Client Alert

SEC Proposes Rules to Enhance Reporting by Investment Companies and Investment Advisers

June 08, 2015

By The Investment Management Practice


On May 20, 2015, the Securities and Exchange Commission (“SEC”) proposed a set of rules, forms and amendments to that would expand and update certain reporting and disclosure obligations of registered investment companies[1] and registered investment advisers[2]. The proposed rules seek to improve the quality of information available to investors, to allow the SEC to more effectively collect and utilize the data provided, and further, to enhance the SEC’s ability to monitor risks in the asset management industry.

Proposed new rule 30e-3 under the Investment Company Act of 1940, as amended (“1940 Act”), would provide registered investment companies the option to fulfill periodic shareholder reporting requirements by making certain applicable materials available on a website, subject to certain conditions. Other proposed rules would require registered investment companies other than money market funds to report their portfolio holdings on a monthly basis through the proposed new Form N-PORT (although only quarterly N-PORT filings would be publicly available), in place of the quarterly Form N-Q filing. Newly proposed Form N-CEN would replace Form N-SAR, and would require affected registered investment companies to annually report certain census-type information. The proposed rule amendments would update Regulation S-X[3] to require standardized, more detailed disclosure in registered investment company financial statements, including specific information relating to derivatives and securities lending.

The SEC also proposed amendments aimed at improving the depth and quality of information collected regarding registered investment advisers. Proposed amendments to Form ADV would require advisers to provide various information relating specifically to its separately managed accounts (“SMAs”), including the use of derivatives and borrowings. Among other changes, Form ADV would be revised to require investment advisers to report additional information regarding the use of social media, as well as information concerning branch office operations. Proposed new Schedule R under Form ADV would facilitate certain “umbrella registration” filing arrangements that are currently outlined in SEC staff guidance. Proposed amendments to Rule 204-2 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), would require advisers to maintain additional records of performance calculations and communications related to performance.

Comments on the SEC’s proposals must be submitted no later than 60 days after publication of the proposing releases in the Federal Register. We discuss below the highlights of the proposals. We will keep you informed as the proposals develop.

Registered Investment Company Proposals

I. Proposed Rule 30e-3

The proposed new 1940 Act rule 30e-3 would supply registered investment companies with the option to satisfy shareholder reporting requirements by posting such reports online. This electronic transmission option would be subject to a number of conditions[4] regarding accessibility, shareholder consent and notice, which would generally be consistent with similar conditions in other rules adopted by the SEC, including its rules regarding the use of a summary prospectus and internet delivery of proxy materials. Currently, investment companies satisfy delivery requirements by printing and mailing shareholder reports, unless investors have affirmatively requested electronic delivery.

For an investment company to avail itself of the proposed online reporting method, the investment company would be required to make any applicable reports and other required materials publicly accessible and free of charge at a website address specified in a notice to shareholders, as well as meet certain conditions relating to shareholder consents.[5] Investment companies would also be required to continue to provide paper reports to investors who request them.

II. Proposed Form N-PORT

The proposed rules would require all registered management investment companies and unit investment trusts operating as exchange-traded funds, other than money market funds[6] and small business investment companies (“SBICs”), to report portfolio holdings on a monthly basis through Form N-PORT. Although Form N-PORT would be filed monthly, the proposal would only require that a fund’s quarter-end filings be made publicly available, and then only following a 60 day lag period. Form N-PORT would replace current Form N-Q, which requires funds to report portfolio holdings for their first and third fiscal quarters.

Proposed Form N-PORT would require funds to report certain risk metrics so that the SEC and investors can better understand exposures to potential changes in market conditions. Specifically, Form N-PORT would solicit information as to a fund’s 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.[7] Funds would be 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 would also elicit information concerning the liquidity and pricing of a fund’s portfolio investments, as well as information regarding fund flows.

To facilitate the aggregation and analysis of any such collected fund data, the rule proposal would 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.[8]

III. Proposed Form N-CEN

Proposed Form N-CEN would replace Form N-SAR, and would require all registered investment companies, including unit investment trusts, to report detailed census-type information on an annual basis. This new form would streamline and update information currently reported to the SEC under Form N-SAR. Form N-CEN would be filed within 60 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 would carry forward to proposed Form N-CEN, the new proposed form would also include a host of new information items, including:

  • Background information about the registrant, such as its Legal Entity Identifier (“LEI”) number, CIK number, the fund’s public website, and location of books and records;

  • Information regarding a fund’s board of directors;[9]

  • Various information relating to a fund’s chief compliance officer (“CCO”),[10] including the name and Employer Identification Number (“EIN”) of any entity other than the fund that provides compensation to the CCO;

  • Information regarding securities lending activities;[11]

  • Whether the fund received financial support from an affiliated entity;

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

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

  • 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, target date fund, among other choices;

  • Further detailed information if a fund is either an ETF or ETMF;[12] and

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

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

IV. Amendments to Regulation S-X

The proposed amendments to Regulation S-X would 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 proposed amendments would 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 proposed amendments would 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 proposed changes would also require new disclosure in the notes to the financial statements relating to a fund’s securities lending activities, including related amounts paid or received by the fund, the compensation terms of any lending agent, and the monthly average value of portfolio securities on loan. The proposed rule release emphasizes that the derivatives disclosures that would be required by amended Regulation S-X would mirror the corresponding derivatives disclosure requirements proposed in connection with Form N-PORT.

