The Staff of the Securities and Exchange Commission (SEC) Division of Investment Management released frequently asked questions (FAQs) in July 2017 on its fund reporting rules, specifically those relating to the investment company reporting modernization reforms that were adopted in October 2016. The FAQs are divided into four categories: Compliance Dates and General Filing Obligations, Form N-PORT, Regulation S-X and Form N-CEN, each of which is summarized in the text and charts that follow. The SEC also reiterated compliance dates and filing deadlines, which are included in Appendix A.

Importantly, the FAQs clarified the reporting of sub-transfer agent information on Form N-CEN, noting that funds only need to report information on sub-transfer agents that support the fund’s primary transfer agent’s systems and recordkeeping functions. The FAQs also detailed guidance on the disclosure of derivatives and related collateral, and clarified that the first Form N-PORT filings to be made public will be those filed for the month ending December 31, 2018. These and other clarifications are discussed below.

Compliance Dates and General Filing Obligations

Release of Schema and Start of Test Filing Period – Forms N-PORT and N-CEN

The Final EDGAR Filer Manual & Technical Specifications, or schemas, for both Forms N-PORT and N-CEN are currently available to view at the SEC’s website. The SEC will permit test filings in September 2017 following EDGAR Release 17.3. At that time, only test filings will be permitted until the compliance dates for each form. The SEC will not evaluate test filings for compliance, and filings will not be made public.

Money Market Funds and Form N-Q

The FAQs also clarified that money market funds should not continue to file reports on Form N-Q once the form is rescinded on August 1, 2019. For example, a money market fund with a fiscal year-end of August 31 will make its last Form N-Q filing for the quarter ended May 31, 2019, because the filing is due by July 30, 2019, which is prior to the date that the Form is rescinded. However, a money market fund with a fiscal year-end of September 30 would not make a Form N-Q filing for the quarter ended June 30, 2019, because that filing would be due after the rescission of the Form. A money market fund’s certification on Form N-CSR then must cover any change in its internal control over financial reporting that occurred during the most recent fiscal half-year, rather than quarter, once the fund ceases filing reports on Form N-Q. Money market funds will continue to post their holdings monthly via website pursuant to Rule 2a-7(h)(10) under the Investment Company Act of 1940 (the “1940 Act”) and must file Form N-MFP monthly pursuant to Rule 30b1-7 under the 1940 Act.

Form N-PORT, Regulation S-X and Form N-CEN

The Staff also clarified certain aspects of Forms N-PORT and N-CEN and the amendments to Regulation S-X through the FAQs, each of which is discussed separately below.

Form N-PORT

Issue New SEC Guidance
Non-Public Filing Period The first Form N-PORT filings to be made public will be those reports filed for the month ending December 31, 2018. Therefore, reports filed on Form N-PORT for the months ending June 30 through November 30, 2018, will be non-public. During the six-month non-public filing period, portfolio holdings information filed as exhibits for the first and third quarters of the fund’s fiscal year will be made public.
Calculations of Portfolio Holdings and Risk Metrics (Item B.3 and Items C.9.f.5, C.11.c.vii and C.11.g.iv) A fund may distinguish between the basis on which it calculates portfolio holdings and the basis on which it calculates risk metrics, if the reported information also complies with General Instruction G. Therefore, a fund that uses T+1 accounting for daily net asset value calculation and for reporting portfolio holdings may calculate and report security and portfolio level risk metrics required by the Form on a T+0 basis.
Part F: Portfolio Holdings Exhibit

Although funds must file reports on Form N-PORT up to 30 days after the end of each month, Part F attachments (portfolio holdings) may be filed up to 60 days after the end of the reporting period.

The SEC clarified that the Part F attachment may contain the portfolio schedule for the series making the filing, as well as the portfolio schedules for other series in the trust with the same fiscal year-end and one set of financial statement notes that covers all of the different series combined into one Part F attachment.

