Investment Company Reporting Modernization — SEC — US

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200, 210, 230, 232, 239, 240, 249, 270, 274 [Release Nos. 33–9776; 34–75002; IC– 31610; File No. S7–08–15] RIN 3235–AL42 Investment Company Reporting Modernization AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission is proposing new rules and forms as well as amendments to its rules and forms to modernize the reporting and disclosure of information by registered investment companies. The Commission is proposing new Form N– PORT, which would require certain registered investment companies to report information about their monthly portfolio holdings to the Commission in a structured data format. In addition, the Commission is proposing amendments to Regulation S–X, which would require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The Commission is also proposing new rule 30e–3, which would permit but not require registered investment companies to transmit periodic reports to their shareholders by making the reports accessible on a Web site and satisfying certain other conditions. The Commission is proposing new Form N–CEN, which would require registered investment companies, other than face amount certificate companies, to annually report certain census-type information to the Commission in a structured data format. Finally, the Commission is proposing to rescind current Forms N–Q and N–SAR and to amend certain other rules and forms. Collectively, these amendments would, among other things, improve the information that the Commission receives from investment companies and assist the Commission, in its role as primary regulator of investment companies, to better fulfill its mission of protecting investors, maintaining fair, orderly and efficient markets, and facilitating capital formation. Investors and other potential users could also utilize this information to help investors make more informed investment decisions. DATES: Comments should be received on or before August 11, 2015. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

Use the Commission’s Internet
comment form (http://www.sec.gov/ rules/proposed.shtml);
Send an email to rule-comments@
sec.gov. Please include File No. S7–08– 15 on the subject line; or
Use the Federal eRulemaking Portal
(http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments
Send paper comments to Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–08–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/proposed.shtml). Comments are also available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s Web site. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
Daniel K. Chang, Senior Counsel, J.
Matthew DeLesDernier, Senior Counsel, Jacob D. Krawitz, Senior Counsel, Andrea Ottomanelli Magovern, Senior Counsel, Michael C. Pawluk, Branch Chief, or Sara Cortes, Senior Special Counsel, at (202) 551–6792, Investment Company Rulemaking Office, Alan Dupski, Assistant Chief Accountant, Chief Accountant’s Office, at (202) 551– 6918, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the ‘‘Commission’’) is proposing for comment new Form N–PORT [referenced in 17 CFR 274.150], new Form N–CEN [referenced in 17 CFR 274.101] under the Investment Company Act of 1940 [15 U.S.C. 80a–1 et seq.] (‘‘Investment Company Act’’); new rules 30a–4 [17 CFR 270.30a–4], 30b1–9 [17 CFR 270.30b1–9] and 30e– 3 [17 CFR 270.30e–3] under the Investment Company Act; rescission of rules 30b1–1 [17 CFR 270.30b1–1], 30b1–2 [17 CFR 270.30b1–2], 30b1–3 [17 CFR 270.30b1–3], and 30b1–5 [17 CFR 270.30b1–5] under the Investment Company Act; amendments to rules 8b– 16 [17 CFR 270.8b–16], 8b–33 [17 CFR 270.8b–33], 10f–3 [17 CFR 270.10f–3], 30a–1 [17 CFR 270.30a–1], 30a–2 [17 CFR 270.30a–2], 30a–3 [17 CFR 270.30a–3], and 30d–1 [17 CFR 270.30d–1] under the Investment Company; amendments to Forms N–1A [referenced in 17 CFR 274.11A], N–2 [referenced in 274.11a–1], N–3 [referenced in 274.11b], N–4 [referenced in 17 CFR 274.11c], and N–6 [referenced in 17 CFR 274.11d] under the Investment Company Act and the Securities Act of 1933 [15 U.S.C. 77a et seq.] (‘‘Securities Act’’); amendments to rule 498 [17 CFR 230.498] and Form N– 14 [referenced in 17 CFR 239.23] under the Securities Act; rescission of Form N–SAR [referenced in 17 CFR 274.101 and Form N–Q [referenced in 17 CFR 274.130] and amendments to Form N– CSR [referenced in 17 CFR 274.128] under the Investment Company Act and Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (‘‘Exchange Act’’); amendments to rules 10A–1 [17 CFR 240.10A–1], 12b–25 [17 CFR 240.12b– 25], 13a–10 [17 CFR 240.13a–10], 13a– 11 [17 CFR 240.13a–11], 13a–13 [17 CFR 240.13a–13], 13a–16 [17 CFR 240.13a– 16], 14a–16 [17 CFR 240.14a–16]; 15d– 10 [17 CFR 240.15d–10], 15d–11 [17 CFR 240.15d–11], 15d–13 [17 CFR 240.15d–13], and 15d–16 [17 CFR 240.15d–16] under the Exchange Act; rescission of section 332 [17 CFR 249.332] and amendments to sections 322 [17 CFR 249.322] and 330 [17 CFR 249.330] of 17 CFR part 249; amendments to Article 6 [17 CFR 210.6– 01 et seq.] and Article 12 [17 CFR 210.12–01 et seq.] of Regulation S–X [17 CFR 210]; amendments to section 800 of 17 CFR part 200 [17 CFR 200.800]; and amendments to rules 105 [17 CFR 232.105], 301 [17 CFR 232.301], and 401 [17 CFR 232.401] of Regulation S–T [17 CFR 232].

1For purposes of the preamble of this release, we use ‘‘funds’’ to mean registered investment companies other than face amount certificate companies and any separate series thereof—i.e., management companies and unit investment trusts. In addition, we use the term ‘‘management companies’’ or ‘‘management investment companies’’ to refer to registered management investment companies and any separate series thereof. We note that ‘‘fund’’ may be separately and differently defined in each of the proposed new forms or rules, or proposed rule or form amendments. 2Based on data obtained from the Investment Company Institute. See www.ici.org/research/ stats. 3Based on Investment Adviser Registration Depository system data. In 2010, Congress charged the Commission with implementing new reporting and registration requirements for certain investment advisers to private funds (known as ‘‘exempt reporting advisers’’). See Public Law 111–203, 124 Stat. 1376, 1570–80. Form ADV is used by registered investment advisers to register with the Commission and with the states and by exempt reporting advisers to report information to the Commission. Information on Form ADV is available to the public through the Investment Adviser Public Disclosure System, which allows the public to access the most recent Form ADV filing made by an investment adviser and is available at http://www.adviserinfo.sec.gov. Today, in a contemporaneous release, we are proposing a limited set of amendments to Form ADV and certain rules under the Advisers Act to fill certain data gaps and to enhance current reporting requirements, to incorporate ‘‘umbrella registration’’ for private fund advisers, and to make clarifying, technical and other amendments. See Amendments to Form ADV and Investment Advisers Act Rules, Investment Advisers Act Release No. 4091 (May 20, 2015). 4See Investment Company Institute, 2015 Investment Company Fact Book 9 (55th ed., 2015) (‘‘2015 ICI Fact Book’’), available at http:// www.ici.org/research/stats/factbook. 5See generally Exchange-Traded Funds, Securities Act Release No. 8901 (Mar. 11, 2008) [73 FR 14618, 14619 (Mar. 18, 2008)] (‘‘ETF Proposing Release’’); see also http://www.ici.org/etf_resources/ research/etfs_03_15 (discussing March 2015 statistics on ETFs). As of March 2015, there were over 1400 ETFs with over $2 trillion in assets. In the period of March 2014 to March 2015, assets of ETFs increased $352.43 billion or 20.6%. See id. 6See generally Investment Company Advertising:
Target Date Retirement Fund Names and Marketing, Securities Act Release No. 9126 (June 16, 2010) [75 FR 35920 (June 23, 2010)] (‘‘Investment Company Advertising Release’’).
Table of Contents
I. Background
A. Changes in the Industry and Technology B. Changes to Current Reporting Regime
1. Form N–PORT, Amendments to
Regulation S–X, and Option for Web Site Transmission of Shareholder Reports
2. Form N–CEN
II. Discussion
A. Form N–PORT
1. Who Must File Reports on Form N–
PORT
2. Information Required on Form N–PORT
3. Reporting of Information on Form N–
PORT
4. Public Disclosure of Information
Reported on Form N–PORT
B. Rescission of Form N–Q and Amendments to Certification Requirements of Form N–CSR
1. Rescission of Form N–Q
2. Amendments to Certification
Requirements of Form N–CSR
3. Request for Comment
C. Amendments to Regulation S–X
1. Overview
2. Enhanced Derivatives Disclosures
3. Amendments to Rules 12–12 Through
12–12C
4. Investments In and Advances to
Affiliates
5. Form and Content of Financial
Statements
D. Option for Web Site Transmission of Shareholder Reports
1. Overview
2. Discussion
3. Rule 30e–3
4. Use of Summary Schedule of
Investments
5. Related Disclosure Amendments
6. Requests for Comment
E. Form N–CEN and Rescission of Form N–SAR
1. Overview
2. Who Must File Reports on Form N–CEN
3. Frequency of Reporting and Filing
Deadline
4. Information Required on Form N–CEN
5. Items Required by Form N–SAR That
Would Be Eliminated by Form N–CEN F. Technical and Conforming Amendments G. Compliance Dates
1. Form N–PORT, Rescission of Form N–
Q, and Amendments to the Certification Requirements of Form N–CSR
2. Form N–CEN and Rescission of Form N–
SAR
3. Option for Web Site Transmission of
Shareholder Reports
4. Regulation S–X and Related
Amendments
5. Request for Comment
III. General Request for Comment
IV. Economic Analysis
A. Introduction
B. Form N–PORT, Rescission of Form N– Q, and Amendments to Form N–CSR
C. Amendments to Regulation S–X
D. Option for Web Site Transmission of Shareholder Reports E. Form N–CEN and Rescission of Form N–SAR F. Alternatives to the Reporting Requirements G. Request for Comments
V. Paperwork Reduction Act
A. Portfolio Reporting
1. Form N–PORT
2. Rescission of Form N–Q
B. Census Reporting
1. Form N–CEN
2. Rescission of Form N–SAR
C. Amendments to Regulation S–X
1. Rule 30e–1
2. Rule 30e–2
D. Option for Web Site Transmission of Shareholder Reports
1. Availability of Report and Other
Materials and Delivery Upon Request
2. Shareholder Consent and Notice
3. Impact on Information Collections for
Rules 30e–1 and 30e–2
E. Amendments to Certification Requirements of Form N–CSR F. Amendments to Registration Statement Forms G. Request for Comments
VI. Initial Regulatory Flexibility Analysis
A. Reasons for and Objectives of the Proposed Actions B. Legal Basis
C. Small Entities Subject to the Rule
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements
1. Form N–PORT
2. Rescission of Form N–Q
3. Form N–CEN
4. Rescission of Form N–SAR
5. Regulation S–X Amendments
6. Web Site Transmission of Shareholder
Reports
7. Amendments to Form N–CSR
8. Amendments to Registration Statement
Forms
E. Duplicative, Overlapping, or Conflicting Federal Rules F. Significant Alternatives G. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority and Text of
Proposed Amendments
I. Background
A. Changes in the Industry and Technology As the primary regulator of the asset management industry, the Commission relies on information included in reports filed by registered investment companies (‘‘funds’’) 1 and investment advisers for a number of purposes, including monitoring industry trends, informing policy and rulemaking, identifying risks, and assisting Commission staff in examination and enforcement efforts. Over the years, however, as assets under management and complexity in the industry have grown, so too has the volume and complexity of information that the Commission must analyze to carry out its regulatory duties. Commission staff estimates that there were approximately 16,619 funds registered with the Commission, as of December 2014.2 Commission staff further estimates that there were about 11,500 investment advisers registered with the Commission, along with another 2,845 advisers that file reports with the Commission as exempt reporting advisers, as of January 2015.3 At year-end 2014, assets of registered investment companies exceeded $18 trillion, having grown from about $4.7 trillion at the end of 1997.4 At the same time, the industry has developed new product structures, such as exchangetraded funds (‘‘ETFs’’) 5, new fund types, such as target date funds with asset allocation strategies,6 and increased its use of derivatives and

7See generally Use of Derivatives by Investment Companies Under the Investment Company Act of 1940, Investment Company Act Release No. 29776 (Aug. 31, 2011) [76 FR 55237 (Sept. 7, 2011)] (‘‘Derivatives Concept Release’’); International Swaps and Derivatives Association (‘‘ISDA’’) Study, Size and Uses of the Non-Cleared Derivatives Market (Apr. 2014), available at http:// www2.isda.org/attachment/NjQ0MA==/FINAL%20- %20Size%20and%20Uses%20of%20the%20NonCleared%20Derivatves%20Market.pdf (noting increases in the use of inflation swaps by asset managers and other investors); ISDA Research Study, Dispelling Myths: End-User Activity in OTC Derivatives (Aug. 2014), available at http:// www2.isda.org/attachment/Njc2Nw==/ISDADispelling%20myths-final.pdf (noting levels of derivative usage by surveyed American and French asset managers of 27% in 2011 and 53% in 2013, respectively, with 98% of total gross notional exposure of surveyed UK hedge funds related to derivatives in 2013; Sam Diedrich, ‘Alternative’ or ‘Hedged’ Mutual Funds: What Are They, How Do They Work, and Should You Invest?, (Feb. 28, 2014), available at http://www.forbes.com/sites/ samdiedrich/2014/02/28/alternative-or-hedgedmutual-funds-what-are-they-how-do-they-workand-should-you-invest/ (noting that ‘‘alternative mutual fund products grew at a neck-breaking 43% [in 2013]. . . .’’). 8See Semi-Annual Report Form for Registered Investment Companies, Exchange Act Release No. 21633 (Jan. 4, 1985) [50 FR 1442 (Jan. 11, 1985)]. Reports on Form N–SAR are publicly available on the Commission’s EDGAR Web site. 9See Electronic Filing by Investment Advisers; Amendments to Form ADV, Investment Advisers Act Release No. 1897 (Sept. 12, 2000) [65 FR 57438 (Sept. 22, 2000)]. 10See Shareholder Choice Regarding Proxy Materials, Investment Company Act Release No. 27911 (July 26, 2007) [72 FR 42222 (Aug. 1, 2007)]. 11See Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)]. 12See Interactive Data for Mutual Fund Risk/ Return Summary, Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748 (Feb. 19, 2009)]. Just prior to adopting the XBRL requirements for mutual fund risk/return summaries, the Commission also adopted amendments requiring operating companies to provide their financial statement information in XBRL format. See Interactive Data to Improve Financial Reporting, Securities Act Release No. 33– 9002 (Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)]. In adopting these requirements, the Commission noted that ‘‘[i]n this format, financial statement information could be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software, and used within investment models in other software formats.’’ Id. 13See Money Market Fund Reform, Investment Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060, 10082
(Mar. 4, 2010)] (‘‘Money Market Fund Reform 2010 Release’’); see also Money Market Fund Reform; Amendments to Form PF, Investment Company Act Release No. 31166 (July 23, 2014) [79 FR 47736 (Aug. 14, 2014)] (‘‘Money Market Fund Reform 2014 Release’’) (adopting amendments to Form N–MFP). The information in Form N–MFP allows the Commission, investors, and other potential users to monitor compliance with rule 2a–7 and to better understand and monitor the underlying risks of money market fund portfolios. Additionally, pursuant to the 2010 and 2014 amendments, money market funds are required to disclose certain information, including portfolio holdings, on their Web sites. 14See Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, Investment Advisers Act Release No. 3308 (Oct. 31, 2011) [76 FR 71228 (Nov. 16, 2011)] (‘‘Form PF Adopting Release’’). 15See Adoption of Updated EDGAR Filer Manual, Securities Act Release No. 9403 (May 14, 2013) [78 FR 29616 (May 21, 2013)]. 16The Commission has also proposed and adopted XML data reporting requirements in other contexts. See, e.g., Mandated Electronic Filing and Web site Posting For Forms 3, 4 and 5, Securities Act Release No. 8230 (May 7, 2003) [68 FR 27588 (May 13, 2003)]; Electronic Filing and Revision of Form D, Securities Act Release No. 8891 (Feb. 6,
2008) [73 FR 10592 (Feb. 27, 2008)]; Electronic
Filing of Transfer Agent Forms, Securities Exchange Act Release No. 54864 (Dec. 4, 2006) [71 FR 74698 (Dec. 12, 2006)]; Asset-Backed Securities Disclosure and Registration, Securities Act Release No. 9638 (Sept. 4, 2014) [79 FR 57184 (Sept. 24, 2014)]; Crowdfunding Securities Act Release No. 9470 (Oct. 23, 2013) [78 FR 66428 (Nov. 5, 2013)]; Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, Securities Act Release No. 9497 (Dec. 18, 2013) [79 FR 3926 (Jan. 23, 2014)]. See generally Recommendations of the Investor Advisory Committee Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors (July 25, 2013), available at http://www.sec.gov/ spotlight/investor-advisory-committee-2012/datatagging-resolution-72513.pdf. other alternative strategies.7 These products and strategies can offer greater opportunities for investors to achieve their investment goals, but they can also add complexity to funds’ investment strategies, amplify investment risk, or have other risks, such as counterparty credit risk. While these changes have been taking place in the fund industry, there has also been a significant increase in the use of the Internet as a tool for disseminating information and advances in the technology that can be used to report and analyze information. As discussed below, we have allowed the use of the Internet as a platform for providing required disclosure to investors. We have also started to use structured and interactive data formats to collect, aggregate, and analyze data reported by registrants and other filers. These data formats for information collection have enabled us and other data users, including investors and other industry participants, to better collect and analyze reported information and have improved our ability to carry out our regulatory functions. We have historically acted to modernize our forms and the manner in which information is filed with the Commission and disclosed to the public in order to keep up with changes in the industry and technology. For example, in 1985, the Commission replaced five different reporting forms with Form N– SAR, which was designed to require reporting of data in a structured manner so that the Commission could construct a comprehensive database of information about the fund industry.8 In 2000, we adopted new rules and rule amendments under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) to require advisers registered with the Commission to make filings under the Advisers Act with the Commission electronically through the Investment Adviser Registration Depository (IARD).9 In 2007, we sought to enhance the ability of investors to make informed voting decisions and to expand the use of the Internet to ultimately lower the costs of proxy solicitations by requiring Internet availability of proxy materials.10 In 2009, we amended Form N–1A, the registration form for open-end funds, to enhance the
information provided to investors by requiring these funds to include a summary of key information in the front of their prospectuses.11 The 2009 amendments to Form N–1A also sought to harness the benefits of technological advances and increased Internet usage by allowing mutual funds to satisfy their prospectus delivery obligations by delivering a summary prospectus to investors and posting the statutory prospectus and other materials on an Internet Web site. Also in 2009, the Commission sought to take advantage of new technology by adopting amendments requiring openend funds to file their prospectus risk/ return summaries in eXtensible Business Reporting Language (‘‘XBRL’’).12 In doing so, the Commission noted that this interactive data format would make ‘‘risk/return summary information easier for investors to analyze [and] assist in automating regulatory filings and business information processing.’’ Additionally, in 2010, the Commission adopted Form N–MFP, which requires money market funds to report detailed portfolio holdings information on a monthly basis in Extensible Markup Language (‘‘XML’’).13 Because these disclosures and reports are filed in a structured data format using XBRL or XML, Commission staff, investors and other potential users are able to aggregate and analyze the data in a much less labor-intensive manner than plain text or hypertext filing formats would allow. The Commission also now uses the XML data format to collect and analyze certain information from advisers to private funds on Form PF 14 and has modernized the reporting of securities holdings by institutional investment managers on Form 13F,15 which we believe resulted in efficiencies for data users.16

