, CRD number (if any), address and phone number of the fund’s chief compliance officer (CCO), if the CCO has changed since the last filing, and the name and IRS Employer Identification Number of any person that provides compensation to the CCO;
  • Matters that have been submitted to a vote of shareholders and information regarding material legal proceedings during the relevant period;
  • Whether there were any claims filed under a fidelity bond during the reporting period;
  • Information with respect to any financial support received by the fund’s sponsor or an affiliate;
  • Information about exemptive orders that the fund relied on during the reporting period;
  • Identifying information for the fund’s principal underwriters and independent public accountants, and whether a principal underwriter was hired or terminated or if the independent public accountant changed since the last filing;
  • Whether there were any material changes in the method of valuation, accounting principles or practices, or NAV error corrections during the reporting period; and
  • Information regarding payments of dividends or distributions that required a written statement pursuant to Section 19(a) of the 1940 Act and Rule 19a-1 thereunder.

Part C – Items Relating to Management Investment Companies

Part C of Form N-CEN will be completed by management investment companies other than SBICs. Information is required to be reported separately for each series of management companies offering multiple series. Such information includes:

  • The full name of the fund, the fund’s series identification number and LEI, and whether it is the fund’s first time filing the form;
  • Certain identifying information for each share class outstanding and information relating to the number of classes authorized, added and terminated during the relevant period;
  • The type of fund;
  • For index funds, information with respect to whether the index whose performance the fund tracks is constructed by an affiliated person of the fund and whether the index is exclusively constructed for the fund, and calculations of the fund’s “tracking difference” and “tracking error;”
  • If the fund seeks to operate as a non-diversified company;
  • If the fund invests in a CFC for the purpose of investing in certain types of instruments, such as commodities, and, if so, include the name and LEI of such corporation;
  • Information regarding the fund’s securities lending activities, including:
    • whether it is authorized to engage in securities lending transactions and whether it loaned securities during the reporting period;
    • information about the fees associated with securities lending activity and information about the management company’s relationship with certain securities-lending-related service providers;
    • whether any borrower of securities failed to return the loaned securities by the contractual deadline with the result that the fund (or its securities lending agent) liquidated collateral pledged to secure the loaned securities or that the fund was otherwise adversely impacted during the reporting period;
    • whether a securities lending agent or any other entity indemnifies the fund against borrower default on loans administered by the agent and certain identifying information about the entity providing indemnification if not the securities lending agent;
    • basic identifying information about each securities lending agent and cash collateral manager;
    • whether a service provider is a first- or second-tier affiliated person of the management company;
    • information about the specific types of payments to securities lending agents or cash collateral managers during the reporting period; and
    • the net income from securities lending activities;
  • Whether the fund relied on certain rules under the 1940 Act during the reporting period;
  • Information regarding the fund’s expense limitations;
  • Identifying information on the fund’s service providers, including its advisers and sub-advisers, transfer agents, pricing services agents, custodians (including custodians that provide services as sub-custodians), shareholder servicing agents, administrators, and affiliated broker-dealers, including if such service providers were hired or terminated in the reporting period; and
  • The monthly average net assets of the fund, other than money market funds, during the reporting period and, for money market funds, the daily average net assets during the reporting period.

Part D – Closed-End Management Companies and Small Business Investment Companies

In addition to Part C, Form N-CEN requires additional information to be reported by closed-end funds in Part D. SBICs are required to complete Part D in lieu of Part C. Most of the information required to be provided in Part D is currently required in Form N-SAR. Part D does require certain new information, such as information related to rights offerings and secondary offerings, including whether there was such an offering during the reporting period and, if so, the type of security involved. A fund will be required to report if it repurchased any outstanding securities issued during the reporting period and indicate which type of security.

Part E – Exchanged-Traded Funds and Exchange-Traded Managed Funds

Part E of Form N-CEN requires ETFs and exchange-traded managed funds to provide additional information.  In addition to Part E, ETFs are required to complete Parts A, B, and G, and either Part C (for open-end funds) or Part F (for UITs).  Part E requires the following information:

  • The name of the exchange where the fund’s shares are listed and the fund’s ticker symbol;
  • Identifying information about authorized participants of the fund, including the authorized participant’s name, SEC file number, CRD, LEI (if any), and the dollar value of the fund shares the authorized participant purchased and redeemed from the fund during the reporting period;
  • Information regarding the fund’s creation units, including the number of fund shares required to form a creation unit as of the last business day of the reporting period and, based on the dollar value paid for each creation unit purchased, and separately, redeemed, by authorized participants during the reporting period, (1) the average percentage of that value composed of cash, (2) the standard deviation of the percentage of that value composed of cash, (3) the average percentage of that value composed of non-cash assets and other positions exchanged on an “in-kind” basis, and (4) the standard deviation of the percentage of that value composed of non-cash assets and other positions exchanged on an “in-kind” basis;
  • With respect to creation units purchased by authorized participants during the reporting period, the average transaction fee (1) charged in dollars per creation unit; (2) charged for one or more creation units on the same business day; and (3) charged as a percentage of the value of the creation unit;
  • For those creation units purchased by authorized participants that were fully or partially composed of cash, the average transaction fee (1) charged in dollars per creation unit; (2) charged for one or more creation units on the same business day; and (3) charged as a percentage of the value of the cash in the creation unit; and
  • With respect to ETFs that are UITs, information regarding tracking difference and tracking errors.