Holdings with No Market Value Available at Month-end Closed-end funds that do not strike their net asset value on at least a monthly basis may report information on Form N-PORT using internal methodologies consistent with how they report internally and to current and prospective investors. These funds may provide additional information in Part E explaining the internal methodology.
Termination of Class During Reporting Period (Items B.5.a and B.5.b) Item B.5.a requires funds to report monthly total returns for each of the preceding three months for each class of a multiple class fund, and Item B.5.b requires funds to report class identification numbers. If a class terminates during the reporting period, a fund should report all information for each class through the reporting period in which the class existed. A fund should then report “N/A” for the return information for the terminated class in any month after the fund was terminated.
Aggregate Flow Information for Master Portfolios (Item B.6) Item B.6 requires funds to report aggregate flow information for the preceding three months. Master portfolios should provide flow information at the master portfolio level for transactions between the master portfolio and its feeder funds.
Currency Denomination of Foreign Forward Currency Contracts (Items C.2.b and C.2.c) Items C.2.b and C.2.c require funds to report the currency in which each investment is denominated and the value in U.S. dollars. For foreign forward currency contracts, funds must report values in U.S. dollars in Item C.2.c. but may report “N/A” for the other reporting requirements in Items C.2.b and C.2.c because that information is reported in Items C.11.e.i and C.11.e.ii.
Investments in Other Funds (Item C.4) In responding to Item C.4.a (asset type) for investments in shares of other funds, the reporting fund should report the asset type as either “short-term investment vehicle” (e.g., money market funds, liquidity pools or other cash management vehicles) or “equity-common” (e.g., other funds). For Item C.4.b (issuer type), for investments in other funds, the reporting fund should report the issuer as either a “registered fund” or a “private fund.”
Identifying Restricted Securities (Item C.6) When reporting restricted securities on Form N-PORT, funds may consider the Commission guidance provided for amendments to Article 12 of Regulation S-X regarding identification of restricted securities in financial statements.
Coupon Type of Debt Securities (Item C.9.b.i) Item C.9.b.i requires funds to select the category that most closely reflects the coupon type of debt securities among the following: fixed, floating, variable or none. Funds may look to definitions in Rule 2a-7 under the 1940 Act to make these determinations.
Collateral Information for Repurchase Agreements (Item C.10.f) Item C.10.f requires funds to report collateral information for securities subject to repurchase agreements. A fund should separately report this information for each category of investments, but funds may aggregate the principal amount and value of collateral for each category of investments, regardless of whether the collateral is issued by the same issuer.
Reporting of Derivatives where Index or Basket of Investments is the Underlying Asset (Item C.11.c.iii.2) Item C.11.c.iii.2 requires reporting of certain information for derivatives where the underlying asset is an index or basket of investments. Funds may voluntarily report information about all the underlying index components even when such disclosure is not required by Item C.11.c.iii.2.
Calculation of Notional Amounts for Certain Derivatives The reporting of notional amount is required for many different derivative investments for Form N-PORT and the amendments to Regulation S-X. The Staff acknowledged that funds may use different methods of calculating notional amount of a derivatives investment.
Reporting of To Be Announced Securities (TBAs) TBAs describe forward mortgage-backed securities trades. The Staff recognized that some funds currently disclose TBAs in their financial statements either as derivatives or securities, depending on, among other factors, whether TBAs are cash settled or physically settled. To the extent that funds categorize TBAs as derivatives in their portfolio holdings, as reported internally and to current and prospective investors, they may also do so in their reports on Form N-PORT.
Form N-Q and Form N-CSR Once a fund begins filing on Form N-PORT, it is no longer required to file reports on Form N-Q,;however, its certification on Form N-CSR must then cover any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal half-year, rather than quarter.

 Form N-CEN

Issue New SEC Guidance
Funds without Rule 18f-3 Plans (Item C.2.a) Item C.2.a requires funds to report the number of authorized classes of shares. Some open-end funds and exchange-traded funds consist of a series without an authorized class and have not adopted a Rule 18f-3 (multi-class) plan. A fund without an authorized class should report “0” to Item C.2.a, but the fund must report its ticker and class ID, if applicable, in response to Item C.2.d (name, class ID and ticker of each class with shares outstanding).
Sub-Transfer Agent Information (Item C.10.viii) Item C.10.viii requires funds to report information on sub-transfer agents. Funds are not required to report information on intermediaries, such as broker-dealers, that provide “sub-transfer agent” or administrative services for their customers whose shares are maintained in omnibus accounts with the fund’s primary transfer agent. Instead, Item C.10.viii requires reporting of information regarding sub-transfer agents that support the fund’s primary transfer agent’s systems and recordkeeping functions. According to the FAQs, intermediaries that interact with the fund’s transfer agent as a record owner and transacting on behalf of their clients who are beneficial holders are not part of the primary transfer agent’s recordkeeping arrangement with a fund.
Variable Insurance Products

If a variable insurance product no longer files post-effective amendments, the registrant must continue to file annual reports on Form N-CEN.

Filings on Form N-SAR for Funds with Fiscal Years Ending on April 30 or May 31 Funds with a fiscal year-end on April 30 or May 31, 2018, may file their final reports for fiscal year 2017 to 2018 on either Form N-SAR (due 60 days after the reporting period end) or Form N-CEN (due 75 days after the reporting period end).