17Financial Stability Oversight Council, Notice Seeking Comment on Asset Management Products and Activities, Docket No. FSOC–2014–0001 (‘‘FSOC Notice’’), available at http:// www.treasury.gov/initiatives/fsoc/rulemaking/ Documents/Notice%20Seeking%20Comment%20 on%20Asset%20Management%20Products%20and %20Activities.pdf. 18Comments submitted in response to the FSOC Notice are available at http://www.regulations.gov/ #!docketDetail;D=FSOC-2014-0001. We also note that, in addition to commenters that argued for additional specific disclosures by funds, several commenters asserted, as a general matter, that registered funds are currently subject to robust disclosure requirements. See, e.g., Comment Letter of the Investment Company Institute to the FSOC Notice (Mar. 25, 2015); Comment Letter of Federated Investors, Inc. to the FSOC Notice (Mar. 10, 2015); Comment Letter of the Capital Group Companies to the FSOC Notice (Mar. 25, 2015). 19See Shareholder Reports and Quarterly Portfolio Disclosure of Registered Management Investment Companies, Securities Act Release No. 8393 (Feb. 27, 2004) [69 FR 11244 (Mar. 9, 2004)] (‘‘Quarterly Portfolio Holdings Adopting Release’’). 20Rule 30b1–5 under the Investment Company Act [17 CFR 270.30b1–5]. While SBICs file reports on Form N–CSR, SBICs are not required to file reports on Form N–Q. 21See rule 30b2–1 under the Investment Company Act [17 CFR 270.30b2–1]. 22Under the proposal, all ETFs would be required to file reports on Form N–PORT, regardless of whether they are organized as management companies or UITs. UITs are a type of investment company which (a) are organized under a trust indenture contract of custodianship or agency or similar instrument, (b) do not have a board of directors, and (c) issue only redeemable securities. See section 4(2) of the Investment Company Act. 23Money market funds file reports on Form N– MFP on a monthly basis and, thus, would not be required to file reports on Form N–PORT. As these industry changes and technological advances have occurred over the years, we recognize a need to improve the type and format of the information that funds provide to us and to investors. We also recognize the need to improve the information that the Commission receives from funds in order to improve the Commission’s monitoring of the fund industry in its role as the primary regulator of funds and investment advisers. As discussed below, today we are proposing a set of reporting and disclosure reforms designed to take advantage of the benefits of advanced technology and to modernize the fund reporting regime in order to help the Commission, investors, and other market participants better assess different fund products and to assist us in carrying out our mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Our proposed reforms seek to (1) increase the transparency of fund portfolios and investment practices both to the Commission and to
investors, (2) take advantage of technological advances both in terms of the manner in which information is reported to the Commission and how it is provided to investors and other potential users, and (3) where appropriate, reduce duplicative or otherwise unnecessary reporting burdens on the industry. We also note that in December 2014, the Financial Stability Oversight Council (‘‘FSOC’’) issued a notice requesting comment on aspects of the asset management industry, which includes, among other entities, registered investment companies.17 The notice included requests for comment on additional data or information that would be helpful to regulators and market participants. Although this rulemaking proposal is independent of FSOC, several commenters responding to the notice discussed issues concerning data that are relevant to the rules we are proposing today, including data regarding derivatives, global identifiers, and securities lending activities and are cited in the discussions below, as relevant.18 B. Changes to Current Reporting Regime

Form N–PORT, Amendments to
Regulation S–X, and Option for Web Site Transmission of Shareholder Reports Currently, management investment companies (other than small business investment companies (‘‘SBICs’’)) are required to report their complete portfolio holdings to the Commission on a quarterly basis.19 These funds are required to provide this information in reports on Form N–Q under the Investment Company Act and the Exchange Act as of the end of each first and third fiscal quarter,20 and in reports on Form N–CSR under those Acts as of the end of each second and fourth fiscal quarter.21 As discussed in Parts II.A and II.B of this release, we propose to rescind Form N–Q and adopt a new portfolio holdings reporting form, Form N–PORT, which would be filed by all registered management investment companies and unit investment trusts (‘‘UITs’’) that operate as ETFs,22 other than money market funds and SBICs.23 We are proposing that reports on Form N–PORT would be filed with the Commission on a monthly basis, with every third month available to the public 60 days after the end of the fund’s fiscal quarter. The reports on Form N–PORT would include a fund’s complete portfolio holdings in a structured data format. Additionally, as discussed below, proposed Form N–PORT would include additional information concerning fund portfolio holdings that are not currently provided on Forms N–Q and N–CSR, but that would facilitate risk analyses and other Commission oversight. For example, Form N–PORT would require reporting of additional information relating to derivative investments. It would also include certain risk metric calculations that would measure a fund’s exposure and sensitivity to changing market conditions, such as changes in asset prices, interest rates, or credit spreads. We believe that more timely and frequent reporting of portfolio holdings information, as well as the additional information we are proposing to require, would enable the Commission to further its mission to protect investors by assisting the Commission and Commission staff in carrying out its regulatory responsibilities related to the asset management industry. These responsibilities include its examination, enforcement, and monitoring of funds, the Commission’s formulation of policy, and the staff’s review of fund registration statements and disclosures. While Form N–PORT is primarily designed to assist the Commission and Commission staff, we believe that information in Form N–PORT would be beneficial to investors and other potential users. In particular, we believe that both sophisticated institutional investors and third-party users that provide services to investors may find the information we propose to require on Form N–PORT useful. For example, Form N–PORT’s structured format would allow the Commission, investors, and other potential users to better collect and analyze portfolio holdings information. The portfolio holdings information currently filed on Form N– Q, in contrast, is filed in a plain text
or hypertext format, which often requires labor-intensive manual reformatting by Commission staff and other potential users in order to prepare the reported data for analysis. While we do not anticipate that many individual investors would analyze data using Form N–PORT, although some may, we believe that individual investors would benefit indirectly from the information collected on reports on Form N–PORT, through enhanced Commission monitoring and oversight of the fund industry and through analyses prepared by third-party service providers. In addition, we are proposing amendments to Regulation S–X that would require standardized enhanced derivatives disclosures in fund financial statements, as well as other amendments. Currently, Regulation S–X does not prescribe specific information for most types of derivatives, including swaps, futures, and forwards. While we recognize that many fund groups provide disclosures regarding the terms

24See rules 30a–1 and 30b1–1 under the Investment Company Act [17 CFR 270.30a–1 and 17 CFR 270.30b1–1]. 25See proposed rule 30b1–9. 26As used throughout this section, the term ‘‘fund’’ generally refers to investment companies that would file reports on Form N–PORT. 27Funds currently file with the Commission portfolio schedules for the fund’s first and third fiscal quarters on Form N–Q, and shareholder reports, including portfolio schedules for the fund’s second and fourth fiscal quarters, on Form N–CSR. These reports are available to the public and the Commission with either a 60- or 70-day delay. See rule 30b1–5 (requiring management companies, other than SBICs, to file reports on Form N–Q no more than 60 days after the close of the first and third quarters of each fiscal year); rule 30b2–1 (requiring management companies to file reports on Form N–CSR no later than 10 days after the transmission to stockholders of any report required to be transmitted to stockholders under rule 30e– 1). See also rules 30e–1 and 30e–2 under the Investment Company Act [17 CFR 270.30e–1 and 17 CFR 270.30e–2] (requiring management companies and certain UITs to transmit to stockholders semiannual reports containing, among other things, the fund’s portfolio schedules, no more than 60 days after the close of the second and fourth quarters of each fiscal year). These reports include portfolio holdings information as required by Regulation S–
X. See rule 12–12 of Regulation S–X [17 CFR
210.12–12], et seq. of their derivatives contracts, the lack of standard disclosure requirements has resulted in inconsistent disclosures in fund financial statements. We believe our proposed amendments to Regulation S–X to enhance and standardize derivatives disclosures in financial statements would allow comparability among funds and help all investors better assess funds’ use of derivatives. We are proposing to require reports on Form N–PORT to contain similar derivatives disclosures to facilitate analysis of derivatives investments across funds. Because Form N–PORT is not primarily designed for individual investors, the proposed amendments to Regulation S–X would require disclosures concerning the fund’s investments in derivatives, as well as other disclosures related to liquidity and pricing of investments, in the financial statements that are provided to investors. We have endeavored to mitigate burdens on the industry by conforming the derivatives disclosures that would be required by both Regulation S–X and Form N– PORT. Finally, we are also proposing a rule that would provide funds with an optional method to satisfy shareholder report transmission requirements by posting such reports online if they meet certain conditions. In order to rely on the rule, funds would be required to make the report and other required materials publicly accessible and free of charge at a Web site address specified in a notice to shareholders, and meet certain conditions relating to shareholder consent, and notice to shareholders of the Web site availability of shareholder reports and of the methods by which shareholders would be able to request a paper copy of the materials. This optional method is intended to modernize the manner in which periodic information is transmitted to shareholders, which we believe would improve the information’s overall accessibility while reducing burdens such as the costs associated with printing and mailing shareholder reports.
2. Form N–CEN
Currently, the Commission collects census-type information on management investment companies and UITs on reports on Form N–SAR.24 As discussed above, Form N–SAR was adopted in 1985 and, at that time, was intended to reduce reporting burdens and better align the information that was required to be reported with the characteristics of the fund industry. While Commission staff has indicated that the census-type information reported on Form N–SAR is useful in its support of the Commission’s regulatory functions, staff has also indicated that in the thirty years since Form N–SAR’s adoption, changes in the industry have reduced the utility of some of the currently required data elements. Additionally, the filing format that is required for reports on Form N–SAR limits our ability to use the reported information for analysis. Commission staff also believes that obtaining certain additional census-type information not currently collected by Form N–SAR would improve the staff’s ability to carry out regulatory functions, including risk monitoring and analysis of the industry. Accordingly, we are proposing to rescind Form N–SAR and replace it with Form N–CEN, a new form on which funds will report census-type information to the Commission. Form N–CEN would include many of the same data elements as Form N–SAR, but, in order to improve the quality and utility of information reported, would replace those items that are outdated or of limited usefulness with items that we believe to be of greater relevance today. Where possible, we are also proposing to eliminate items that are reported on other Commission forms, or are available elsewhere. In addition, we are proposing to require that reports on Form N–CEN be filed in a structured XML format, which, we believe, could reduce reporting burdens for current Form N–SAR filers and yield data that can be used more effectively by the Commission and other potential users. Finally, we are proposing that reports on new Form N–CEN be filed annually, rather than semi-annually as is required for reports on Form N–SAR by management companies, which would further reduce current burdens on funds.
II. Discussion
A. Form N–PORT
As discussed above, we are proposing to create a new monthly portfolio reporting form, Form N–PORT. Our proposal would require registered management investment companies and ETFs organized as UITs, other than money market funds and SBICs, to electronically file with the Commission monthly portfolio investments information on new Form N–PORT in an XML format no later than 30 days after the close of each month.25 As discussed below in Part II.A.4, only information reported for the third month of each fund’s fiscal quarter on Form N–PORT would be publicly available, and that information would not be made public until 60 days after the end of the fiscal quarter.26 As the primary regulator of the fund industry, the Commission relies on information that funds file with us, including their registration statements, shareholder reports, and various reporting forms such as Form N–SAR, Form N–CSR, and Form N–Q. The Commission and its staff use this information to understand trends in the fund industry and carry out regulatory responsibilities, including formulating policy and guidance, reviewing fund registration statements, and assessing and examining a fund’s regulatory compliance with the federal securities laws and Commission rules thereunder. Information on fund portfolios is currently filed with the Commission quarterly with up to a 70-day delay.27 Moreover, the reports are currently filed in a format that does not allow for efficient searches or analyses across portfolios, and even limits the ability to search or analyze a single portfolio. Based on staff experience with data analysis of funds, including staff experience using Form N–MFP, we believe that more frequent and timely information concerning fund portfolios than we currently receive through registration statements, shareholder reports on Form N–CSR, and reports on Form N–Q will assist the Commission in

28See, e.g., Money Market Fund Reform; Amendments to Form PF, Investment Company Act Release No. 30551 (June 5, 2013) [78 FR 36834 (June 19, 2013)]; Money Market Fund Reform 2014 Release, supra note 13 at n.502 and accompanying text (citing use of Form N–MFP data in discussing the Commission’s decision to require basis point rounding); and at n.651 and accompanying text (citing use of Form N–MFP data in discussing the Commission’s decision regarding the size of the non-government securities basket for government money market funds). 29See Derivatives Concept Release, supra note 7, at n.7 and accompanying text. 30While there is no clear definition of ‘‘alternative’’ in the fund industry, an alternative fund is generally understood to be a fund whose primary investment strategy falls into one or more of the three following categories: (1) Non-traditional asset classes (for example, currencies); (2) nontraditional strategies (such as long/short equity positions); and/or (3) less liquid assets (such as private debt). At the end of December 2014, alternative mutual funds had almost $200 billion in assets. Although alternative mutual funds only accounted for 1.19% of the mutual fund market as of December 2014, the almost $20.1 billion of inflows into these funds in 2014 represented 4.3% of the inflows for the entire mutual fund industry in that year. These statistics were obtained from staff analysis of Morningstar Direct data, and are based on fund categories as defined by Morningstar. 31See, e.g., rule 12–13 of Regulation S–X [17 CFR 210.12–13] (requiring funds to generally disclose derivatives together with ‘‘other’’ investments); rule 6–03 of Regulation S–X [17 CFR 210.6–03] (applying articles 1–4 of Regulation S–X to investment companies, but not specifying where derivative disclosures should be made for funds); ASC 815, Disclosures about Derivative Instruments and Hedging Activities (discussing general derivative disclosure) (‘‘ASC 815’’); ASC 820, Fair Value Measurements (requiring disclosure of valuation information for major categories of investments) (‘‘ASC 820’’). See also Part II.C. its role as the primary regulator of funds, as discussed further below. The information we are proposing to collect on Form N–PORT would be important to the Commission in analyzing and understanding the various risks in a particular fund, as well as risks across specific types of funds and the fund industry as a whole. These risks can include the investment risk that the fund is undertaking as part of its investment strategy, such as interest rate risk, credit risk, volatility risk, other market risks, or risks associated with specific types of investments, such as emerging market debt or commodities. Additionally, the information is helpful to understanding liquidity risks and counterparty risks, and determining whether a fund’s exposure to price movements is leveraged, either through borrowings or the use of derivatives. We believe that information we are
proposing to require on Form N–PORT will assist the Commission in better understanding each of these risks in the fund industry. We believe that the ability to understand the risks that funds face will help our staff better understand and monitor risks and trends in the fund industry as a whole, facilitating our informed regulation of the fund industry. We also believe that information obtained from Form N–PORT filings would facilitate our oversight of funds and assist Commission staff in examination, enforcement, and monitoring, as well as in formulating policy and in its review of fund registration statements and disclosures. In this regard, we expect that Commission staff would use the data reported on Form N–PORT for many of the same purposes as Commission staff has used data reported on Form N–MFP by money market funds. The data received on Form N–MFP has been used extensively by Commission staff, including for purposes of assessing regulatory compliance, identifying funds for examination, and risk monitoring. Form N–MFP data has also informed Commission policy; for example, staff used Form N–MFP data in analyses that informed the Commission’s considerations when it proposed and adopted money market fund reform rules in 2013 and 2014.28 We recognize that, unlike money market funds, which as cash management vehicles generally share common investment objectives and strategies and thus invest in a relatively small number of common security types, other funds invest in a much more diverse manner. Accordingly, Form N–PORT, as proposed, would require reporting of additional information relative to Form N–MFP, in order to facilitate understanding and analysis of the investment strategies that funds pursue, as well as the large variety of securities, commodities, currencies, derivatives, and other investments that funds may invest in. In addition to assisting the Commission in its regulatory functions, we believe that investors and other potential users could benefit from the periodic public disclosure of the information reported on Form N–PORT. Proposed Form N–PORT is primarily designed for use by the Commission and its staff, and not for disclosing information directly to individual investors. This is because the form’s structured format, while needed for quantitative analysis within a fund and across funds, is not an easily humanreadable format. Additionally, the information we are proposing to require on Form N–PORT is more voluminous than on a schedule of investments. We believe, however, that some investors, particularly institutional investors, could directly use the data from the information on proposed Form N–PORT for their own quantitative analysis of funds, including to better understand the funds’ investment strategies and risks, and to better compare funds with similar strategies. Additionally, we believe that entities providing services to investors, such as investment advisers, broker-dealers, and entities that provide information
and analysis for fund investors, could also utilize and analyze the information that would be required by proposed Form N–PORT to help all investors make more informed investment decisions. Accordingly, whether directly or through third parties, we believe that the periodic public disclosure of the information on proposed Form N–PORT could benefit all fund investors. As discussed further below, in order to mitigate the risk that the information on Form N–PORT could be used in ways that might ultimately result in investor harm, we are proposing to limit the public availability of Form N–PORT reports to those reports filed as of quarter end, as well as delay public availability of those reports by 60 days after quarter end. We intend to increase transparency of fund investments through proposed Form N–PORT in several ways. First, N– PORT would improve reporting of fund derivative usage. As the Commission has previously noted, we have observed significant increases in the use of derivatives by funds, which have highlighted the need for more robust and standardized derivatives disclosures.29 Additionally, funds that are considered ‘‘alternative’’ funds, which often use derivatives for implementing their investment strategy, are becoming increasingly popular among investors.30 Although Regulation S–X establishes general disclosure requirements for financial statements in fund registration statements, based on staff review of fund filings, the lack of standardized requirements as to the terms of derivatives that must be reported has sometimes led to inconsistent approaches to reporting derivatives information and, in some cases, insufficient information concerning the terms and underlying reference assets of derivatives to allow the Commission or investors to understand the investment. This hinders both an analysis of a particular fund’s investments, as well as comparability among funds.31 The information requested in Form N–PORT would create a more detailed, uniform, and structured reporting regime. This would allow the Commission and investors to better analyze and compare

32See generally John C. Hull, Options, Futures, and Other Derivatives, Seventh Edition (2009) (discussing, for example, the function of duration, convexity, delta, and other calculations used for measuring changes in the value of bonds or derivatives as a result in changes in underlying asset prices or interest rates); Sheldon Natenberg, Option Volatility and Pricing (1994) (same). 33See, e.g., Report by Task Force on Tri-Party Repo Infrastructure, May 17, 2010 (concluding that insufficient transparency of the tri-party repurchase agreement market contributed to the build-up of exposures and the lack of prior concerted action to address the issues that led to financial turmoil during 2007–2009). The Task Force on Tri-Party Repo Infrastructure was formed in September 2009 under the purview of the Payments Risk Committee, a private sector body sponsored by the Federal Reserve Bank of New York. The Task Force membership includes representatives from multiple types of market participants that participate in the tri-party repo market, as well as relevant industry associations. Federal Reserve and Commission staff participated in meetings of the Task Force as observers and technical advisors. 34See proposed rule 30b1–9. 35Money market funds already file their monthly portfolio investments with the Commission. See Form N–MFP. SBICs are unique investment companies that operate differently than other management investment companies. They are ‘‘privately owned and managed investment funds, licensed and regulated by [the Small Business Administration (‘‘SBA’’)], that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.’’ See SBIC Program Overview available at https://www.sba.gov/content/sbicprogram-overview. As of December 31, 2014, only one SBIC had publicly offered securities outstanding. 36There are currently eight ETFs organized as UITs that have registered with the Commission. 37Commission staff estimates that as of December 2014, ETFs organized as UITs represented 14% of all assets invested in ETFs. This analysis is based on data from Morningstar Direct. 38See Form N–PORT, Items A.1 and A.2. Funds would provide the name of the registrant, the funds’ derivatives investments and the exposures they create, which can be important to understanding funds’ investment strategies, use of leverage, and potential for risk of loss. Furthermore, as discussed further below, proposed Form N–PORT would require funds to report certain risk metrics that would provide measurements of a fund’s exposure to changes in interest rates, credit spreads and asset prices, whether through investments in debt securities or in derivatives. Financial statement information provides historical information over a particular time period (e.g., a statement of operations), or information about values of assets at a particular point in time (e.g., a balance sheet including, for funds, a schedule of
investments). Risk metrics, on the other hand, measure the change in value of an investment in response to small changes in the underlying reference asset of an investment, whether the underlying reference asset is a security (or index of securities), commodity, interest rate, or credit spread over an interest rate. Based on staff experience, as well as staff outreach to asset managers and entities that provide risk management services to asset managers, discussed further below, we believe that fund portfolio managers and risk managers commonly calculate these risk metrics to analyze the exposures in their portfolios.32 The Commission believes that staff can use these risk measures to better understand the exposures in the fund industry, thereby facilitating better monitoring of risks and trends in the fund industry as a whole. Form N–PORT would also require information about certain fund activities such as securities lending, repurchase agreements, and reverse repurchase agreements, including information regarding the counterparties to which the fund is exposed in those transactions, as well as in over-thecounter derivatives transactions. Such information would increase transparency concerning these activities and would provide better information regarding counterparty information, which would be useful in assessing both individual and multiple fund exposures to a single counterparty.33 Proposed Form N–PORT also requires information that would assist the Commission in assessing fund liquidity risk by, for example, requiring funds to provide information about the market liquidity and pricing of portfolio investments, as well as information regarding fund flows, which is helpful to understanding the liquidity pressures a fund might experience due to investor redemption activity. Finally, as discussed further below, Form N–PORT would be filed electronically in a structured, XML format. This format would enhance the ability of the Commission, as well as investors and other potential users, to analyze portfolio data both on a fundby-fund basis and also across funds. As a result, although we are proposing to collect certain information on Form N– PORT that may be similarly disclosed or reported elsewhere (e.g., portfolio investments would continue to be included as part of the schedules of investments contained in shareholder reports, and filed on a semi-annual basis with the Commission on Form N–CSR), we believe that it is appropriate to also collect this information in a structured format for analysis by our staff as well as investors and other potential users.