Part F – Unit Investment Trusts

Part F of Form N-CEN was adopted as proposed and requires information specific to UITs.  Form N-CEN requires a UIT to identify as a separate account of an insurance company or not, and, depending on the response to this item, the fund will then proceed to answer certain additional questions in Part F. 

Part G – Attachments

Similar to Form N-SAR, Form N-CEN requires certain attachments to reports filed on the form.  Due to the narrative format of the information required, however, these attachments will not be required to be reported in a structured data format. Form N-CEN requires that a fund files an attachment with respect to legal proceedings, provision of financial support, independent public accountant’s report on internal control, and changes in accounting principles and practices, where applicable. In addition, closed-end funds and SBICs are required to provide an attachment relating to material amendments to organizational documents, instruments defining the rights of the holders of any new or amended class of securities, new or amended investment advisory contracts, information called for by Item 405 of Regulation S-K, and, for SBICs only, senior officer codes of ethics.

Amendments to Regulation S-X

Regulation S-X prescribes the form and content of financial statements required in registration statements and shareholder reports. In large part, the amendments to Regulation S-X are designed to standardize and enhance disclosures in a fund’s financial statements with respect to the fund’s investments in derivatives, and they are intended to enhance the transparency of a fund’s derivatives portfolio while increasing the usefulness of the disclosures to investors.

Generally, amendments to Articles 6 and 12 of Regulation S-X will: (1) 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; (2) update the disclosures for other investments and investments in and advances to affiliates, as well as reorganize the order in which some investments are presented; and (3) amend the rules regarding the general form and content of fund financial statements. In addition, the amendments will require prominent placement of derivatives disclosures in a fund’s schedule of investments, rather than in the notes to the financial statements where it is currently required.

New Standardized Disclosures

Current Rule 12-13 of Regulation S-X (Investments other than securities) requires limited information and has been used inconsistently by funds to report investments in derivatives.  Amended Rule 12-13 will now require specific information about open futures contracts, open forward foreign currency contracts, and open swap contracts.  The amendments also enhance disclosure requirements for written and purchase option contracts.

Open Option Contracts Written and Options Purchased

Disclosure with respect to open written option contracts (current Rule 12-12B) has been amended (new Rule 12-13) to require funds to provide: (1) description; (2) counterparty; (3) number of contracts; (4) notional amount; (5) exercise price; (6) expiration date; and (7) value.  While Rule 12-13 is specific to open option contracts written, the same disclosures also apply for purchased options.

Open Future Contracts

Disclosure with respect to open futures contracts (current Rule 12-13) has been amended (new Rule 12-13A) to require funds to provide: (1) description; (2) number of contracts; (3) expiration date; (4) notional amount; (5) value; and (6) unrealized appreciation/depreciation.

Open Forward Foreign Currency Contracts

Disclosure with respect to open forward foreign currency contracts (current Rule 12-13) has been amended (new Rule 12-13B) to require funds to provide: (1) amount and description of currency to be purchased; (2) amount and description of currency to be sold; (3) counterparty; (4) settlement date; and (5) unrealized appreciation/depreciation.

Open Swap Contracts

Disclosure with respect to open forward foreign currency contracts (current Rule 12-13) has been amended (new Rule 12-13C) to require funds to provide: (1) description and terms of payments to be received from another party; (2) description and terms of payments to be paid to another party; (3) counterparty; (4) maturity date; (5) notional amount; (6) value; (7) upfront payments/receipts; and (8) unrealized appreciation/depreciation.

New Rule 12-13D

Information required to be reported in current Rule 12-13 with respect to a fund’s other investments will be reported in new Rule 12-13D and continue to cover those securities not otherwise required to be reported pursuant to Article 12. New Rule 12-13D requires a fund with other investments to report: (1) description; (2) balance held at close of period-quantity; and (3) value of each item at close of period.  In the Adopting Release, the SEC stated that it expects that “funds will report, among other holdings, investments in physical holdings, such as real estate or commodities, pursuant to [R]ule 12-13D.”