Investment Adviser Proposals

V. Form ADV Revisions

Separately Managed Accounts – A number of the proposed amendments to Form ADV would require investment advisers to provide additional information regarding its SMAs, including information on regulatory assets under management, investments, and use of derivatives and borrowings. Advisers would be required to report the approximate percentages of assets in SMAs that are invested in each of ten broad asset classes. Advisers with at least $150 million in SMAs would be required to report information on the use of derivatives and borrowings, such as the number of accounts that correspond to certain categories of gross notional exposure[13] and the weighted average amount of borrowings in those accounts. Advisers with at least $10 billion in SMAs would also be required to report the weighted average gross notional value of derivatives across six different categories of derivatives, and further, would be required to report both mid-year and year-end data on their annual Form ADV updates, while other advisers would provide only year-end data. The proposed Form ADV revisions would require advisers to identify custodians that account for at least ten percent of an adviser’s SMAs, and the amount of the adviser’s regulatory assets under management attributable to SMAs held at such custodian.

Umbrella Registration – The proposed amendments to Form ADV would establish a more efficient method for the registration of multiple private fund adviser entities operating as a single advisory business on one Form ADV (otherwise known as “umbrella registration”), through the proposed new Schedule R. Since the current Form ADV contemplates the registration of an investment adviser that is a single legal entity, advisers of private funds organized using multiple legal entities currently rely upon SEC staff guidance in order to achieve umbrella registration through Form ADV.

Other Revisions – Other proposed changes to Form ADV would require additional disclosure concerning an adviser’s branch office operations, wrap fee programs and the use of social media.

VI. Proposed Amendments to Advisers Act

The proposed amendments to the Advisers Act would revise recordkeeping rules to require advisers to maintain additional materials to support the calculation and distribution of performance. Advisers Act Rule 204-2 would be revised to require that advisers maintain supporting documentation for performance information that is distributed to any person, in place of the current requirement that such records be maintained only if such performance related communications are circulated to 10 or more persons.

Compliance Dates

With respect to the new Forms N-PORT and N-CEN, the SEC anticipates proposing a compliance date of at least 18 months after the effective date of the new rules. The expected compliance date for the amendments to Regulation S-X is 8 months after the effective date of the rules. The rule proposal affecting investment advisers does not indicate prospective compliance dates.


[1]   Proposed SEC rule entitled “Investment Company Reporting Modernization”; SEC Release 33-9776; 34-75002; IC-31610, May 20, 2015.

[2]   Proposed SEC rule entitled “Amendments to Form ADV and Investment Advisers Act Rules”; Release No. IA-4091, May 20, 2015.

[3]  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.

[4]  Regarding accessibility, a fund would need to ensure that a report be publicly accessible, free of charge and available at a specified website address, and would need to make each such report accessible from the time that such report is transmitted to shareholders to the time the fund’s next report is transmitted. Concerning shareholder consent, electronic transmission of shareholder reports to a particular shareholder would be permitted only if the shareholder has either previously consented to this method of transmission, or has been determined to have provided implied consent under certain conditions specified in the rule. A shareholder would be deemed to have provided implied consent if the fund has not received a response to a mailed written statement within 60 days. Notice conditions would generally be satisfied if a written notice alerting shareholders as to the online availability of a report is sent within 60 days of the close of the fiscal period to which the report relates, and if the form of such notice is filed with the SEC within 10 days of its mailing.

[5]  See endnote 4 above.

[6]  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 as is proposed for new Forms N-PORT and N-CEN.

[7] In connection with repurchase agreements and reverse repurchase agreements, Item C.10 of proposed Form N-PORT would require 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 would require identifying counterparty information along with the corresponding amount of all securities on loan to each counterparty. Item C.12 would require 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.

[8] See endnote 6 above.

[9]  With respect to a fund’s directors, proposed Form N-CEN would require the reporting of each director’s full name, independence status, and the 40 Act file number of any other registered investment company for which the director also serves as a director.

[10]  Proposed Form N-CEN would solicit 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.

[11]  Proposed Form N-CEN would require 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.

[12] Part E of proposed Form N-CEN would specifically address 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 concern creation unit activity during the reporting period.

[13] See endnote 2 above. “Gross notional exposure” would mean the percentage obtained by dividing the sum of the dollar amount of any borrowings plus the gross notional value of all derivatives by the net asset value of the account.

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