Who Must File Reports on Form N–
PORT
Our proposal would require a report on Form N–PORT to be filed by each registered management investment company and each ETF organized as a UIT.34 Registrants offering multiple series would be required to file a report for each series separately, even if some information is the same for two or more series. Money market funds and SBICs would not be required to file reports on Form N–PORT.35 As indicated above, our proposal would require all ETFs to file reports on Form N–PORT, regardless of their form of organization. Although most ETFs today are structured as open-end management investment companies, there are several ETFs that are organized as UITs.36 ETFs organized as UITs have significant numbers of investors who we believe could benefit from the disclosures required in Form N– PORT.37 We request comment on the entities that would be required to file reports on Form N–PORT.

Should any funds that we are
proposing to require to file reports on Form N–PORT not be required to do so? If so, what types of funds?
Should we require SBICs to file
reports on Form N–PORT? How useful would the information reported on Form N–PORT be for investors?
Our proposal would allow investors
in different types of ETFs to compare their portfolio investments by means of identical disclosures on reports on Form N–PORT, regardless of whether an ETF was organized as an open-end management investment company or as a UIT. Should ETFs organized as UITs not be required to file reports on Form N–PORT? If so, why?

Information Required on Form N–
PORT
Form N–PORT would require a fund to report certain information about the fund and the fund’s portfolio investments as of the close of the preceding month, including: (a) General information about the fund; (b) assets and liabilities; (c) certain portfolio-level metrics, including certain risk metrics; (d) information regarding securities lending counterparties; (e) information regarding monthly returns; (f) flow information; (g) certain information regarding each investment in the portfolio; (h) miscellaneous securities (if any); (i) explanatory notes (if any), and (j) exhibits. Each of these is discussed in more detail below. a. General Information and Instructions
Part A of Form N–PORT would
require general identifying information about the fund, including the name of the registrant, name of the series, and relevant file numbers.38 Funds would

Investment Company Act and CIK file numbers for the registrant, and the address and telephone number of the registrant. Funds would also provide the name of and EDGAR identifier for the series. 39See Form N–PORT, Items A.3 and A.4. 40See Form N–PORT, Items A.1.d and A.2.c. The Commission has begun to require disclosure of the LEI in other contexts. See, e.g., Form PF Adopting Release, supra note 14; Regulation SBSR-Reporting and Dissemination of Security-Based Swap Information, Securities Exchange Act Release No. 74244 (Feb. 11, 2015) [80 FR 14438 (Mar. 19, 2015)] (‘‘Regulation SBSR Adopting Release’’). 41The global LEI system operates under an LEI Regulatory Oversight Committee (‘‘ROC’’) that currently includes members that are official bodies from over 40 jurisdictions. The Commission is a member of the ROC and currently serves on its Executive Committee. The Commission notes that it would expect to revisit the proposed requirement to report LEIs if the operation of the LEI system were to change significantly. 42As of December 26, 2014, the cost of obtaining an LEI from the Global Markets Entity Identifier (‘‘GMEI’’) Utility in the United States was $200, plus a $20 surcharge for the LEI Central Operating Unit. The annual cost of maintaining an LEI from the GMEI Utility was $100, plus a $20 surcharge for the LEI Central Operating Unit. See https://www. gmeiutility.org/frequentlyAskedQuestions.jsp. 43See, e.g., Press Release: Commodities Futures Trading Commission (‘‘CFTC’’) Announces Mutual Acceptance of Approved Legal Entity Identifiers, CFTC (Oct. 30, 2013), available at http://www.cftc. gov/PressRoom/PressReleases/pr6758-13; Letter from Kenneth Bentsen, President & CEO of SIFMA to Jacob Lew, Chairman of FSOC re: Adoption of the Legal Entity Identifier, SIFMA (Apr. 11, 2014), available at http://www.sifma.org/issues/item.aspx ?id=8589948488; Regulation SBSR Adopting Release, supra note 40. Commenters to the FSOC Notice expressed support for regulatory acceptance of LEI identifiers. See, e.g., Joint Comment Letter of SIFMA/ Investment Adviser Association (Mar. 25, 2015) (‘‘SIFMA/IAA FSOC Notice Comment Letter’’) (expressing support for the LEI initiative, and noting that the use of LEIs has already enhanced the industry’s ability to identify and monitor global market participants); Comment Letter of Fidelity to FSOC Notice (Mar. 25, 2015) (expressing the need to develop analytics to make data intelligible, such as the ability to map exposures across the financial system, such as through the use of LEIs). 44See Form N–PORT, General Instructions A (Rule as to Use of Form N–PORT), B (Application of General Rules and Regulations), C (Filing of Reports), D (Paperwork Reduction Act Information), E (Definitions), F (Public Availability), G (Responses to Questions), and H (Signature and Filing of Report). 45See id. For example, General Instructions A, B, C, G, and H provide specific filing and reporting instructions (including how to report entity
names, percentages, monetary values, numerical values, and dates), General Instructions D and F provide information about the Paperwork Reduction Act and the public availability of information reported on Form N–PORT, and General Instruction E provides definitions for specific terms referenced in Form N–PORT. 46See supra note 42 (discussing the costs of obtaining and maintaining an LEI identifier in the United States). The Commission has further estimated the one-time burden associated with obtaining an LEI is one hour, with ongoing administration of an LEI corresponding to one hour per year. See SBSR Adopting Release, supra note 40, at nn. 1109–1111 and accompanying text. 47See Form N–PORT, Item B.1. 48See Form N–PORT, Items B.1.a and B.2.a. As discussed further below, we are proposing that funds would also report information about miscellaneous securities on an investment-byinvestment basis, although such information would be nonpublic and would be used for Commission use only. We also request comment below on whether funds should continue to be permitted to categorize investments as ‘‘miscellaneous securities.’’ See infra note 151 and accompanying text. 49See rule 12–12 of Regulation S–X. 50See Form N–PORT, Instruction E (providing that ‘‘controlled foreign corporation’’ has the meaning defined in section 957 of the Internal Revenue Code [26 U.S.C. 957]) and Item B.2.b (requiring funds to report assets invested in controlled foreign corporations). 51See Form N–PORT, Part B Instruction (‘‘Report the following information for the Fund and its consolidated subsidiaries.’’). also report the date of their fiscal year end, the date as of which information is reported on the form, and indicate if they anticipated that this would be their final filing on Form N–PORT.39 This information would be used to identify the registrant and series filing the report, track the reporting period, and identify final filings. Additionally, we are proposing that funds provide the Legal Entity Identifier (‘‘LEI’’) number of the registrant and series.40 The LEI is a unique identifier associated with a single corporate entity and is intended to provide a uniform international standard for identifying counterparties to a transaction.41 Fees are not imposed for the usage of or access to LEIs, and all of the associated reference data needed to understand, process, and utilize the LEIs are widely and freely available and not subject to any usage restrictions. Funds or registrants that have not yet obtained an LEI would be required to obtain one, which would entail a modest fee.42 The inclusion of LEI information on Form N–PORT, however, would facilitate the ability of investors and the Commission to link the data reported on Form N– PORT with data from other filings or sources that is or will be reported elsewhere as LEIs become more widely used by regulators and the financial industry.43 Form N–PORT would also include general filing and reporting instructions, as well as
definitions of specific terms referenced in the form.44 These instructions and definitions are intended to provide clarity to funds and to assist them in filing reports on Form N–PORT.45 We seek comment on these proposed disclosures and instructions.

Is there any additional or
alternative information that should be required to facilitate identification of funds and analysis of the reported information with information from other filings or otherwise available elsewhere?
Should the Commission require
funds to obtain LEIs? Is it appropriate for the Commission to require LEIs, which are only available through the global LEI system? Why or why not? In the case of funds that have not obtained an LEI, will those funds seek to obtain an LEI in the future absent any regulatory requirement to do so? In addition to the fees for obtaining and maintaining an LEI, would there be other costs associated with funds obtaining LEIs? 46
Are there any instructions or
definitions that should be revised? If so, how? Should any instructions or definitions be added to provide additional clarity, or deleted to avoid confusion with conflicting instructions, definitions, or industry practices? b. Information Regarding Assets and Liabilities
Part B of proposed Form N–PORT
would seek certain portfolio level information about the fund. Part B would include questions requiring funds to report their total assets, total liabilities, and net assets.47 Funds would separately report certain assets and liabilities, as follows. First, funds would report the aggregate value of any ‘‘miscellaneous securities’’ held in their portfolios.48 Currently, Regulation S–X permits funds to report an aggregate amount not exceeding five percent of the total value of the portfolio investments in one amount as ‘‘Miscellaneous securities,’’ provided that securities so listed are not restricted, have been held for not more than one year prior to the date of the related balance sheet, and have not previously been reported by name to the shareholders, or set forth in any registration statement, application, or annual report or otherwise made available to the public, and, as discussed further below, we are proposing the same conditions for Form N–PORT.49 Funds would also report any assets invested in a controlled foreign corporation for the purpose of investing in certain types of investments (‘‘controlled foreign corporation’’ or ‘‘CFC’’).50 Some funds use CFCs for making certain types of investments, particularly commodities and commodity-linked derivatives, often for tax purposes. Our proposal would require funds to disclose each underlying investment in a CFC, rather than just the investment in the CFC itself, which would increase transparency on fund investments through CFCs.51 These disclosures would allow investors to look through CFCs and understand the specific underlying holdings that they are

52See infra note 467 and accompanying and following text. 53See Form N–PORT, Items B.2.c to B.2.e. 54See Form N–SAR, Item 74 (requiring funds to report consolidated balance sheet data, including cash, repurchase agreements, debt-securities, preferred stock, common stock, options, other investments, receivables, other assets, total assets, payables for portfolio instruments purchased, amounts owed to affiliated persons, senior longterm debt, other liabilities, senior equity, net assets of common shareholders, number of shares outstanding, net asset value per share, total number of shareholder accounts, and total value of assets in segregated accounts). 55See, e.g., section 408 of the Sarbanes-Oxley Act of 2002, Pub. L. 107–204, 116 Stat. 745 (2002) (requiring the Commission to engage in enhanced review of periodic disclosures by certain issuers every three years). investing in, which would in turn allow investors to better analyze their fund holdings and risk associated with CFC investments, and hence enable investors to make more informed investment decisions. In addition, as discussed further below in Part II.E.4, we believe it would be beneficial for the Commission to have certain information about funds’ use of CFCs. The information we are proposing to obtain in Form N–PORT, combined with additional information we are proposing to require on Form N–CEN regarding CFCs, discussed below, would help the Commission better monitor funds’ compliance with the Investment Company Act and assess funds’ use of CFCs, including the extent of their use by reporting of total assets in CFCs.52 Second, we are proposing to require that funds report the amount of certain liabilities, in particular: (1) Borrowings attributable to amounts payable for notes payable, bonds, and similar debt, as reported pursuant to rule 6–04(13)(a) of Regulation S–X [17 CFR 210.6– 04(13)(a)]; (2) payables for investments purchased either (i) on a delayed delivery, when-delivered, or other firm commitment basis, or (ii) on a standby commitment basis; and (3) liquidation preference of outstanding preferred stock issued by the fund.53 This information would allow Commission staff, as well as investors and other potential users, to better understand a fund’s borrowing activities and payment obligations for assets that have been already received, which would facilitate analysis of the fund’s use of financial leverage, as well as the fund’s liquidity and ability to meet redemptions, which are important to understanding the risks such borrowings might create. We request comment on the reporting of assets and liabilities proposed on Form N–PORT.

As discussed above, our proposal
would require funds to disclose each underlying investment in a CFC. Should we consider modifying the information we propose to require, or require additional information? How commonly do funds invest in CFCs that in turn invest their assets in underlying investments? Should we provide instructions to clarify how funds should report investments in this situation? If so, should the Commission permit funds to disclose only the ultimate underlying investments, or should the Commission require disclosure of each layer of investment?
Are there other methods of
reporting the assets (including assets in CFCs) and liabilities described above that we should consider?
Are there other assets and liabilities
that funds should be required to separately report? If so, why? For example, should the Commission require funds to separately break out categories of assets and liabilities similar to what is currently required by Form N–SAR? 54 What would be the costs associated with providing such information on a monthly basis?
c. Portfolio Level Risk Metrics
One of the purposes of Form N–PORT is to provide the Commission with information regarding fund portfolios to help us 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. As discussed above, the Commission uses information from fund filings, including a fund’s registration statement and reports on Form N–CSR (which includes the fund’s shareholder report) and Form N–Q, to inform its understanding and regulation of the fund industry. Additionally our staff reviews fund disclosures—including registration statements, shareholder reports, and other documents—both on an ongoing basis as well as retroactively every three years.55 The disclosures in a fund’s registration statement about its investment objective, investment strategies, and risks of investing in the fund, as well as the fund’s financial statements, are fundamental to understanding a fund’s implementation of its investment strategies and the risks in the fund. However, the financial statements and narrative disclosures in fund registration statements and shareholder reports do not always provide a complete picture of a fund’s exposure to changes in asset prices, particularly as fund strategies and fund investments become more complex. The financial statements, including a fund’s
schedule of portfolio investments,
provide data regarding investments’ values as of the end of the reporting period—a ‘‘snapshot’’ of data at a particular point in time—or, in the case of the statement of operations, for example, historical data over a specified time period. By contrast, based on staff experience and outreach to funds, we understand that funds commonly internally use multiple risk metrics that provide calculations that measure the change in the value of fund investments assuming a specified change in the value of underlying assets or, in the case of debt instruments and derivatives that provide exposure to interest rates and debt instruments, changes in interest rates or in credit spreads above the riskfree rate. Accordingly, we believe it is appropriate to propose requiring funds to report quantitative measurements of certain risk metrics that would provide information beyond the narrative, often qualitative disclosures about investment strategies and risks in the fund’s registration statement, as well as a fund’s historical financial statement disclosures. Monthly reporting on these risk measures, in particular, would help provide the Commission with more current information on how funds are implementing their investment strategies through particular exposures. Receiving this information on a monthly basis could help the Commission, for example, more efficiently analyze the potential effects of a market event on funds. Specifically, we are proposing to require certain funds to provide portfolio level measures on Form N– PORT that will help Commission staff better understand and monitor funds’ exposures to changes in interest rates and credit spreads across the yield curve. As discussed in Part II.A.2.g below, we are also proposing to require risk measures at the investment level for options and convertible bonds. We believe that the staff can use these measures, for example, to determine whether additional guidance or policy measures are appropriate to improve disclosures in order to help investors better understand how changes in interest rate or credit spreads might affect their investment in a fund. Additionally, as we discussed above, we believe that institutional investors, as well as entities that provide services to both institutional and individual investors, would be able to use these risk metrics to conduct their own analyses in order to help them better understand fund composition, investment strategy, and interest rate