Additional Amendments to Rules 12-12 through 12-14

The Modernization Reporting Requirements include several additional amendments to the instructions in Rules 12-12 through 12-14 aimed to enhance transparency to investors.  These amendments adopted include:

  • With respect to a fund’s investments in debt securities, a new instruction to Rule 12-12 that requires the fund to indicate the interest rate or preferential dividend rate and maturity date for certain enumerated debt instruments;
  • With respect to a fund’s securities lending activities, a modification to an instruction to Rule 12-12 that requires the fund to identify each issue of securities held in connection with open put or call option contracts, loans for short sales, or where any portion of the issue is on loan;
  • Removing the tax basis disclosure requirements from Rules 12-12, 12-12B (current Rule 12-12C), and 12-13D (current Rule 12-13) and instead moving the requirements to Article 6 of Regulation S-X as a rule of general application requiring that a fund report these tax basis disclosures relating to the portfolio as a whole, such that the fund provides: (a) aggregate gross unrealized appreciation for all investments in which there is an excess of value over tax cost; (b) the aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over value; (c) the net unrealized appreciation or depreciation; and (d) the aggregate cost of investments for federal income tax purposes; and
  • With respect to Rule 12-14, various amendments to existing instructions and new instructions to make the categorization of investments in and advances to affiliates consistent with the method of categorization used in Rules 12-12, 12-12A, and 12-12B.

Amendments to Forms Regarding Securities Lending Activities

In connection with the Modernization Reporting Requirements, the SEC adopted amendments to Forms N-1A, N-3 and N-CSR that require funds to disclose information about their securities lending activities in their registration statements. The SEC had proposed that such information be included in a fund’s financial statements. However, as adopted, such disclosure related to securities lending will be required to be included in the fund’s Statement of Additional Information (SAI) and, for closed-end funds, annually in response to new Item 12 of Form N-CSR. Information related to a fund’s securities lending activities will be presented in tabular format for the fund’s most recently completed fiscal year. Funds will be required to disclose:

  • Gross income from securities lending activities;
  • Fees and/or compensation for securities lending activities and related services, including:
    • Fees paid to securities lending agent from a revenue split;
    • Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split;
    • Administrative fees not included in revenue split;
    • Indemnification fee not included in revenue split;
    • Rebate (paid to borrower); and
    • Other fees not included in revenue split;
  • Aggregate fees/compensation for securities lending activities; and
  • Net income from securities lending activities.

Compliance Dates

Form N-PORT and Amendments to Form N-CSR Certification Requirements

  • June 1, 2018 for larger entities, which are 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. Accordingly, the first filing of Form N-PORT for larger entities will be no later than July 30, 2018, reflecting data as of June 30, 2018. As noted earlier, larger funds will also have to comply with the amendments to Form N-CSR certification requirements on June 1, 2018.
  • June 1, 2019 for smaller entities, which are funds that together with other investment companies in the same “group of related investment companies” have net assets of $1 billion or less as of the end of the most recent fiscal year of the fund. Accordingly, the first filing of Form N-PORT for smaller entities will be no later than July 30, 2019, reflecting data as of June 30, 2019. As noted earlier, smaller funds will also have to comply with the amendments to Form N-CSR certification requirements on June 1, 2019.

Form N-CEN, Form N-SAR and Exhibits to Form N-CSR

  • June 1, 2018 for all funds, regardless of asset size. On June 1, 2018, all funds must comply with Form N-CEN, Form N-SAR is rescinded and funds must comply with amendments to Form N-CSR.

Amendments to Regulation S-X, Forms N-1A and N-3, and Related Amendments to Form N-CSR

  • August 1, 2017 for all funds, regardless of asset size. Given that amendments to Regulation S-X are largely consistent with existing fund disclosure practices, the SEC set the compliance period to eight months. The August 1, 2017, compliance date will apply to conforming amendments related to the amendments to Regulation S-X, including the related amendments to the SAI in Forms N-1A and N-3 (and Form N-CSR for closed-end funds).

Conclusion

The Modernization Reporting Requirements will have a lasting effect on the fund industry. Implementation of the new requirements will obligate funds and fund managers to revamp their disclosure reporting structure and procedures, which could significantly increase costs. Funds and managers should begin assessing their own needs well in advance of the compliance dates in light of the Modernization Reporting Requirements.

This client alert was intended to provide a general overview of the Modernization Reporting Requirements. For additional details and assistance with your evaluation of the Modernization Reporting Requirements, please contact Christopher E. Palmer, Jason F. Monfort or your Goodwin Investment Management attorney.  

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[1] Investment Company Reporting Modernization, Release No. IC-32314 (Oct. 13, 2016) (the “Adopting Release”).

[2] For purposes of this client alert, the term “funds” is used to refers to all registered investment companies (other than face-amount certificate companies) and any separate series thereof.

[3] Amendments to Forms N-1A, N-2, N-3, N-4 and N-6 will exempt funds from those forms’ respective books and records disclosure requirements if the information is provided in a fund’s most recent report on Form N-CEN.