 Regulation S-X

Issue New SEC Guidance
Tabular Information Regarding Derivatives Contracts, Other Investments and Investments in Affiliates (Rules 12-13, 12-13A, 12-13B, 12-13C, 12-13D and 12-14) These rules contemplate a tabular format for the reporting of information relating to derivatives contracts, other investments and investments in affiliates. The FAQs state that the columns do not need to be in the exact order set forth in the rules and when columns contain the same information, the information may be provided in a single column, provided that the heading clearly discloses the information that is represented in a combined heading.
Derivatives with Index or Basket of Investments as Underlying Asset – Short Positions and Description of Underlying Investment (Article 12)

For derivatives where the underlying asset is an index or basket of investments, Article 12 requires, in certain circumstances, that funds disclose the largest 50 components in the index or basket. The notional values of short positions should be treated in terms of absolute values for these purposes because Article 12 requires that the fund disclose the largest components of the index or basket, and the Staff noted that the magnitude of a component does not depend on whether the position is short or long. The metric utilized could be determined differently based on the nature of the investment (for example, notional amount should be used for swaps, while par value and value could be used for bonds and equities, respectively).

Article 12 also requires, in certain circumstances, that funds disclose a description of the underlying investment of the index or custom basket as required by Rules 210.12-12, 12-13, 12-13A, 12-13B or 12-13D. The aforementioned rules require a fund to disclose information about each investment in columns, each with certain requirements. When providing a description of the components of the index or custom basket, funds may limit their disclosures to the information required by the column in each of the tables included in Article 12 that relate to the description of the instrument, including any notes in that column.

Identifying Derivatives Transactions as Restricted (Rules 12-13 through 12-13D)

Rules 12-13 through 12-13D require funds to identify by an appropriate symbol each investment that cannot be resold because of restrictions or conditions applicable to the investment. Because a fund may exit derivatives transactions through means other than a sale, a fund should identify a derivatives transaction as restricted if, as of the balance sheet date, the fund would not have been able to exit the transaction.

Investments in and Advances to Affiliates (Rule 12-14) Funds may either present the disclosures required by rule 12-14 regarding investments in and advances to affiliates in the schedule of investments or in the notes to the financial statements.
Amounts Held by Others in Connection with Derivatives Contracts by Counterparties (Rule 6-04.6) Rule 6-04.6 requires a fund to “State separately amounts held by others in connection with: (a) short sales; (b) open options contracts; (c) futures contracts; (d) forward foreign currency contracts; (e) swap contracts; and (f) investments-other than those presented in rules 210.12-12, 12-12A, 12-12B, 12-13, 12-13A, 12-13B and 12-13C.” A fund may provide the amounts held by others in connection with derivative contracts by counterparties in the notes to the financial statements when a fund’s counterparty will collect margin or collateral for all open derivatives transactions between the fund and counterparty, provided that the disclosure also includes the rights of setoff associated with the investments and the effect of the arrangements with counterparties on the fund’s balance sheet.

Practice Points and Tips

Service providers should continue to review their technological capabilities and assess changes needed to ensure that they will be able to collect, process and present the necessary information for compliance with new Forms N-PORT and N-CEN, as well as the amendments to Regulation S-X and Forms N-1A, N-3 and N-CSR. It is important to identify early the sources of data that will be needed to comply with the new reporting obligations. Fund directors should be apprised of the new rules and amendments and how they will impact funds and their reporting obligations. Both service providers and fund directors may utilize the FAQs to interpret these new forms and amendments.

Appendix A

Compliance Dates for Form N-PORT, Form N-CEN, Amendments to Regulation S-X and the Securities Lending Disclosure Amendments to Forms N-1A, N-3 and N-CSR

The FAQs outlined compliance dates for Forms N-PORT and N-CEN as well as the amendments to Regulation S-X and the securities lending disclosure amendments to Forms N-1A, N-3 and N-CSR, which are provided in the chart below.

Form/Amendment Compliance Dates/Filing Deadline
N-PORT

Compliance Dates:

  • June 1, 2018, for funds, together with other investment companies in the same group of related investment companies, with net assets of $1 billion or more as of the end of the most recent fiscal year
  • June 1, 2019, for funds with net assets of less than $1 billion as of the end of the most recent fiscal year
  • When determining whether a fund is part of a “group of related investment companies” that has reached the $1 billion threshold, a private fund relying on section 3(c)(1) or 3(c)(7) of the 1940 Act should not be included
  • Compliance should be based on reporting period-end date

Filing Deadline:

  • Reports must be filed no later than 30 days after the end of each month
N-CEN

Compliance Date:

  • June 1, 2018, for all funds
  • Compliance should be based on reporting period-end date

Filing Deadline:

  • Reports must be filed within 75 days of the fund’s fiscal year-end (75 days after calendar year-end for unit investment trusts)
Regulation S-X

Compliance Date:

  • August 1, 2017, for all funds
  • Compliance should be based on reporting period-end date
Securities Lending Disclosures in Forms N-1A, N-3 and N-CSR

Compliance Date:

  • August 1, 2017, for all funds
  • Compliance should be based on reporting period-end date