56See section 5(b)(2) of the Securities Act. 57As discussed further below, the Commission also believes that there would be a benefit to collecting risk measures for derivatives that provide exposure to certain assets, such as equities and commodities. Due to the nature of these instruments, however, we believe that such information should be provided on an instrumentby-instrument basis, instead of as a portfolio level calculation. 58Specifically, we are proposing to calculate notional value as the sum of the absolute values of:
(i) The value of each debt security, (ii) the notional amount of each swap, including, but not limited to, total return swaps, interest rate swaps credit default swaps, for which the underlying reference asset or assets are debt securities or an interest rate; and (iii) the delta-adjusted notional amount of any option for which the underlying reference asset is an asset described in clause (i) or (ii). See Form N–PORT, Item B.3, Instruction. The delta-adjusted notional value of options is needed to have an accurate measurement of the exposure that the option creates to the underlying reference asset. See, e.g., Comment Letter of Morningstar (Nov. 7, 2011) (‘‘Morningstar Derivatives Concept Release Comment Letter’’) (submitted in response to the Derivatives Concept Release, supra note 7, which sought comment regarding the use of derivatives by management investment companies). 59For funds with exposures that fall between any of the listed maturities in the form, funds would be instructed to use linear interpolation to approximate exposure to each maturity listed above. 60Form N–PORT would include instructions stating that ‘‘Investment Grade’’ refers to an investment that is sufficiently liquid that it can be sold at or near its carrying value within a reasonably short period of time and is subject to no greater than moderate credit risk, and ‘‘NonInvestment Grade’’ refers to an investment that is not Investment Grade. See Form N–PORT, General Instruction E. These instructions are consistent with the definitions of ‘‘Investment Grade’’ and ‘‘NonInvestment Grade’’ used in Form PF. and credit spread risk the fund is undertaking. This would complement the risk disclosures that are contained in the registration statement, thereby potentially helping all investors to make more informed investment choices. We believe that our proposal to require these funds to publicly disclose these measures quarterly, like other information in the schedule of investments, will also help provide investors with more specific, quantitative information regarding the nature of a fund’s exposure to particular asset classes than they do currently. Providing this more specific and current information through periodic public disclosure of such risk metrics could be especially important for investors with respect to funds that continuously offer new shares to the public, because such funds are generally required to maintain an updated or ‘‘evergreen’’ prospectus that must precede or accompany delivery of those securities.56 In particular, for funds that invest in debt instruments, or in derivatives that provide exposure to debt or debt instruments, we believe it is important for the Commission staff, investors, and other potential users to have measures that would help them analyze how portfolio values might change in response to changes in interest rates or credit spreads.57 To improve the ability of the Commission staff, investors, and other potential users to analyze how
changes in interest rates and credit spreads might affect a fund’s portfolio value, we are proposing that a fund that invests in debt instruments, or derivatives that provide exposure to debt instruments or interest rates, representing at least 20% of the fund’s notional exposure, provide a portfolio level calculation of duration and spread duration across the applicable maturities in the fund’s portfolio. We are proposing to limit this requirement to funds that invest in debt instruments or derivatives that provide exposure to debt instruments or interest rates that represent at least 20% of the fund’s notional value as of the reporting date.58 We are proposing the 20% threshold because we believe that at this level, the Commission would still receive measurements of duration and spread duration from funds that make investments in debt instruments as a significant part of their investment strategy, while providing an appropriate threshold so that funds that do not invest in debt to achieve their investment strategy would not have to monitor each month whether they trigger the requirement for making such calculations. Funds that primarily invest in assets other than debt instruments, such as equities, might have some level of investments in debt instruments for cash management or other purposes. We do not believe that requiring such funds to provide monthly calculations of duration or spread duration would be helpful for understanding such funds’ investment strategy or risk exposures, and we believe that the 20% threshold will provide a de minimis level to relieve the burden of calculating these measures for such funds. We believe that information would be most useful from funds that actually use debt exposures as part of their investment strategy. Based on staff experience, we believe that such funds have a debt exposure of at least 20%, and commonly greater than that. As discussed below, we request comment on the proposed de minimis threshold. For duration, we are proposing to require that a fund calculate the change in value in the fund’s portfolio from a 1 basis point change in interest rates (commonly known as DV01) for each applicable key rate along the risk-free interest rate curve, i.e., 1 month, 3 month, 6 month, 1 year, 2 year, 3 year, 5 year, 7 year, 10 year, 20 year, and 30 year interest rate, for each applicable currency in the fund. We realize that funds might not have exposures for every applicable key rate. For example, a short-term bond fund is unlikely to have debt exposures with longer maturities. Accordingly, a fund would only report the key rates that are applicable to the fund. Funds would report zero for maturities to which they have no exposure.59 For exposures outside of the range of listed maturities listed on Form N–PORT (i.e., maturities shorter than one month or longer than 30 years), funds would be instructed to include those exposures in the nearest maturity. We believe that requiring funds to provide further detail
about their exposures to interest rate changes along the risk-free rate curve would provide the Commission with a better understanding of the risk profiles of funds with different strategies for achieving debt exposures. For example, funds targeting an effective duration of five years could achieve that objective in different ways—one fund could invest predominantly in intermediateterm debt; another fund could create a long position in longer-term bonds, matched with a short position in shorter-term bonds. While both funds would have an intermediate-term duration, the risk profiles of these two funds, that is, their exposures to changes in long-term and short-term interest rates, are different. Having the proposed DV01 calculations along the risk-free interest rate curve would clarify this difference. The Commission staff could use this information to better understand how funds are achieving their exposures to interest rates, and use this information to perform analysis across funds with similar strategies to identify outliers for potential further inquiry, as appropriate. Additionally, we are proposing to require that the same funds provide a measure of spread duration (commonly known as SDV01) at the portfolio level for each of the same maturities listed above, aggregated by non-investment grade and investment grade exposures.60 This would measure the fund’s sensitivity to changes in credit spreads, i.e., a measure of spread above the risk-free interest rate. This is helpful for analyzing shifts in credit spreads for non-investment grade and investment grade debt, respectively, over the yield curve, as credit spreads for investment grade and non-investment grade debt do not always shift in parallel or in lock

61See, e.g., Frank K. Reilly, David J. Wright, and James A. Gentry, Historic Changes in the High Yield Bond Market, Journal of Applied Corporate Finance, Volume 21, No. 3, 65–79 (Summer 2009) (discussing the historical performance, including the credit spreads of the high yield bond market compared to the investment grade bond market). 62The delineation between non-investment grade and investment grade debt is similar to information regarding private fund exposures gathered on Form PF, which could be helpful for comparing and analyzing credit spreads between public and private funds. See, e.g., Item 26 of Form PF. 63More specifically, convexity measures the nonlinearities in a bond’s price with respect to changes in interest rates. See Frank J. Fabozzi, The Handbook of Fixed Income Securities 149–152 (8th ed. 2012). step, particularly during times of market stress.61 Because credit spreads can also vary based on the maturity of the bonds, we believe that providing credit spread measures for the key rates along the yield curve, as with DV01, would help the Commission better analyze credit spreads of investments in funds.62 Again, similar to the example above regarding the potential use of the DV01 metric, SDV01 can provide more precise information regarding funds’ exposures to credit spreads when they engage in a strategy investing in investment-grade or non-investment grade debt. In determining the methodology for the proposed measures of duration and spread duration, staff engaged in outreach to asset managers and risk service providers that provide risk management and other services to asset managers and institutional investors. The methodology proposed is both based on staff experience in using duration and spread duration, as well as this outreach to better understand common fund practices for calculating such measures. The Commission recognizes that particular funds might currently vary their methodology for calculating duration and spread duration by, for example, only providing a single measure of duration or spread duration or by only reporting key rate durations for particular maturities. Based on staff experience and outreach, the Commission believes that the proposed methodologies for reporting duration and spread duration will allow for better comparability across funds. Also, based on outreach, Commission staff believes that service providers that provide risk management services to funds generally use a ‘‘bottom up’’ approach to calculating duration and spread duration, meaning that such measures are first calculated at the position level and then aggregated at the portfolio level. Accordingly, we believe that providing the specific methodology for aggregation of duration and spread duration would not significantly increase the burden of calculating such metrics by funds, even if funds analyze such measures at the portfolio level using a methodology different from what we are proposing. As discussed below, however, we request
comment on the proposed methodologies, including whether such methodologies should be modified. For both duration and spread duration, we are proposing to require that funds provide the change in value in the fund’s portfolio from a 1 basis point change in interest rates or credit spreads, rather than a larger change, such as 5 basis points or 25 basis points. Based on staff’s outreach, we believe that a 1 basis point change is the methodology that many funds currently use to calculate these risk measures at the position level for internal risk monitoring and would provide sufficient information to assist the Commission in analyzing fund exposures to changes in interest rate or credit spreads. We believe that requiring funds to calculate such measures based on a larger basis point change could require more customized calculations, and therefore increase costs to funds, relative to the approach proposed. We request comment on this aspect of the proposed methodology. While the Commission is proposing that funds provide a calculation of each of these measures at a portfolio level, the Commission has considered whether to propose, instead, that funds report these risk metrics for each debt instrument or derivative that has an interest rate or credit exposure. This would provide more precise data for analysis of various movements in interest rates and credit spreads. Additionally, as discussed above, the Commission believes that most funds currently calculate these risk metrics at a position level; however, we recognize that even if such calculations are available at a position level, reporting these metrics could cause funds to make additional systems changes to collect such position-level data for reporting, as well as potential burdens related to increased review time and quality control in submitting the reports. Based on staff’s outreach and staff’s experience, the Commission believes that requiring funds to provide this information for each maturity at the portfolio level would provide a sufficient level of granularity for purposes of Commission staff analysis. Finally, we believe that there would be certain efficiencies for the Commission, investors, and other potential users to having funds report the portfolio-level calculations relative to reporting position-level calculations, as this could allow for more timely and efficient analysis of the data by not requiring the Commission or other potential users to calculate the portfolio-level measures from the position-level measures. We request comment below on the relative burdens and benefits of providing portfolio level and position level data. The Commission also considered whether to require funds to report a portfolio level measure (or, for the same reasons discussed immediately above in connection with how risk measures are calculated, position level measures) for convexity, which facilitates more precise measurement of the change in a bond price with larger changes in interest rates.63 We
have preliminarily determined not to require reporting of this metric, however, because we believe, based on staff outreach, that funds more commonly analyze nonlinear changes to interest rates through stress testing, rather than through calculating convexity. We request comment, however, on whether requiring funds to report a portfoliolevel measure of convexity would be useful to the Commission, investors, and other potential users, and the relative burdens and benefits of reporting convexity. We request comment on the proposed requirements to provide risk measures at the portfolio level.

We are proposing a 20% threshold
because, based on staff experience, we believe that this would require funds that use debt and exposure to debt or interest rate changes as part of their investment strategy to provide those metrics, while providing a minimum threshold so that funds that invest in debt for cash management or other purposes unrelated to implementing their investment strategy would not be required to collect, calculate, or report such data. Given this objective, is 20% the appropriate threshold for determining which funds must provide these risk metrics? Should this threshold be lower, such as 5% or 10% or higher, such as 30% or 35%? Are there alternative methodologies that the Commission should consider for determining which funds should be required to provide this information? Should we, instead, base the threshold directly on the net asset value (‘‘NAV’’) of the fund’s debt securities and interest rate investments, rather than the fund’s notional exposure to debt securities or interest rates as a percentage of the fund’s NAV?
We are proposing to require
reporting information on DV01 and SDV01 at the portfolio level because we believe that this can provide the

64As discussed further below, we separately propose and request comment on additional and alternative risk metrics. See, e.g., infra note 127 and accompanying and following text (proposing that funds report delta for certain derivative contracts), text following note 142 (requesting comment on vega, gamma, and other risk metrics), and Part II.A.4.k (generally requesting comment on additional risk measures). 65See Securities Industry and Financial Markets Association, Master Securities Loan Agreement (2000 Version) §§ 4, 9, available at http:// www.sifma.org/services/standard-forms-anddocumentation/. See also Division of Investment Management, Securities and Exchange Commission, Securities Lending by U.S. Open-End and ClosedEnd Investment Companies (‘‘Securities Lending Summary’’), available at http://www.sec.gov/ divisions/investment/securities-lending-openclosed-end-investment-companies.htm. 66Lending funds and borrowers may negotiate the collateral that the borrower posts to the lender, and a cash collateral fee, commonly called a ‘‘rebate,’’ that the lender pays to the borrower. The rebate is negotiated and can be negative (i.e., a fee paid from the borrower to the lender) when demand for the loan of a particular security is especially great or its supply especially constrained. See id. at § 5. 67See Securities Lending Summary, supra note 65. 68For example, the transfer of a fund’s portfolio securities to a borrower implicates section 17(f) of the Investment Company Act, which generally requires that a fund’s portfolio securities be held by an eligible custodian. A fund’s obligation to return collateral at the termination of a loan implicates
section 18 of the Investment Company Act, which
governs the extent to which a fund may incur indebtedness. See id. 69 Item 70.N of Form N–SAR. 70See, e.g., Form N–1A, Items 9(c) (disclosures regarding risks), 16(b) (disclosures of investment strategies and risks), 17(f) (disclosures of proxy voting policy), and 28(h) (exhibits of other material contracts). Commission and investors with useful information regarding funds’ exposures to changes in interest rate and credit spreads, without imposing a potential burden that might be involved in providing such risk metrics at a position level. We believe, however, based on staff outreach that funds or their service providers generally do calculate such information at a position level. We request comment on the relative burdens and benefits of requiring funds to report portfolio level calculations of duration and spread duration, as opposed to providing those for each relevant instrument in the portfolio. What, if any, would be the added costs and burdens associated with adapting systems in order to centrally collect and report such information? What would be the benefits to the Commission, investors, and other potential users to having more precise information in order to evaluate such exposures? Conversely, are there benefits to having funds report these measures at the portfolio level rather than the position level, even if reporting at the position level would not significantly increase costs?

To what extent would the values
reported for these risk metrics be affected by the inputs and assumptions underlying the methodologies by which funds would calculate these metrics, including assumptions regarding the valuation of the investments or underlying securities of investments, particularly for investments that have pre-payment options, such as mortgagebacked securities? Specifically, how would the comparability of information reported by different funds be affected if funds used different inputs and assumptions in their methodologies? Do funds have concerns regarding reporting measures that include such assumptions, such as proprietary or liability concerns? Are there ways the Commission could improve the standardization of the calculation of these risk metrics? If so, how?
To the extent that funds are
calculating such measures using a methodology other than what the Commission is proposing, what would the associated costs and other burdens be for funds to calculate and report these measures according to a different methodology than that typically used by the fund?
Are there any alternatives or
modifications to the methodologies that the Commission is proposing that the Commission should consider? 64 For example, should the Commission require, or permit, funds to report duration and spread duration only for the maturities that represent the highest exposures in the fund, such as the top three or the top five (or another quantity)? Should the Commission require, or permit, funds to report duration and spread duration based on a larger change in interest rates or credit spreads, such as 5 basis points or 25 basis points? How would these methodologies affect the burden on funds of reporting duration and credit spread duration? Are there more efficient ways for the Commission to collect information to increase the transparency of funds’ duration and spread duration?
Should we provide a de minimis
amount for exposure to different currencies, under which level a fund would not have to report the DV01 or SDV01 for exposures in that currency? For example, should we only require funds with exposure to a currency equal to 5% or more of the fund’s NAV to provide a DV01 and SDV01 calculation for such currency? If we were to provide a de miminis, should the threshold be higher or lower? d. Securities Lending To increase the rate of return on their portfolios, some funds engage in securities lending activities whereby a fund lends certain of its portfolio securities to other financial institutions such as broker-dealers. In return for the security lent, funds receive collateral and sometimes a fee. To protect the fund from the risk of borrower default, the borrower generally posts collateral with the fund in an amount at least equal to the value of the borrowed securities, and this amount of collateral is adjusted daily as the value of the borrowed securities is marked to market.65 Funds generally receive cash as collateral. A fund will typically invest cash collateral that it receives in short-term, highly liquid instruments, such as money market funds or similar pooled investment vehicles, or directly in money market instruments.66 The fund’s income from these activities may come from fees paid by the borrowers to the fund and/or from the reinvestment of collateral. Many funds engage an external service provider—commonly called a ‘‘securities lending agent’’—to administer the securities lending program. The securities lending agent is typically compensated by being paid a share of the fund’s securities lending revenue after the counterparty has been paid any rebate due to it.67 Securities lending implicates certain provisions of the Investment Company Act, and funds that engage in securities lending do so in reliance on Commission staff no-action letters, and in some circumstances, exemptive orders.68 These letters and orders address a number of areas, including loan collateralization and termination, fees and compensation, board approval and oversight, and voting of proxies. Currently, the information that funds are required to report about securities lending activity, whether in a structured format or otherwise, is limited. For example, funds disclose on Form N– SAR whether they are permitted under their investment policies to, and whether they did engage during the reporting period in, securities lending activities.69 Funds generally also disclose additional information regarding their securities lending programs in their registration statements.70 In addition, consistent with current industry practices, many funds voluntarily identify particular securities that are on loan in their schedules of portfolio investments prepared pursuant to Regulation S–X. These requirements do not address other pertinent considerations, such as

71See infra text following note 74 (discussing the reporting of counterparty information); Part II.A.2.g (discussing the proposed requirements regarding position-level information). Commenters to the FSOC Notice also suggested that enhanced securities lending disclosures could be beneficial to investors and counterparties. See, e.g., SIFMA/IAA FSOC Notice Comment Letter, supra note 43 (‘‘Disclosures related to securities lending practices, if appropriately tailored, could potentially assist investors and counterparties in making informed choices about where they deploy their assets and how they engage in lending practices.’’); Comment Letter of the Vanguard Group, Inc. (Mar. 25, 2015) (‘‘Vanguard FSOC Notice Comment Letter’’) (asserting that securities lending as a whole suffers from a lack of readily available data, and supporting further efforts to gather data and study the practice of securities lending). 72See infra text following note 276 (discussing proposed disclosures in the notes to funds’ financial statements that would allow investors to better understand the income generated from, as well as the expenses associated with, securities lending activities). 73See, e.g., section 984(b) of the Dodd-Frank Act, Pub. L. No. 111–203, 124 Stat. 1376 (2010) (directing the Commission to promulgate rules designed to increase the transparency of information available to brokers, dealers, and investors, with respect to the loan or borrowing of securities). 74See generally Securities Lending Summary, supra note 65. 75Form N–PORT, Item B.4. 76Cf. Form PF, Section 1c, Item 22 (requiring advisers to private funds to report exposures to the five counterparties to which the reporting fund has the greatest mark-to-market net counterparty credit exposure). 77See Form N–PORT, Item B.5.a. 78See id. 79See Form N–PORT, Item B.5.b. 80See Form N–1A, Item 26(b)(1); Form N–2, Item 4, Instruction 13; Form N–3, Item 26(b)(i). the extent to which a fund lends its portfolio securities, the counterparties to which the fund is exposed, the fees and revenues associated with those activities, and the significance of securities lending revenue to the investment performance of the fund. To address these data gaps and provide additional information to the Commission, investors, and other potential users regarding a fund’s securities lending activities, we are proposing that funds report certain counterparty information and positionlevel information monthly on Form N– PORT.71 Also, as to other information for which annual reporting would be sufficient because it is unlikely to change on a frequent basis (e.g., name and other identifying information for a fund’s securities lending agent), we are proposing that funds report this information annually on Form N–CEN as discussed below in Part II.E. We are also proposing, as discussed below in
Part II.C.5, to require that certain
information about the income from and fees paid in connection with securities lending activities, and the monthly average of the value of portfolio securities on loan, be disclosed as part of the notes to funds’ financial statements.72 Our proposals today are intended, in
part, to increase the transparency of
information available related to the lending and borrowing of securities with respect to funds as a subset of the universe of market participants engaged in securities lending activities.73 Counterparty Information. One risk that funds engaging in securities lending are exposed to is counterparty risk because borrowers could fail to return the loaned securities. In this event, the lender would keep the collateral. Collateral is generally posted in cash and, in practice, the loan is generally over-collateralized. The collateral requirements thereby mitigate the extent of a fund’s counterparty risk. In some cases, this risk is further mitigated for the fund if the fund’s securities lending agent indemnifies the fund against default by the borrower. While we believe there is value to having information concerning securities lending counterparties to monitor risk, as well as to monitor compliance with conditions set forth in staff no-action letters and exemptive orders,74 we are proposing to require that funds report, for each of their securities lending counterparties as of the reporting date, the full name and LEI of the counterparty (if any), as well as the aggregate value of all securities on loan to the counterparty, rather than at the loan level.75 We believe that disclosure of counterparty information at an aggregate portfolio level would provide the Commission and investors with information to better understand the level of potential counterparty risk assumed as part of the fund’s securities lending program, with a lower relative burden on funds than requesting such information on a per loan level. We request comment on the portfolio level securities lending information requirements we are proposing.

As discussed above, Form N–PORT
would require funds to disclose the aggregate value of all securities on loan to each securities lending counterparty and the name and LEI (if any) of the counterparty. Should we instead require funds to report this information on a loan-by-loan or security-by-security basis? To what extent, if any, would such information be used by investors and other potential users? What, if any, additional issues would funds face in tracking and reporting such information on a loan-by-loan or security-by-security basis? Do funds currently track or have the ability to readily determine their counterparty exposure on a loan-by-loan or security-by-security basis? If securities lending counterparty information should be reported on a loan-by-loan or security-by-security basis, is there any additional or alternative information we should require funds to report, such as the rebate or compensation to the securities lending agent?
Instead of requiring funds to report
the aggregate value of all securities on loan to each securities lending counterparty, should we limit such disclosures to counterparties to which the fund has the greatest exposure, such as the top five or top ten counterparties? 76 Alternately, should we require funds to report aggregate exposure to a given counterparty only if such exposure constitutes more than a certain percentage of the NAV of the fund (e.g., one percent)? Would either approach more appropriately consider the costs of tracking and reporting such information and the benefits that increased transparency would provide to the Commission and other potential users?
Alternately, or in addition, should
the Commission request information regarding other types of counterparty exposures? For example, should the Commission require funds to report counterparty exposures based on the amount of unsettled trades with each counterparty? If so, should such information be reported in terms of aggregate or net exposure, and why? e. Return Information We are proposing to require funds to provide monthly total returns for each of the preceding three months.77 If the fund is a multiple class fund, it would report returns for each class.78 Funds with multiple classes would also report their class identification numbers.79 Funds would calculate returns using the same standardized formulas required for calculation of returns as reported in the performance table contained in the riskreturn summary of the fund’s prospectus and in fund sales materials.80 We are proposing to require this information on Form N–PORT because we believe it would be useful to have such information in a structured format to facilitate comparisons across funds. For example, analysis of return information over time among similar funds could reveal outliers that might merit further inquiry by Commission staff. Additionally, performance that appears to be inconsistent with a fund’s investment strategy or other benchmarks

81Similar risk analytics were used in the Commission’s Aberrational Performance Inquiry, an initiative by the Division of Enforcement’s Asset Management Unit to identify hedge funds with suspicious returns. See, e.g., Press Release, SEC Charges Hedge Fund Adviser and Two Executives with Fraud in Continuing Probe of Suspicious Fund Performance (Oct. 17, 2012), available at http:// www.sec.gov/News/PressRelease/Detail/ PressRelease/1365171485332. 82See Form N–PORT, Item B.5.a. Although generally only information reported on Form N– PORT for the third month of each fund’s fiscal quarter would be publicly available, the concerns associated with more frequent public disclosure are related to the disclosure of portfolio holdings information and would not apply to the disclosure of fund return information. See generally note 170 and accompanying and following text (discussing the risks of predatory trading practices such as front-running and the ability of outside investors to reverse engineer and copycat fund’s investment strategies). 83See Form N–PORT, Item B.5.c. 84See Form N–PORT, Item B.5.d. Our proposal would also amend Regulation S–X to require funds to report similar information in their financial statements, although Regulation S–X would require such information to be aggregated by type of derivative contract, rather than by category of exposure as required by Form N–PORT. We discuss below our reasons for proposing information to be reported based on contract type on Regulation S–X. See infra Part II.C. 85See Form N–PORT, Item B.6. 86Similar to Form N–SAR, Form N–PORT would instruct funds to report amounts after any front-end sales loads had been deducted and before any deferred or contingent deferred sales loads or charges had been deducted. Shares sold would include shares sold by the fund to a registered UIT. Funds would also include as shares sold any transaction in which the fund acquired the assets of another investment company or of a personal holding company in exchange for its own shares. Funds would include as shares redeemed any transaction in which the fund liquidated all or part of its assets. Exchanges would be defined as the redemption or repurchase of shares of one fund or series and the investment of all or part of the proceeds in shares of another fund or series in the same family of investment companies. Cf. Form N– PORT, Item B.6 and Item 28 of Form N–SAR (requiring reporting of monthly sales and repurchases of the Registrant’s/Series’ shares for the past six months). can form a basis for further inquiry and monitoring.81 Because only quarter-end reports on Form N–PORT would be made public, we are proposing that funds provide return information for each of the preceding three months.82 This would provide investors and other potential users with monthly return information, so that they would have access to each month’s return on a quarterly basis. Otherwise, we are concerned that investors might potentially confuse the
month’s disclosed return as representing the return for the full quarter. We are also proposing that funds 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 each of the following categories: Commodity contracts, credit contracts, equity contracts, foreign exchange contracts, interest rate contracts, and other derivatives contracts.83 This item is modeled after disclosure requirements in Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codification (‘‘ASC’’) 815, which governs the accounting disclosure for derivatives and hedging. This information would help the Commission staff, investors, and other potential users better understand how a fund is using derivatives in accomplishing its investment strategy and the impact of derivatives on the fund’s returns. In order to provide a point of comparison, we are also proposing that funds report, for each of the last three months, monthly net realized gain (or loss) and net change in unrealized appreciation (or depreciation) for investments other than derivatives.84 We request comment on the return information we are proposing in Form N–PORT.

Should the Commission consider,
as an alternative, requiring funds to provide monthly return information annually on Form N–CEN, rather than on Form N–PORT? Would this significantly reduce the burden of reporting such information?
We are proposing to require that
funds report three months of returns so that investors and other potential users, who would only observe reports on Form N–PORT on a quarterly basis, would still receive return data for each month of the year. Do commenters agree that such disclosure of monthly returns would be helpful to investors? Are there preferable alternatives for providing such information to investors? Are there potential negative consequences of reporting monthly returns? For example, could the availability of this information cause investors to emphasize short-term returns?
We request comment on alternative
requirements for fund reporting of return information. For example, the Commission requests comment on whether to require reporting by funds of gross returns. Would gross information, with or without accompanying fee information for each class, be confusing for investors? If so, are there ways to mitigate the risk of investor confusion? Instead of requiring reporting of returns for all classes, should the Commission, for example, require funds to report return information for a single class, such as the class with the highest expense ratio or the largest share class in terms of assets under management? What would be the relative benefits and burdens of only requiring disclosure of a single class?
Are there alternative methods that
the Commission should consider for requiring funds to report the effect of derivatives on the return of the fund? For example, should the Commission require that funds report the monthly net realized gain or loss and net change in unrealized appreciation or depreciation attributable to derivatives by type of derivative (i.e., forward, future, option, swap), rather than by category of exposure? What would be the burden and benefits of reporting such information relative to the proposed requirement? f. Flow Information Form N–PORT would require funds to separately report, for each of the preceding three months, the total net asset value of: (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).85 This information is similar to what is currently reported on Form N–SAR, and would be generally reported subject to the same guidelines that currently govern reporting of flow information on that form.86 We propose to require this information on Form N–PORT because we believe that this information would be more helpful if reported on a monthly basis rather than retrospectively on an annual basis on Form N–CEN. We believe that having flow information reported to us monthly will help us better monitor trends in the fund industry. For example, it could help us analyze types of funds that are becoming more popular among investors and areas of high growth in the industry. It could help us better examine investor behavior in response to market events. Finally, in combination with other information reported on Form N–PORT regarding liquidity of fund positions, it could also help us identify funds that might be at risk of experiencing liquidity stress due to increased redemptions.
What would be the costs and
burdens of providing flow information on a monthly basis on Form N–PORT? Should the Commission consider, as an alternative, requiring funds to provide monthly flow information annually on Form N–CEN, rather than on Form N– PORT?
To what extent would the
usefulness of the flow information be

87See id.
88See Form N–PORT, Part D. See also supra note 49 and accompanying text. 89See infra note 150 and accompanying and following text. 90See Form N–PORT, Items C.1.a and C.1.c. 91Our inability to identify specific securities has limited our ability in other contexts to compare ownership of the securities across multiple funds and monitor issuer exposure. For example, during the month of February 2013, money market funds reported 6,821 securities without CUSIPs (approximately 10% of all securities reported on Form N–MFP). 92See Form N–PORT, Item C.1.b and C.1.d to C.1.e (requiring reporting of identifiers such as LEI of the issuer, CUSIP, ISIN, ticker or other unique identifier). 93See infra notes 138–140 (discussing product identifiers for security-based swaps and swaps, as addressed in rulemakings by the Commission and Commodity Futures Trading Commission, respectively). 94See Form N–PORT, Item C.1.e.iii. 95See Form N–PORT, Item C.2. See rule 12–12 of Regulation S–X. 96See Form N–PORT, Item C.2.a to C.2.d. For derivatives, as appropriate, funds would provide the number of contracts. 97See Form N–PORT, Item C.3. See rule 12–12A of Regulation S–X. 98See Form N–PORT, Item C.4.a and C.4.b. 99See, e.g., Form PF, Item 26 (requiring filers to report exposures by asset type); Form N–Q, Item 1 (requiring filers to report the schedules of investments required by sections 210.12–12 to 12– 14 of Regulation S–X); Form N-CSR, Item 1 (requiring filers to attach a copy of the report transmitted to shareholders, which would include schedules of investments required by sections 210.12–12 to 12–14 of Regulation S–X). affected by the fact that omnibus accounts, which generally have significant amounts of purchases and redemptions, typically net their transactions prior to executing with the funds’ transfer agents? Should the Commission revise the proposed flow disclosures to address this issue and, if so, how?

Form N–SAR currently also
requires funds to report flow information related to ‘‘other’’ shares sold (i.e., other than through new sales and exchanges and reinvestments of dividends and distributions).87 Should the Commission also require funds to report this category of flow information on Form N–PORT? What would be the utility of requesting flow information to be separately reported in this additional category?
Should we require that flow
information be reported as to each class of the fund? Would such additional information be helpful to investors and other potential users? What would be the burdens to funds with multiple classes of reporting such information? g. Schedule of Portfolio Investments
Part C of proposed Form N–PORT
would require funds to report certain information on an investment-byinvestment basis about each investment held by the fund and its consolidated subsidiaries as of the close of the preceding month. Funds would respond to certain questions that would apply to all investments (i.e., the investment’s identification, amount, payoff profile, asset and issuer type, country of investment or issuer, and fair value level, and whether the investment was a restricted security or illiquid asset). Funds would also respond, if relevant, to additional questions related to specific types of investments (i.e., debt securities, repurchase and reverse repurchase agreements, derivatives, and securities lending). Funds would have the option of identifying any investments that are ‘‘miscellaneous securities.’’ 88 Unless otherwise indicated, funds would not report information related to those investments in Part C, but would instead report such information in Part D.89
i. Information for All Investments
Proposed Form N–PORT would require funds to report certain basic information about each investment. In particular, funds would report the name of the issuer and title of issue or description of the investment, as they are currently required to do on their reported schedules of investments.90 To facilitate analysis of fund portfolios, it is important for Commission staff to be able to identify individual portfolio securities, as well as the reference instruments of derivative investments through the use of an identifying code or number, which is not currently required to be reported on the schedule of investments. Fund shareholders and potential investors that are analyzing fund portfolios or investments across funds could similarly benefit from the clear identification of a fund’s portfolio securities across funds. The staff has found that some securities reported by funds lack a securities identifier, and this absence has reduced the usefulness of other information reported.91 To address this issue, we propose to require that funds report additional information about the issuer and the security. Funds would report certain securities identifiers, if available.92 For example, for swaps and security-based swaps, funds could report the product identification number used for reporting such instrument to a swap data repository or securities-based swap data repository, if available.93 If a unique identifier is reported, funds would also indicate the type of identifier used.94 Such an identifier may be internally generated by the fund or provided by a third party, but should be consistently used across the fund’s filings for reporting that investment so that the Commission, investors, and other potential users of the information can track the investment from report to report. We also propose to require funds to report the amount of each investment as of the end of the reporting period, as is currently required under Regulation S– X.95 Funds would report the number of units or principal amount for each investment, as well as the value of each investment at the close of the period, and the percentage value of each investment when compared to the net assets of the fund.96 Funds would also report the currency in which the investment was denominated, and, if not denominated in U.S. dollars, the exchange rate used to calculate value. Our proposal would also require funds to report the payoff profile of the investment, indicating whether the investment is held long, short, or N/A, which would serve the same purpose as the current requirement in Regulation S–X to disclose investments sold short.97 Funds would respond N/A for derivatives and would respond to relevant questions that indicated the payoff profile of each derivative in the derivatives portion of the form. These disclosures would identify short positions in investments held by funds. Funds would also report the asset type for the investment: Short-term investment vehicle (e.g., money market fund,
liquidity pool, or other cash management vehicle), repurchase agreement, equity-common, equitypreferred, debt, derivative-commodity, derivative-credit, derivative-equity, derivative-foreign exchange, derivativeinterest rate, structured note, loan, ABSmortgage backed security, ABS-asset backed commercial paper, ABScollateralized bond/debt obligation, ABS-other, commodity, real estate, other) and issuer type (corporate, U.S. Treasury, U.S. government agency, U.S. government sponsored entity, municipal, non-U.S. sovereign, private fund, registered fund, other).98 We have based these categories in part on staff review of how funds currently categorize investments on their
schedule of investments, and in part on
the categories of investments required by private funds under Form PF.99 These disclosures would allow the Commission, investors, and other potential users to assess the composition of fund portfolios in terms of asset and issuer types and also

100See Form N–PORT, Items C.6 and C.7. ‘‘Restricted security’’ would have the definition provided in rule 144(a)(3) under the Securities Act [17 CFR 230.144(a)(3)]. See Form N–PORT, General Instruction E. See also proposed rule 12–13, nn.6 and 8 of Regulation S–X, which would require similar disclosures in funds’ schedules of investments to identify securities that are restricted or illiquid. Form N–PORT would define ‘‘illiquid asset’’ as ‘‘an asset that cannot be sold or disposed of by the Fund in the ordinary course of business within seven calendar days, at approximately the value ascribed to it by the Fund.’’ See Form N–PORT, General Instruction E. This definition is the same definition used in the liquidity guidance issued by the Commission for open-end funds. See Revisions of Guidelines to Form N–1A, Investment Company Act Release No. 18612 (Mar. 12, 1992) [57 FR 9829 (Mar. 20, 1992)] (‘‘1992 Release’’). As recently stated by Chair Mary Jo White, the Division of Investment Management is considering a recommendation that the Commission update liquidity standards for open-end funds and ETFs, which may result in updated guidance on this issue. See Speech by Securities and Exchange Commission Chair Mary Jo White (Dec. 11, 2014), available at http://www.sec.gov/News/Speech/ Detail/Speech/1370543677722. 101See ASC 820. An investment is categorized in the same level of the fair value hierarchy as the lowest level input that is significant to its fair value measurement. Level 1 inputs include quoted prices (unadjusted) for identical investments in an active market (e.g., active exchange-traded equity securities). Level 2 inputs include other observable inputs, such as: (i) Quoted prices for similar securities in active markets; (ii) quoted prices for identical or similar securities in non-active markets; and (iii) pricing models whose inputs are observable or derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the security. Level 3 inputs are unobservable inputs. We are proposing amendments to Regulation S–X to require that funds identify level 3 securities in their schedules of investments. See infra Part II.C.3. 102For a discussion of some of the challenges regulators may face with respect to Level 3 accounting, see, e.g., Konstantin Milbradt, Level 3 Assets: Booking Profits and Concealing Losses, in 25 Rev. Fin. Stud. 55–95 (2011). 103ASC 820–10–50–2 requires for each class of assets and liabilities measured at fair value, the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3). 104See Form N–PORT, Item C.5. Currently, funds are required to report the related industry, country, or geographic region of the investment in their schedules of investments. As discussed below, we are proposing to amend Regulation S–X to require funds to report the industry and the country or geographic region
of the investment. See infra Part II.C.3. 105 Information about the FIGI is available on the Object Management Group’s Web site, a not-forprofit technology standards consortium. See generally Object Management Group, Documents Associated With Financial Industry Global Identifier (FIGI) Version 1.0—Beta 1, available at http://www.omg.org/spec/FIGI/1.0/Beta1/. 106See infra note 139 and accompanying and following text. facilitate comparisons among similar types of investments. Our proposal would also require funds to report, for each investment, whether the investment is a restricted security and whether the investment is an illiquid asset.100 These disclosures would provide investors and the Commission staff with more information about liquidity risks associated with the fund’s investments. Each fund would also report 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 U.S. Generally Accepted Accounting Principles (‘‘U.S. GAAP’’).101 Commission staff could use this information to identify and monitor investments that may be more susceptible to increased valuation risk and identify potential outliers that warrant additional monitoring or inquiry.102 In addition, Commission staff would be better able to identify anomalies in reported data by aggregating all fund investments industry-wide into the various level categories. Currently, funds are required to evaluate the fair value level measurement of each investment as part of the fair value level hierarchy disclosure in their financial statements.103 We believe that based on this requirement, funds should have pricing information available to determine the categorization of their portfolio investments as Level 1, Level 2, or Level 3 within the fair value hierarchy. Form N–PORT would also require funds to report the country that corresponds to the country of investment or issuer based on the concentrations of the risk and economic exposure of the investment. Additionally, funds would be required to report the country in which the issuer is organized if that is different from the country of risk and economic exposure.104 These disclosures would provide the Commission staff and investors with more information about country-specific exposures associated with the fund’s investments. Specifically, the Commission believes that providing both the country based on concentrations of risk and economic exposure and also the country in which the issuer is organized would assist the Commission, investors, and other potential users in understanding the country-specific risks associated with such investments. For example, knowing the country of risk and economic exposure is important for understanding the effect of such investments in a portfolio when that country might be going through times of economic or political stress, regardless of whether the investment is issued in a different country. Knowing the country in which the
issuer is organized would be important information for analyzing the effect of any events that could affect the country in which the issuer is organized, such as sanctions or monetary controls, as this could affect the ability of the fund to liquidate the investment. We request comment on our proposed disclosure requirements.

Our proposal would require funds
to report certain identifiers for their investments. Should the Commission include additional specific identifiers in Form N–PORT, such as the Financial Instrumental Global Identifier (‘‘FIGI’’) or other similar identifier, if available? 105 If so, which identifier or identifiers would be expected to be reported? Are there any special considerations relating to the use of any identifiers (e.g., licensing fees associated with certain identifiers, the prevalence of a particular identifier as adopted by the marketplace, etc.) that could be addressed through these reporting requirements? If so, how should the requirements be restructured to address those considerations while still providing the Commission and investors the necessary identifying information?
We request comment on our
proposal to require funds to provide other unique identifiers for investments that do not have ISIN or ticker identifiers. Should the Commission require, in certain circumstances, specific identifiers to be reported as other unique identifiers? For example, in the case of security-based swaps, should the Commission require funds to report unique product identifiers? 106 If so, why?
How, if at all, should we modify our
proposed disclosures for the amount of each investment at the end of the reporting period (as well as the currency in which it is denominated)? Likewise, should we modify our proposed disclosures for the payoff profile of each investment and the restricted/illiquid nature of securities? If so, why?
Would our proposed asset and
issuer categories allow funds to readily categorize the investments typically held in fund portfolios? Should we include additional or alternative categories, and if so why? For example, are there any specific asset subcategories with sufficiently unique features as to warrant their own asset category? To the extent that funds currently are not categorizing their investments as proposed in Form N– PORT, what costs would be associated with providing such information?
Should any of these disclosures be
aggregated and reported on a portfolio

107See Form N–PORT, Items C.9.a and C.9.b. 108See Form N–PORT, Items C.9.c to C.9.e. 109See Form N–PORT, Item C.9.f. 110See text accompanying and following note 127 (discussing information required for options, including delta). 111See Form N–PORT, Items C.10.a to C.10.e. basis, rather than at an individual investment level? Alternately, should any of the proposed portfolio level information be reported on an individual investment level?

We request comment on the
incremental burden of reporting this information for each investment held by the fund, relative to the current burden of reporting the total value of each class of investments categorized in each level of the fair value hierarchy, as currently required by U.S. GAAP. Are there other ways in which a fund could identify and disclose investments that do not have readily available market quotations or observable inputs as an alternative to disclosing each investment’s categorization as a Level 1, Level 2, or Level 3 measurement?
Are there additional items that
should be included on Form N–PORT in order to improve the transparency regarding the liquidity and valuation of investments? For example, should the Commission require additional disclosure regarding the fund’s valuation of its investments, such as the primary pricing source used (e.g., exchange, broker quote, third-party pricing service, internal fair value), the name of any third-party pricing source, or whether an independent consultant or appraiser assisted with development of internal fair value? If so, should such information be disclosed on an individual security basis? Would such information increase the transparency of the pricing of thinly traded securities? Would investors benefit from such information and, if so, how? What costs and burdens would be associated with providing such information?
Should the Commission require
funds to report both the country in which the issuer is organized and also the country with the greatest concentrations of risk and economic exposure of the investments? What is the burden of reporting both elements, if different? Should the Commission provide specific guidance or instructions for determining the country with the greatest concentration of risks and economic exposure? Should funds have the option of reporting more than one country of economic risk, or a geographic region of economic risk?
Should funds not be required to
report country codes for U.S. investments? Would such an exclusion result in reduced burdens for funds that held only domestic securities? On the other hand, would such an exclusion result in investor confusion or complicate data validation efforts, by, for example, rendering it unclear whether an investment with N/A reported for its country code was a U.S. investment or was instead a foreign investment for which a country code had not been properly reported?
ii. Debt Securities
In addition to the information required above, Form N–PORT would require additional information about each debt security held by the fund in order to gain transparency into the payment flows and convertibility into equity of such investments, as such information can be used to better understand the payoff profile and credit risk of these investments. First, funds would report the maturity date and coupon (reporting annualized rate and indicating whether fixed, floating, variable, or none).107 Funds would also indicate 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.108 Finally, we are proposing to require additional information for convertible securities, to indicate whether the conversion is mandatory or contingent.109 We are also proposing to require funds to disclose for each convertible security the conversion ratio, information about the asset into which the debt is convertible, and the delta, which is 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. This reflects the sensitivity of the debt’s value to changes in the price of the asset into which the debt is convertible. The proposed requirement to provide the delta would also be required for options, as discussed further below, because convertible securities have optionality.110 For similar reasons discussed below regarding options, the Commission believes that providing the delta for convertible securities is important to understand the extent of both the credit exposure of the debt portion of the convertible bond as well as the market price exposure relative to the underlying security into which it can be converted or exchanged. We request comment on our proposed disclosure requirements for debt securities.
Are there additional or alternative
characteristics of debt securities that we should require to be disclosed to assist the Commission, investors, or other potential users in understanding the nature and risks of a fund’s debt security investments? For example, would disclosure of which debt securities are guaranteed, the nature of such guarantee (e.g., guarantee insurance or letter of credit), and the identity of the guarantor, be useful to investors? Alternately, or in addition, should the Commission require disclosure regarding the frequency of coupon payments, principal payback
schedule, priority in security structure
(e.g., senior, subordinated, etc.), embedded options (if any), insurance wrapper (if any), and whether the debt is secured?
We request comment on our
proposed disclosure requirements for convertible securities. With regard to the delta, to what extent would the inputs and assumptions underlying the methodology by which funds calculate price changes affect the values reported? Are there liability or other concerns associated with the reporting of such measures with such inputs and assumptions? How would the comparability of information reported between funds be affected if funds used different inputs and assumptions in calculating delta, such as different assumptions regarding the values of the funds’ portfolios? Are there ways the Commission could improve the standardization of the calculation of delta? If so, how? What would the associated costs and other burdens be for funds to calculate and report these measures according to a different methodology than that typically used by the fund?
iii. Repurchase and Reverse Repurchase
Agreements
In addition to the information required above for all investments, Form N–PORT would require each fund to report additional information for each repurchase and reverse repurchase agreement held by the fund. The fund would report the category that reflects the transaction from the perspective of the fund (repurchase, reverse repurchase), whether the transaction is cleared by a central counterparty—and if so the name of the central counterparty—or if not 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), and the maturity date.111 Funds would also report the principal amount and value of collateral, as well as the

112See Form N–PORT, Item C.10.f. Funds would report the category of investments that most closely represents the collateral, selected from among the following (asset-backed securities; agency collateralized mortgage obligations; agency debentures and agency strips; agency mortgagebacked securities; private label collateralized mortgage obligations; corporate debt securities; equities; money market; U.S. Treasuries (including strips); other instrument). If ‘‘other instrument,’’ funds would also include a brief description, including, if applicable, whether it is a collateralized debt obligation, municipal debt, whole loan, or international debt. 113See Money Market Fund Reform 2014 Release, supra note 13, at nn.1515–1518 and accompanying text (discussing comment letter stating that the categories used to report collateral for tri-party repurchase agreements to the Federal Reserve Bank of New York would allow for regular and efficient comparison of current and historical risk factors regarding repurchase agreements on a standardized basis). 114See Form N–PORT, Item C.11.a. Funds would report the category of derivative that most closely represents the investment, selected from among the following (forward, future, option, swaption, swap, warrant, other). If ‘‘other,’’ funds would provide a brief description. 115See Form N–PORT, Item C.11.b. 116Commenters to the FSOC Notice indicated that counterparty data for derivative disclosures is not often available and discussed the need to have more transparency in this regard. See, e.g., Comment Letter of Americans for Financial Reform (Mar. 27,
2015) (‘‘Americans For Financial Reform FSOC
Notice Comment Letter’’) (asserting that counterparty data in derivative disclosures is not often available); Comment Letter of the Systemic Risk Council (Mar. 25, 2015) (‘‘Systemic Risk Council FSOC Notice Comment Letter’’) (discussing the need to have information about investment vehicles that hold bank liabilities). 117We are proposing to require similar information on a fund’s schedule of investments. See Part II.C.2. Commenters to the FSOC Notice were supportive of enhanced derivatives disclosures. See, e.g., Systemic Risk Council FSOC Notice Comment Letter, supra note 116 (‘‘While most managed funds do not employ leverage to the same degree that banks do, we encourage regulators to consider carefully whether there are potential improvements to the current data collection regime (e.g., for registered investment advisers) that would allow regulators to track the presence and concentration of leverage in the asset management industry, particularly as it arises from use of derivatives. . . .’’); Americans for Financial Reform FSOC Notice Comment Letter, supra note 116 (stating that regulatory oversight should include ensuring appropriate transparency of fund positions to both investors and regulators, asserting that current derivatives disclosure requirements for registered investment companies ‘‘appear very poor,’’ noting the deficiency of just current accounting values and expressing the need for risk and exposure metrics that show the potential losses or gains to the fund if market prices change, and suggesting that new disclosures should require derivatives data to be sufficiently granular such that regulators and market participants could perform their own independent calculations of risk exposure, rather than relying on aggregated metrics of total risk); Vanguard FSOC Notice Comment Letter, supra note 71 (asserting that regulators would benefit by better understanding how and why mutual funds use derivatives). 118See Form N–PORT, Item C.11.c. The type of warrant or option would be selected from among Continued category of investments that most closely represents the collateral.112 These disclosures would enhance the information currently reported regarding funds’ use of repurchase agreements and reverse repurchase agreements. Information regarding repurchase agreements would be comparable to similar disclosures currently required to be made by money market funds on Form N–MFP. The categories used for reporting collateral would track the categories currently used to report tri-party repurchase agreement information to the Federal Reserve Bank of New York. We believe that conforming the categories that would be used in Form N–PORT to categories used in other reporting contexts would ease reporting burdens and enhance comparability.113 We request comment on our proposed disclosure requirements above.

As discussed above, the reporting
requirements contained in Form N– PORT would be comparable to similar disclosures currently required to be made by money market funds on Form N–MFP concerning repurchase agreements. Should we collect different or additional information? For example, should the proposed reporting requirements be revised to encompass characteristics of bilateral repurchase and reverse repurchase agreements, which are not typically held by money market funds but we understand are more commonly held by funds that would be reporting on Form N–PORT? If so, how? Should the categories used for reporting collateral, which as proposed would track the categories currently used to report tri-party repurchase agreement information to the Federal Reserve Bank of New York, be revised? If so, how and why?
We believe that funds already track
the characteristics of their repurchase and reverse repurchase agreements that we would require to be reported on Form N–PORT. To the extent this is true, what would be the incremental cost and burden of reporting such information to the Commission?
Are there additional or alternative
disclosures that we should require to be reported to assist investors in understanding counterparty and other risks associated with the fund’s repurchase and reverse repurchase agreements?
iv. Derivatives
As discussed above, the current reporting regime for derivatives has led to inconsistent approaches to reporting derivatives information and, in some cases, insufficient information concerning the terms and underlying reference assets of derivatives to allow the Commission or investors to understand the investment. Additionally, as discussed further below, for options, the Commission believes that it would be important to have a measurement of ‘‘delta,’’ a measure not reported in the financial statements or schedule of investments, to better understand the exposure to the underlying reference asset that the options produce in the portfolio. Currently, the Commission and investors are sometimes unable to accurately assess funds’ derivatives investments and the exposures they create, which can be important to understanding funds’ investment strategies, use of leverage, and risk of loss. Our proposal is intended to increase transparency into funds’ derivatives investments by requiring funds to disclose certain characteristics and terms of derivative contracts that are important to understand the payoff profile of a fund’s investment in such contracts, as well as the exposures they create or hedge in the fund. This would include, for example, exposures to currency fluctuations, interest rate shifts, prices of the underlying reference asset, and counterparty credit risk. As discussed further below, we are also amending Regulation S–X to make similar changes to the reporting regime for derivatives disclosures in fund financial statements. Consequently, in addition to the information required above for all investments, Form N–PORT would require additional information about each derivative contract in the fund’s portfolio. Funds would report the category of derivative that most closely represents the investment (e.g., forward, future, option, etc.).114 Funds would also report the name and LEI (if any) of the counterparty (including a central counterparty).115 This identifying information should assist the Commission, investors, and other potential users in better identifying and monitoring the categories of derivatives held by funds and the associated counterparty risks.116 Form N–PORT would also require funds to report terms and conditions of each derivative investment that are important to understanding the payoff profile of the derivative.117 For options and warrants, including options on a derivative (e.g., swaptions), funds would report the type (e.g., put), payoff profile (e.g., written), number of shares or principal amount of underlying reference instrument per contract, exercise price or rate, expiration date, and the unrealized appreciation or depreciation of the option or warrant.118

the following (put or call). The payoff profile of the warrant or option would be selected from among the following (written or purchased). Funds would respond N/A for warrants for both type and payoff profile. As discussed above, funds would report the number of option contracts in Item C.2.a of Form N–PORT. See supra note 96 and accompanying text. 119See Form N–PORT, Items C.11.c.iii.2 and C.11.c.iii.3. For the securities identifier, funds would report, if available, CUSIP of the reference asset, ISIN (if CUSIP is not available), ticker (if CUSIP and ISIN is not available), or other unique identifier (if CUSIP, ISIN, and ticker are not available). See also supra note 92 and accompanying and following text. 120See Form N–PORT, Item C.11.c.iii.2. 121See infra Part II.A.4 (discussing proposed rules concerning the public disclosure of reports on Form N–PORT). 122See supra note 120. 123See id. Short positions in the index, if any, would be reported as negative numbers. The identifier for each index component would include CUSIP, ISIN (if CUSIP is not available), ticker (if CUSIP and ISIN are not available), or other identifier (if CUSIP, ISIN, and ticker are not available. If other identifier is provided, the fund would indicate the type of identifier used. 124We are also proposing to modify Regulation S– X to require similar disclosures. See infra Part II.C.2.a (discussing proposed rule 12–13, n.3 of Regulation S–X). 125See rule 12–12C, n.3 of Regulation S–X. 126See Form N–PORT, Item C.11.c.iii.1. Funds would report the category of derivative that most closely represents the investment, selected from among the following (forward, future, option, swaption, swap, warrant, other). If ‘‘other,’’ funds would provide a brief description. 127See Form N–PORT, Item C.11.c.vii. 128See Derivatives Concept Release, supra note 7. 129See Form N–PORT, Item C.11.d. 130See Form N–PORT, Item C.11.d.ii. See also supra notes 119–126 and accompanying text. 131See Form N–PORT, Item C.11.e. 132See Form N–PORT, Item C.11.f.i. Funds would separately report the description and terms of payments to be paid and received. The description of the reference instrument, obligation, or index would include the information required to be reported for the descriptions of reference instruments for warrants, options, futures, or forwards. 133See id. See also supra note 130 and accompanying text. Form N–PORT would require funds to provide a description of the reference instrument, including name of issuer, title of issue, and relevant securities identifier.119 We recognize that some derivatives have underlying assets that are indices of securities or other assets or a ‘‘custom basket’’ of assets, the components of which are not publicly available. We are proposing requirements to ensure that the Commission, investors, and other potential users are aware of the components of such indices or custom baskets. If the reference instrument is an index for which the components are publicly
available on a Web site and are updated on that Web site no less frequently than quarterly, funds would identify the index and provide the index identifier, if any.120 We are proposing to require at least quarterly public disclosure for the components of the index because it matches the frequency with which funds are currently required and, as proposed in this release, would continue to be required, to disclose their portfolio holdings.121 If the index’s components are not publicly available as provided above, and the notional amount of the derivative represents 1% or less of the NAV of the fund, the fund would provide a narrative description of the index.122 If the index’s components are not publicly available in that manner, and the notional amount of the derivative represents more than 1% of the NAV of the fund, the fund would provide the name, identifier, number of shares or notional amount or contract value as of the trade date (all of which would be reported as negative for short positions), value, and unrealized appreciation or depreciation of every component in the index.123 We are proposing this requirement because we believe that it is important for the Commission, investors, and other potential users to have transparency into all exposures to assets that the fund has, regardless of whether the fund directly holds investments in those assets or chooses to create those exposures through a derivatives contract.124 We are proposing the 1% notional amount threshold based on our experience with the summary schedule of investments, which requires funds to disclose investments for which the value exceeds 1% of the fund’s NAV in that schedule.125 We believe that, similar to this threshold in the summary
schedule of investments, providing a
1% de minimis for disclosing the components of a derivative with nonpublic reference assets considers the need for the Commission, investors, and other potential users to have transparency into the exposures that derivative contracts create while not requiring extensive disclosure of multiple components in a non-public index for instruments that represent a small amount of the fund’s overall value. If the reference instrument is a derivative, funds would indicate the category of derivative (e.g., swap) and would provide all information required to be reported on Form N–PORT for that type of derivative.126 We are also proposing to require funds to report the delta of the option, which is the ratio of the change in the value of the option to the change in the value of the reference instrument.127 This measure reflects the sensitivity of the option’s value to changes in the price of the reference instrument. Disclosure of delta for options and warrants would provide the Commission, investors, and other potential users a more accurate measure of a fund’s full exposure to the reference instrument than the option’s notional amount, which we would otherwise not be able to determine. Accordingly, having the measurement of delta for options is important for the Commission, as well as investors and other potential users, to measure the impact, on a fund or group of funds that holds options on an asset, of a change in such asset’s price. Also, as the Commission has previously observed, funds can use options as a form of obtaining a leveraged position in an underlying reference asset.128 Having a measurement of exposures created through this type of leverage can help the Commission, investors, and other potential users better understand the risks that the fund faces as asset prices change, since the use of this type of leverage can magnify losses or gains in assets. For futures and forwards (other than foreign exchange forwards, which share similarities with foreign exchange swaps and should be reported accordingly as discussed below), Form N–PORT would require funds to report a description of the reference instrument, the payoff profile (i.e., long or short), expiration date, aggregate notional amount or contract value as of the trade date, and unrealized appreciation or depreciation.129 The description of the reference instrument would conform to the same requirements as the description of reference instruments for warrants and options.130 For foreign exchange forwards and swaps, funds would report the amount and description of currency sold, amount and description of currency purchased, settlement date, and unrealized appreciation or depreciation.131 For swaps (other than foreign exchange swaps), funds would report the description and terms of payments necessary for a user of financial information to understand the nature and terms of payments to be paid and received, including, as applicable: a description of the reference instrument, obligation, or
index; financing rate to be paid or received; floating or fixed rates to be paid and received; and payment frequency.132 The description of the reference instrument would conform to the same requirements as the description of reference instruments for forwards and futures.133 Funds would also report upfront payments or receipts, unrealized appreciation or

134See Form N–PORT, Items C.11.f.ii to C.11.f.v. 135See Form N–PORT, Item C.11.g.1. 136See Form N–PORT, Item C.11.f.i. See also supra note 133 and accompanying text. 137See Form N–PORT, Items C.11.g.ii to C.11.g.v. 138See Regulation SBSR Adopting Release, supra note 40 (requiring the reporting of certain information for each registered security-based swap transaction to registered security-based swap data repositories or to the Commission, including unique product identifiers and transaction identifiers). 139See rule 901 of Regulation SBSR [17 CFR 242.901]. 140See generally Q&A—Swap Data Recordkeeping and Reporting Requirements, CFTC, available at http://www.cftc.gov/ucm/groups/ public/@newsroom/documents/file/sdrr_qa.pdf. 141See, e.g., supra notes 120–123. 142See infra note 155 and accompanying and following text. depreciation, termination or maturity date, and notional amount.134 Finally, for derivatives that do not fall into the categories enumerated in Form N–PORT, funds would provide a description of information sufficient for a user of financial information to understand the nature and terms of the investment. This description would include, as applicable, currency, payment terms, payment rates, call or put features, exercise price, and a description of the reference instrument, among other things.135 The description of the reference instrument would conform to the same requirements as the description of reference instruments for swaps.136 Funds would also report termination or maturity (if any), notional amount(s), unrealized appreciation or depreciation, and the delta (if applicable).137 We recognize that new derivative products will continue to evolve, and thus the disclosures for this category are intended to be flexible enough to encompass the changing needs and products that may emerge. We request comment on our proposed disclosure requirements for derivatives.

Is there additional or alternative
information about derivative contracts that we should be requiring? Should we modify the information we are proposing to require for any derivatives contracts? Should other terms and conditions, categories of derivatives, payoff profiles, or identifiers be included in Form N–PORT so that all material elements of derivatives contracts can be reported?
For options, should funds be
required to identify the option exercise type (e.g., American, European, Bermudan, Asian, other) or report any additional information for more exotic option exercise types (e.g., rainbow, barrier, lookback, etc.)?
We recently adopted Regulation
SBSR, which will require one of the parties to security-based swap transactions to report certain information to registered security-based swaps data repositories or the Commission.138 The reporting party will report certain identifying information, including unique product identifiers to identify each security-based swap, as well as certain primary and secondary trade information, including the terms of any standardized fixed or floating rate payments, the frequency of any such payments, and any additional data elements included in the agreement between the counterparties that are necessary for a person to determine the market value of the transaction.139 The Commodities Futures Trading Commission has engaged in similar efforts with regards to unique product identifiers that would be reported with regards to swaps.140 Are there methods the Commission should consider to harmonize the SBSR reporting requirements with the proposed reporting requirements on Form N– PORT? For example, should we consider ways to allow a fund to import the data reported to swap and securitybased swap data repositories automatically into the fund’s reports on Form N–PORT? How would this affect investors’ ability to analyze this data for swaps and security-based swaps held by funds? Should we require funds to report the product identifiers or any other data we are not currently proposing to require on Form N–PORT that will be required to be reported for swaps or security-based swaps? If so, why?
Proposed Form N–PORT would
require funds to list all underlying reference assets unless the underlying reference asset is an index whose components are publicly available on a Web site and are updated on that Web site no less frequently than quarterly, in which case funds would identify the index and publisher of the index, or unless the notional amount of the derivative represents 1% or less of the NAV of the fund, in which case funds would provide a narrative description of the index.141 To the extent such indices are proprietary or subject to licensing agreements, what would be the effect of this requirement? For example, would funds incur costs for amending licensing agreements? Would index providers be willing to amend existing licensing agreements? If not, how would this impact funds that make such investments and the marketplace of fund options available to investors generally? Are there other concerns about disclosing the components of proprietary indices? Should we alter this requirement, and if so how? For example, should we not require funds to report underlying index components for derivatives unless the derivative’s notional amount represents at least 5%, or some other percentage, of the NAV of the fund? Alternatively, should we limit the required disclosure of index components to the top 50 components and/or components that represent more than 1% of the index? If the reference asset is a modified version of an index whose components are publicly available on a Web site, for example a version that is customized to exclude certain issuers that the fund is restricted from owning, would requiring a narrative of those modifications be preferable to funds and investors rather than requiring each holding of the modified index to be listed? If so, should such narrative disclosure be reported in the ‘‘explanatory notes’’
section of Form N–PORT? 142
How, if at all, should we modify the
proposed requirement to report delta? To what extent would the inputs and assumptions underlying the methodology by which funds calculate this measure affect the value reported? Are there potential liability or other concerns associated with the reporting of such measures according to such inputs and assumptions? For example, how would the comparability of information reported between funds be affected if funds used different inputs and assumptions in their methodologies?
Are there additional or alternative
metrics that we should consider requiring to be reported? Would the disclosure of risk metrics such as vega— which measures the amount that an option contract’s price changes in relation to a 1% change in the volatility of the underlying asset—or gamma— which measures the sensitivity of delta in response to price changes in the underlying instrument—enhance the utility of the derivatives information reported in Form N–PORT? What would be the costs and burdens to funds and benefits to investors and other potential users of requiring funds to report such additional or alternative metrics? How would the comparability of information reported by different funds be affected if funds used different inputs and assumptions in their methodologies, such as different assumptions regarding the values of the funds’ portfolios?
We believe that funds already track
the characteristics of their derivatives that we would require to be reported on Form N–PORT. To the extent this is correct, what would be the incremental

143See supra note 75 and preceding, accompanying, and following text. 144See Form N–PORT, Item C.12.c. 145See Form N–PORT, Item C.12.a. 146See Form N–PORT, Item C.12.b. 147As discussed above, commenters to the FSOC Notice suggested that enhanced securities lending disclosures could be beneficial to investors and counterparties. See supra note 71. 148See, e.g., Transcript of Securities and Exchange Commission Securities Lending and Short Sale Roundtable (Sept. 29, 2009), available at http://www.sec.gov/news/openmeetings/2009/ roundtable-transcript-092909.pdf (discussing, among other things, the lack of publicly available information to market participants about securities lending transactions). 149See generally supra note 49 and accompanying text. 150See Form N–PORT, Part D. 151See rule 12–12 of Regulation S–X. 152See, e.g., Quarterly Portfolio Holdings Adopting Release, supra note 19, at n.64 and accompanying text. 153See supra notes 48–49 and accompanying text. 154See Form N–PORT, Part E. Cf. Form PF, Item 4 (providing advisers to private funds the option of explaining any assumptions that they made in responding to any questions in the form). 155See infra Part II.A.4 of this release. 156See Form N–PORT, Part E. cost and burden of reporting such information to the Commission?
v. Securities on Loan and Cash
Collateral Reinvestment
As discussed above, our proposal would require funds to report on Form N–PORT, for each of their securities lending counterparties as of the reporting date, the full name and LEI of the counterparty (if any), as well as the aggregate value of all securities on loan to the counterparty.143 We are also proposing that funds report on Form N– PORT, on an investment-by-investment level, information about securities on loan and the reinvestment of cash collateral that secures the loans. For each investment held by the fund, a fund would report: (1) Whether any portion of the investment was on loan by the fund, and, if so, the value of the securities on loan; 144 (2) whether any amount of the investment represented reinvestment of the cash collateral and, if so, the dollar amount of such reinvestment; 145 and (3) whether any portion of the investment represented non-cash collateral received to secure loaned securities and, if so, the value of the securities representing such noncash collateral.146 These disclosures would provide information about how funds reinvest the cash collateral received from securities lending activity and should allow for more accurate determination of the value of collateral securing such loans. This could improve the ability of Commission staff, as well as investors, brokers, dealers, and other market participants to assess collateral reinvestment risks and associated potential liquidity and loss risks, as well as better understand leverage creation through the reinvestment of collateral.147 These disclosures could also help identify those investments that one or more funds might have to sell or redeem in the event of widespread termination or default by borrowers. More generally, this information could help to address concerns expressed by industry participants about the lack of transparency in funds’ securities lending transactions.148 We request comment on our proposed disclosure requirements for securities loans and cash collateral reinvestment.

Should the Commission require
funds to report information about securities on loan or reinvestment of cash collateral at the portfolio level, rather than at the individual security level? If so, what categories should be used to report such reinvestment? For example, would it be appropriate to use the same collateral categories for securities lending that we are proposing to be used for repurchase and reverse repurchase agreements?
As discussed, Form N–PORT would
require funds to indicate, for each investment, whether any portion of the investment represented non-cash collateral received to secure loaned securities. To what extent would this information be helpful to brokers, dealers, and investors? To what extent do funds receive collateral other than cash?
Is there additional or alternative
information regarding securities lending transactions that the Commission should require to be disclosed in reports on Form N–PORT?
We believe that funds already track
the characteristics of their securities lending and cash collateral reinvestment transactions that we would require to be reported on Form N–PORT. Is this belief correct? What would be the burden of reporting such information to the Commission? h. Miscellaneous Securities In Part D of Form N–PORT, as currently permitted by Regulation S–X, funds would have the option of identifying and reporting certain investments as ‘‘miscellaneous securities.’’ 149 Funds electing to separately report miscellaneous securities would use the same Item numbers and report the same information that would be reported for each investment if it were not a miscellaneous security.150 Consistent with the disclosure regime established by Regulation S–X, all such responses regarding miscellaneous securities would be nonpublic and would be used for Commission use only, notwithstanding the fact that all other information reported for the third month of each fund’s fiscal quarter on Form N–PORT would otherwise be publicly available.151 Keeping information related to these investments nonpublic may serve to guard against the premature release of those securities positions and thus deter front-running and other predatory trading practices, while still allowing the Commission to have a complete record of the portfolio for monitoring, analysis, and checking for compliance with Regulation S–X.152 The only information publicly reported for miscellaneous securities would be their aggregate value, which would be consistent with current practice as permitted by Regulation S–X.153
Should funds continue to be
allowed to use the category of miscellaneous securities, either on Form N–PORT or in publicly disclosed schedules of investments pursuant to instruction 1 to rule 12–12 and instruction 5 to rule 12–12C of Regulation S–X? To what extent do funds currently use ‘‘miscellaneous securities’’ as a line item in their
schedule of investments, as opposed to
disclosing all investments in securities of unaffiliated issuers? For what purposes? Should we continue to allow funds to exclude the full disclosures of such securities from funds’ schedules of investments? Alternatively, should we consider lowering the threshold, such as to two percent or one percent of the total value of securities of unaffiliated issuers?
i. Explanatory Notes
In Part E of Form N–PORT, funds would have the option of providing explanatory notes relating to the filing, if any.154 Any notes provided in public reports on Form N–PORT (i.e., reports on Form N–PORT for the third month of the fund’s fiscal quarter) would be publicly available, whereas notes provided in nonpublic filings of Form N–PORT would remain nonpublic.155 Funds would also report, as applicable, the Item number(s) to which the notes are related.156 These notes, which would be optional, could be used to explain assumptions that funds made in responding to specific items in Form N– PORT. Funds could also provide context for anomalous responses or discuss issues that could not be adequately addressed elsewhere given the constraints of the form. Similar

157See, e.g., Form N–MFP, Item 43 (‘‘Explanatory notes. Disclose any other information that may be material to other disclosures related to the portfolio security.’’). 158See supra note 27 (discussing current requirements to transmit reports to shareholders); infra Part II.C (discussing our proposed amendments to Regulation S–X). 159See supra Part II.D.3. 160See section 30(c)(2)(A) of the Investment Company Act [15 U.S.C. 80a–29(c)(2)(A)] (requiring Commission to consider and seek public comment on feasible alternatives to the required filing of information that minimize reporting burdens on funds). 161See section 30(c)(2)(B) of the Investment Company Act (requiring Commission to consider and seek public comment on the utility of information, documents and reports to the Commission in relation to the associated costs). information in other contexts has assisted Commission staff in better understanding the information provided by funds, and we expect that explanatory notes provided on Form N– PORT would do the same.157 We request comment on our proposed disclosure requirements.

Would the format outlined above
for the explanatory notes allow funds to adequately discuss their responses on Form N–PORT? If not, how should the format be modified?
Should explanatory notes in
publicly available filings of Form N– PORT be nonpublic? If so, why? j. Exhibits In Part F of Form N–PORT, for reports filed for the end of the first and third quarters of the fund’s fiscal year, a fund would also attach the fund’s complete portfolio holdings as of the close of the period covered by the report. These portfolio holdings would be presented in accordance with the schedules set forth in §§ 210.12–12 to 12–14 of Regulation S–X. As discussed further below in Part B, we are proposing to rescind Form N–Q because reports on Form N–PORT for the first and third fiscal quarters would make similar reports on Form N–Q unnecessarily duplicative. While we recognize that the quarterly, publicly disclosed reports on Form N–PORT will provide structured data to investors and other potential users, we recognize that the amount and structured format of the data contained in those reports are not primarily designed for individual investors. We believe that such investors might prefer that portfolio holdings schedules for the first and third quarters continue to be presented using the form and content specified by Regulation S–X, which investors are accustomed to viewing in reports on Form N–Q and in shareholder reports. Therefore, we are proposing to require that, for reports on Form N–PORT for the first and third quarters of a fund’s fiscal year, the fund would attach its complete portfolio holdings for that fiscal quarter, presented in accordance with the schedules set forth in §§ 210.12–12 to 12–14 of Regulation S– X. Requiring funds to attach these portfolio holdings schedules to reports on Form N–PORT would provide the Commission, investors, and other potential users with access to funds’ current and historical portfolio holdings for those funds’ first and third fiscal quarters. Our proposal would also consolidate these disclosures in a central location, together with other fund portfolio holdings disclosures in shareholder reports and reports on Form N–CSR for funds’ second and fourth fiscal quarters. Under our proposal, and consistent with current practice, funds would have until 60 days after the end of their second and fourth fiscal quarters to transmit reports to shareholders containing portfolio holdings schedules prepared in accordance with Regulation S–X for that reporting period.158 In contrast, under our proposal, funds would have 30 days after the end of their first and third fiscal quarters to file reports on Form N–PORT that would include portfolio holdings schedules prepared in accordance with Regulation S–X, although such reports would not be required to be made public until 60 days after the close of the reporting period. Although our proposal would require funds to prepare Regulation S– X compliant portfolio holdings schedules for their first and third fiscal quarters 30 days more rapidly than they do currently, we believe that this would be reasonable given the significant overlap with information that would be required to be
reported on Form N– PORT, and the fact that funds would be required to file reports on Form N– PORT within 30 days after the end of each month. In addition, the portfolio schedules attached to Form N–PORT would be neither audited nor certified, which we believe would significantly reduce the time required for preparation and validation. We request comment below on the timing of preparing this attachment. As discussed below, we are proposing to allow funds to transmit reports to shareholders by posting online those reports, together with the funds’ complete portfolio holdings for the first and third fiscal quarters presented in accordance with the schedules set forth in §§ 210.12–12 to 12–14 of Regulation S–X disclosures.159 We recognize that there would be duplication between the portfolio schedules posted online for funds relying upon proposed rule 30e– 3 and the portfolio schedules for funds attached on reports on Form N–PORT. However, we believe that requiring the Regulation S–X schedules to be filed as exhibits to Form N–PORT reports would serve the purpose of making the schedules permanently available on the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (‘‘EDGAR’’) (even when such schedules are no longer required to be maintained online pursuant to proposed rule 30e–3). We request comment on our proposed exhibits.
Should funds be required to attach
portfolio holdings schedules to reports on Form N–PORT? Is there an alternative that would be better for funds and investors in terms of informing investors’ investment decisions with regards to current and historical portfolio holdings?
As discussed above, the attached
portfolio holdings schedules are intended for investors, but would not be required to be made publicly available to investors until 60 days after the close of the reporting period; however, as proposed, funds would be required to prepare and file this attachment within 30 days of the end of the reporting period. Should funds be allowed to file reports on Form N–PORT for the first and third fiscal quarters without Regulation S–X compliant schedules, but then be required to amend those reports on Form N–PORT to attach Regulation S–X compliant schedules no later than 60 days after the end of the reporting period?
Should the portfolio schedules
attached to Form N–PORT, which are similar to reports funds are providing currently on Form N–Q, be certified, as is currently required by Form N–Q? k. General Request for Comments Regarding the Information on Form N– PORT In addition to the requests for comment above, we request general comment on feasible alternatives to the information we would be requiring funds to report on Form N–PORT that would minimize the reporting burdens on funds while maintaining the anticipated benefits of the reporting and disclosure.160 We also request comment on the utility of the information proposed to be included in reports to the Commission, investors, and the public in relation to the costs to funds of providing the reports.161

162Forms N–CSR and N–Q are required to be filed in HTMA or ASCII/SGML. See rule 301 of Regulation S–T; EDGAR Filer Manual (Volume II) version 27 (June 2014) at 5–1. 163We anticipate that the XML interactive data file would be compatible with a wide range of open source and proprietary information management software applications. Continued advances in interactive data software, search engines, and other web-based tools may further enhance the accessibility and usability of the data. See, e.g., Money Market Fund Reform 2010 Release, supra note 13, at n.341. 164See infra Part IV.B.b. 165See generally 17 CFR 232 (governing the electronic submission of documents filed with the Commission).

Would Form N–PORT, as proposed,
appropriately consider the usefulness of the information to the Commission, investors, and other potential users of the required information and the costs that would be associated with reporting this information? If not, which data points or items should be enhanced or scaled back? Are there any proposed items in Form N–PORT that should be revised to avoid duplication of reporting requirements in different Commission rules or forms? If so, please explain. On the other hand, are there any elements in Form N–PORT that the Commission should carry over to other Commission forms or rules?
Are there specific items that the
proposed form would require that are unnecessary or otherwise should not be required in the manner that we propose? Alternately, is there different or additional information that we have not identified that could be useful to us or investors in monitoring funds? For example, to the extent there are fundspecific, sector-specific, or industrywide risks that would not be addressed by the information we are proposing to collect today, should we require additional or alternative information that would be relevant to an evaluation of the risk characteristics of the fund and its portfolio investments? Likewise, is there any investment- or entityspecific information that should be included in Form N–PORT to facilitate analysis of the information that would be reported? Should the manner in which information would be reported in Form N–PORT be revised to improve the clarity of disclosures or reduce reporting burdens?
We believe that the information we
are proposing to require would be readily available to funds as a matter of general business practice. Do commenters agree with this assumption? For example, do fund accounting or financial reporting systems, or those of a fund’s custodian, generally contain the investment information that we are requesting in our proposal? What is the feasibility and burden of requiring funds to report information that is not contained in such systems? To the extent that any items that we have requested are not contained in fund accounting or financial reporting systems, are there other types of readily available data that would provide us with similar information?

Reporting of Information on Form N–
PORT
As discussed above, the Commission proposes that funds would report information on Form N–PORT in XML, so that Commission staff, investors, and other potential users could create databases of fund portfolio information to be used for data analysis. Forms N– CSR and N–Q are not currently filed in a structured format, which results in reports that are comprehensible to a human reader, but are not suitable for automated processing, and generally require filers to reformat the required information from the way it is stored for normal business uses.162 By contrast, requiring that reports on Form N–PORT be structured would allow the Commission and other potential users to combine information from more than one report in an automated way to, for example, construct a data base of fund portfolio investments without additional formatting. Based upon our experiences with Forms N–MFP and PF, both of which require filers to report information in an XML format, we believe that requiring funds to report information on Form N–PORT in an XML format would provide the information that we seek in the most timely and cost-effective manner.163 As discussed further below in the economic analysis, the XML format may also improve the quality of the information disclosed by imposing constraints on how the information would be provided, by providing a built-in validation framework of the data in the reports.164

What would be the costs to funds of
providing data conforming to a Form N– PORT XML Schema? How would costs be affected, if at all, by the size of the funds and fund complexes reporting this data? How would this affect smaller fund companies?
Should the Commission allow or
require the form to be provided in an XML Schema derived from existing XML based languages, such as Financial products Markup Language (‘‘FpML’’) or XBRL? FpML is an industry standard created by ISDA for exchanging and reporting the terms and conditions of derivatives contracts. XBRL is another industry standard used by the Commission for many reporting forms.
Is there another structured format
that would allow investors and analysts to easily download and analyze the data? The Commission is considering whether reports on Form N–PORT should be submitted through EDGAR or another electronic filing system, either maintained by the Commission or by a third-party contractor. If reports on Form N–PORT were required to be submitted through EDGAR, the electronic filing requirements of Regulation S–T would apply.165 We request comment on this aspect of our proposal.
Are there specific other capabilities
that the Commission should consider in developing or selecting an electronic filing system? For example, should the system have the capability to crosscheck information reported to other electronic filing systems, such as the Investment Adviser Registration Depository (where registration forms for investment advisers are filed)? If so, which platforms and why?
Is EDGAR the optimal vehicle for
filing reports on Form N–PORT with the Commission? If not, what vehicle would be optimal for filing reports and why? Should the Commission allow the filing of documents in electronic media other than on EDGAR? If so, please make specific recommendations.
Are there any particular concerns
with filing such reports on EDGAR as opposed to a third party system or vice versa? If so, what are those concerns and what are potential remedies for such concerns? For example, as discussed further below, as proposed, reports on Form N–PORT for the first and second month of each fiscal quarter would not be made public. Accordingly, any filing would need to have confidentiality protections to keep the information on such Forms non-public. How should EDGAR or an alternative filing platform best address the confidentiality of this information?
How important to investors and
other interested parties is the fact that EDGAR currently serves as the filing system for fund filings with the Commission, and thus serves as a single repository where investors may examine historical filings by a given fund on related forms and generally compare reports made by other funds? To what extent, if at all, could investors become confused by the use of a new filing system for Form N–PORT and the use of EDGAR for other fund filings? How should any such investor confusion be mitigated by funds and the Commission?

166 In contrast, one commenter to the FSOC Notice suggested that funds should report information to the Commission on a real-time basis. See Comment Letter of Occupy the SEC to the FSOC Notice (Mar. 25, 2015) (suggesting that asset managers should be required to provide real-time data, and that the Commission have the capability to monitor all funds’ transactions on a real-time basis). 167See, e.g., Money Market Fund Reform 2014 Release, supra note 13 (requiring money market funds to report their holdings and other information to the Commission within five days after the end of each month). 168Commission staff understands that certain funds currently report their investments to shareholders as of the last business day of the reporting period, while other funds report their investments as of the last calendar day of the reporting period. In recognition of this fact, and in an effort to avoid disruptions to current fund operations, the information reported on Form N– PORT may reflect the fund’s investments as of the last business day, or last calendar day, of the month for which the report is filed. 169As discussed above, portfolio schedules are currently available to the public in reports that are mailed to shareholders or filed with the Commission either 60 or 70 days following the end of each reporting period. See supra note 27 and accompanying text. 170See, e.g., Quarterly Portfolio Holdings Adopting Release, supra note 19, at n.128 and accompanying text. 171See, e.g., id. at n.129 and accompanying text. 172See The Potential Effects of More Frequent Portfolio Disclosure on Mutual Fund Performance, 7 Investment Company Institute Perspective No. 3 (June 2001), available at http://www.ici.org/pdf/ per07-03.pdf (‘‘Potential Effects of More Frequent Disclosure’’). 173See Money Market Fund Reform 2010 Release, supra note 13 (adopting Form N–MFP with a 60 day delay for public disclosure). In 2014, the Commission eliminated the 60 day delay in the public disclosure of Form N–MFP. See Money Market Fund Reform 2014 Release, supra note 13. 174See Money Market Fund Reform 2010 Release, supra note 13, at text following n.573. Our proposal would require funds to report information on Form N–PORT no later than 30 days after the close of each month.166 We request comment on this aspect of our proposal.

Would 30 days be sufficient for
funds to gather and report this information to the Commission? If not, what amount of time would be required and why? Conversely, could funds easily and reliably gather and report this information in less than 30 days, which would provide the Commission staff with more timely data? 167 If so, what amount of time would be appropriate? To what extent, if at all, should this determination be affected by the fact that funds would have 60 days to report their schedule of investments in their financial statements prepared pursuant to Regulation S–X? As an alternative to monthly reports filed on Form N–PORT, should the Commission require quarterly reports that include portfolio information for each month of that quarter? How would the viability of this alternative be affected, if at all, by the technological challenges and inadvertent disclosure risks associated with combining in a single form nonpublic portfolio information relating to the first two months of each quarter with public portfolio information relating to the third month of that quarter? We note that this alternative would eliminate many of the benefits of monthly reporting, such as the ability of monthly data to address the staleness of quarterly data and to assist in monitoring funds by decreasing the delay between reports. However, this alternative would still provide twelve data points per year, which should improve the Commission staff’s ability to perform analyses of portfolios, and would discourage various forms of portfolio manipulation, as discussed above. What, if any, other factors should the Commission consider in evaluating this alternative?

Public Disclosure of Information
Reported on Form N–PORT
We are proposing that funds report information on Form N–PORT on a monthly basis, no later than 30 days after the close of each month.168 For reasons discussed below, and consistent with current disclosure practices, only information reported for the third month of each fund’s fiscal quarter would be publicly available, and such information would not be made public until 60 days after the end of the third month of the fund’s fiscal quarter.169 The quarterly portfolio reports that the Commission currently receives on Forms N–Q and N–CSR can quickly become stale due to the turnover of portfolio securities and fluctuations in the values of portfolio investments. Monthly portfolio reporting would decrease the delay between reports, which should prove useful to the Commission for fund monitoring, particularly in times of market stress. This would also triple the number of data points reported to the Commission in a given year, as well as ensure that the Commission has current information, which should in turn enhance the ability of Commission staff to perform analyses of funds in the course of monitoring for industry trends, or identifying issues for examination or inquiry. As discussed above, the Commission generally believes that public availability of information, including the types of information that would be collected on Form N–PORT that may not currently be reported or disclosed by funds, can benefit investors by assisting them in making more informed investment decisions. Although Form N–PORT is not primarily designed for disclosing information to individual investors, we believe that many investors, particularly institutional investors, as well as academic researchers, financial analysts, and economic research firms, could use the information reported on Form N–PORT to evaluate fund portfolios and assess the potential for returns and risks of a particular fund. Accordingly, whether directly or through third parties, we believe that the periodic public disclosure of the information on proposed Form N–PORT could benefit all fund investors. The Commission, however, recognizes that more frequent portfolio disclosure could potentially harm fund shareholders by expanding the opportunities for professional traders to exploit this information by engaging in predatory trading practices, such as trading ahead of funds, often called ‘‘front-running.’’ 170 Similarly, the Commission is sensitive to concerns that more frequent portfolio disclosure may facilitate the ability of outside investors to ‘‘free ride’’ on a mutual fund’s investment research, by allowing those investors to reverse engineer and ‘‘copycat’’ the fund’s investment strategies and obtain for free the benefits of fund research and investment strategies that are paid for by fund shareholders.171 Both front-running and copycatting can reduce the returns of shareholders who invest in actively managed funds.172 We discussed these concerns when we first proposed and adopted Form N– MFP, and
made the determination to make each monthly report on Form N– MFP public, with a 60 day delay.173 In that release, however, we noted that, due to the short-term and restricted nature of money market fund securities, and because shares of money market funds are ordinarily purchased and redeemed at a stable share price, we believed opportunities for such activities were curtailed.174 By contrast, funds other than money market funds can pursue a variety of investment strategies and invest in a variety of securities and other investments. Accordingly, we do not believe that the factors that mitigated our concerns about the potential for front running or free-riding in money market funds are as equally applicable to mutual funds. Empirical studies indicate that the portfolio holdings information that investment companies disclose to the Commission and to shareholders contains information that can be used by other investors to front-run and

175See infra notes 663–667 and accompanying and following text. 176See Quarterly Portfolio Holdings Adopting Release, supra note 19, at n.32 and accompanying text (discussing prior investor petitions for rulemaking). Investors that petitioned for quarterly disclosure also argued that increasing the frequency of portfolio disclosure would expose ‘‘style drift’’ (when the actual portfolio holdings of a fund deviate from its stated investment objective) and shed light on and prevent several potential forms of portfolio manipulation, such as ‘‘window dressing’’ (buying or selling portfolio securities shortly before the date as of which a fund’s holdings are publicly disclosed, in order to convey an impression that the manager has been investing in companies that have had exceptional performance during the reporting period) and ‘‘portfolio pumping’’ (buying shares of stock the fund already owns on the last day of the reporting period, in order to drive up the price of the stocks and inflate the fund’s performance results). copycat the positions of reporting funds.175 Based on these studies, as well as experience and discussions with fund groups and market participants, the Commission is sensitive to the possibility that increasing the frequency of public portfolio disclosures to a monthly basis could further enable others to discern trading strategies of the funds, potentially subjecting registered investment companies to such predatory trading practices, resulting in competitive harms to the fund and its investors. We recognize that some free-riding and front running activity can occur even with quarterly disclosure, with the potential for investor harm. Conversely, however, investors previously petitioned for quarterly disclosures, noting numerous benefits that quarterly disclosure of portfolio schedules could provide, including allowing investors to better monitor the extent to which their funds’ portfolios overlap, and hence enabling investors to make more informed asset allocation decisions, and providing investors with greater information about how a fund is complying with its stated investment objective.176 The Commission cited many of these benefits when it adopted Form N–Q, and based on staff experience and outreach, believes that the current practice of quarterly portfolio disclosures provides benefits to investors, notwithstanding the opportunities for front-running and reverse engineering it might create. Our proposal is intended to appropriately consider the benefits to the Commission, investors, and other potential users of public portfolio disclosures, including the reporting of such disclosures in a structured format and additional portfolio information that would be required on proposed Form N–PORT and the potential costs associated with making that information available to the public, which could be ultimately borne by investors. Accordingly, in an attempt to minimize these potential costs and harms, we propose to require public
disclosure of fund reports on Form N–PORT once each quarter, rather than monthly, thereby maintaining the status quo regarding the frequency of public portfolio disclosure. As discussed above, funds are currently required to disclose their portfolio investments quarterly, via public filings with the Commission and semi-annual reports distributed to shareholders. Consequently, the Commission is not currently proposing to make public the information reported for the first and second months of each fund’s fiscal quarter on Form N–PORT. Only information reported for the third month of each fund’s fiscal quarter on Form N–PORT would be made publicly available, and such information would not be made public until 60 days after the end of the third month of the fund’s fiscal quarter. We believe that maintaining the status quo with regard to the frequency and the time lag of portfolio reporting would allow the Commission, the fund industry, and the marketplace to assess the impact of the structured and more detailed data reported on Form N–PORT on the mix of information available to the public, and the extent to which these changes might affect the potential for predatory trading, before determining whether more frequent or more timely public disclosure would be, beneficial to investors in funds. We are proposing to maintain the status quo of public disclosure of quarterly information based upon each fund’s fiscal quarters, rather than calendar quarters, to ensure that public disclosure of information filed on Form N–PORT would be the same as the portfolio disclosures reported on a semiannual fiscal year basis on Form N–CSR. We believe that such overlap would minimize the risks of predatory trading, because otherwise funds with fiscal year-ends that fall other than on a calendar quarter- or year-end would have their portfolios publicly available more frequently than funds with fiscal year-ends that fall on a calendar quarteror year-end, thus increasing the risks to those funds discussed above related to potential front-running or reverse engineering. We request comment on the proposed frequency and delay of public disclosure of information reported on Form N–PORT.

Should we require information on
Form N–PORT reported for the first and second month of each fund’s fiscal quarter be made public? Are the concerns about front-running or other possible harms discussed above warranted given the 60-day delay? Would a different combination of public disclosure frequency and delay better protect funds and their investors from the risks of predatory trading, while still providing timely and regular information to investors? To what extent would investors benefit from receiving monthly data as opposed to quarterly data?
Are there alternatives we should
consider to provide investors and other potential users with the information reported on Form N–PORT for the first and second months of each quarter? For example, would the potential harms discussed above be mitigated if reports on Form N–PORT for the first and second months were made public 60 days (or a shorter or longer time period) after the end of each quarter, or 60 days (or a shorter or longer time period) after the end of each fund’s fiscal year, thereby increasing the time lag of such information? If monthly information were to be provided quarterly or annually, how would that affect the benefits of such information to investors and other potential users?
Would Form N–PORT contain the
type of information that, if disclosed on a monthly basis, could reveal information that a fund would consider proprietary or confidential or that could place the fund at a competitive disadvantage? If so, please explain and provide examples, as applicable.
Would restricting public disclosure
of the information reported on Form N– PORT to information reported for the third month of each fund’s fiscal quarter alleviate concerns about front-running or other possible harms that might be caused by making the monthly information reported on Form N–PORT public? Should we instead provide that all or a portion of the requested information on Form N–PORT be submitted in nonpublic reports to the Commission? If so, please identify the specific items that should remain nonpublic and explain why.
Do commenters believe that our
proposed 60-day delay in making the information public would be helpful in protecting against possible front running or free riding? Would a shorter delay (e.g., 45 or 30 days) or a longer delay (e.g., 70 days) be more appropriate? If so, why? For example, should we provide for a longer delay to prevent investors other than shareholders from trading along with the fund, to the possible detriment of the fund and its shareholders? Alternately, would a shorter delay, for example 30 days, better serve the needs of shareholders

177See infra Part II.D.
178See Item 3 of Form N–Q (certification requirement); Form N–Q Adopting Release, supra note 152; Item 12 of Form N–CSR (certification requirement); Certification of Management Investment Company Shareholder Reports and Designation of Certified Shareholder Reports as Exchange Act Periodic Reporting Forms; Disclosure Required by Sections 406 and 407 of the SarbanesOxley Act of 2002, Investment Company Act Release No. 24914 (Jan. 27, 2003) [68 FR 5348 (Feb. 3, 2003)] (adopting release for Form N–CSR). 179Proposed Item 11(b) of Form N–CSR; proposed paragraph 5(b) of certification exhibit of Item 11(a)(2) of Form N–CSR. 180See rule 1–01, et seq of Regulation S–X [17 CFR 210.1–01, et seq]. While ‘‘funds’’ are defined in the preamble as registered investment companies other than face amount certificate companies and any separate series thereof—i.e., management companies and UITs—we note that our proposed amendments to Regulation S–X apply to both registered investment companies and BDCs. See infra notes 264 and 265. Therefore, throughout this
section, when discussing fund reporting
requirements in the context of our proposed amendments to Regulation S–X, we are also including changes to the reporting requirements for BDCs. and potential fund investors while still appropriately protecting the interests of funds?

Should information be reported on
Form N–PORT as of the third month of each fund’s fiscal year, as proposed, or should we instead require a uniform public reporting schedule for all funds to facilitate comparison of information reported on Form N–PORT (e.g., March 31, June 30, September 30, and December 31)? To what extent would a uniform public disclosure schedule increase burdens to funds, given that one of the purposes for selecting fiscal year-ends that vary from calendar yearends is to spread out filing burdens throughout the year for fund complexes? B. Rescission of Form N–Q and Amendments to Certification Requirements of Form N–CSR
1. Rescission of Form N–Q
Along with our proposal to adopt new Form N–PORT, we are proposing to rescind Form N–Q. Management companies other than SBICs are currently required to report their complete portfolio holdings as of the end of their first and third fiscal quarters on Form N–Q. Because the data reported on proposed Form N–PORT would include the portfolio holdings information contained in reports on Form N–Q, we believe that Form N– PORT, if adopted, would render reports on Form N–Q unnecessarily duplicative. Therefore, we believe it is appropriate to rescind Form N–Q rather than require funds to report similar information to the Commission on two separate forms. However, as noted earlier, we believe that individual investors and other potential users might prefer that portfolio holdings schedules for the first and third quarters continue to be presented using the form and content specified by Regulation S–X, which investors are accustomed to viewing in reports on Form N–Q and in shareholder reports. Therefore, we are proposing to require that, for reports on Form N–PORT for the first and third quarters of a fund’s fiscal year, the fund would attach its complete portfolio holdings for that fiscal quarter, presented in accordance with the schedules set forth in §§ 210.12–12 to 12–14 of Regulation S–X [17 CFR 210.12–12—12–14]. Also, as discussed below, proposed new rule 30e–3 would allow funds to satisfy requirements to transmit reports to shareholders by posting on a Web site those shareholder reports and these same portfolio schedules for the funds’ first and third quarters.177
2. Amendments to Certification
Requirements of Form N–CSR In connection with the Commission’s implementation of the Sarbanes-Oxley Act of 2002, Form N–Q and Form N– CSR require the principal executive and financial officers of the fund to make quarterly certifications relating to (1) the accuracy of information reported to the Commission, and (2) disclosure controls and procedures and internal control over financial reporting.178 Rescission of Form N–Q would eliminate certifications as to the accuracy of the portfolio schedules reported for the first and third fiscal quarters. Under today’s proposal, the certifications as to the accuracy of the portfolio schedules reported for the second and fourth fiscal quarters on Form N–CSR would remain. However, we are proposing to amend 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.179 Lengthening the look-back of this certification to six months, so that the certifications on Form N–CSR for the semi-annual and annual reports would cover the first and second fiscal quarters and third and fourth fiscal quarters, respectively, would fill the gap in certification coverage that would otherwise occur once Form N–Q is rescinded. To the extent that certifications improve the accuracy of the data reported, removing such certifications could have negative effects on the quality of the data reported. Likewise, if the reduced frequency of the certifications affects the process by which controls and procedures are assessed, requiring such certifications semi-annually rather than quarterly could reduce the effectiveness of the fund’s disclosure controls and procedures and internal control over financial reporting are assessed. However, we expect such effects, if any, to be minimal because certifying officers would continue to certify portfolio holdings for the fund’s second and fourth fiscal quarters and would further provide semi-annual certifications concerning disclosure controls and procedures and internal control over financial reporting that would cover the entire year.
3. Request for Comment
We request comments on the proposed rescission of Form N–Q and related rule and form amendments.
Should we rescind Form N–Q, as
we have proposed? Should we instead retain Form N–Q, and not require Regulation S–X compliant schedules to be attached to reports for the first and third fiscal quarters on Form N–PORT? Why or why not?
Would the proposed amendments
to the certification requirements in Form N–CSR be an appropriate substitute for the certification requirements in Form N–Q? Would the change from quarterly to semiannual certifications have an effect on the quality of funds’ internal controls or on other costs associated with certifications? If so, are those changes appropriate?
C. Amendments to Regulation S–X
1. Overview
As part of our larger effort to modernize the manner in which funds report holdings information to investors, today we are proposing amendments to Regulation S–X, which prescribes the form and content of financial statements required in registration statements and shareholder reports.180 As discussed above, many of the proposed amendments to Regulation S–X, particularly the amendments to the disclosures concerning derivative contracts, are similar to the proposed requirements concerning disclosures of derivatives that would be required on reports on proposed Form N–PORT. The proposed amendments to Regulation S– X would, among other things, require similar disclosures in a fund’s financial

181We recognize that under the federal securities laws, certain derivatives fall under the definition of securities notwithstanding, for purposes of our proposals to Regulation S–X, we expect funds to adhere to the requirements of the disclosure schedules for the relevant derivative investment, regardless of how it would be defined under the federal securities laws. See, e.g., proposed rule 12– 13C of Regulation S–X (Open swap contracts). 182See discussion supra Part II.A.2.g.iv. 183 Derivatives Concept Release, supra note 7. 184Comments submitted in response to the Derivatives Concept Release are available at http://www.sec.gov/comments/s7-33-11/ s73311.shtml. See Morningstar Derivatives Concept Release Comment Letter, supra note 58 (‘‘This is because fund companies are not reporting derivative holdings in a consistent manner and are not reporting derivative holdings in a manner that identifies the underlying risk exposure.’’); Comment Letter of Rydex|SGI (Nov. 7, 2011) (‘‘Rydex|SGI Derivatives Concept Release Comment Letter’’) (‘‘However, the quality and extent of such derivatives disclosure still varies greatly from registrant to registrant.’’). Commenters to the FSOC Notice made similar observations. See, e.g., Americans for Financial Reform FSOC Notice Comment Letter, supra note 116 (‘‘While full position-level data on securities portfolios is available periodically for registered funds, current derivatives disclosure requirements appear very poor.’’); Systematic Risk Council FSOC Notice Comment Letter, supra note 116 (‘‘While most managed funds do not employ leverage to the same degree that banks do, we encourage regulators to consider carefully whether there are potential improvements to the current data collection regime [ ] that would allow regulators to track the presence and concentrations of leverage in the asset management industry, particularly as it arises from the use of derivatives . . . .’’). 185See Morningstar Derivatives Concept Release Comment Letter, supra note 58 (‘‘Notional exposure . . . is a better measure of risk’’); Comment Letter of Oppenheimer Funds to Derivatives Concept Release (Nov. 7, 2011) (‘‘Instead, counterparty risks incurred through the investments in derivatives . . . should be considered in a new SEC rulemaking that is primarily disclosure based.’’); Rydex|SGI Derivatives Concept Release Comment Letter, supra note 184 (recommending that funds that invest in derivatives should disclose notional exposure for non-exchanged traded derivatives and a fund’s exposure to counterparties). Commenters to the FSOC Notice made similar observations relating to counterparty disclosures. See, e.g., Americans for Financial Reform FSOC Notice Comment Letter, supra note 116 (‘‘Counterparty data is also often not available.’’); Systematic Risk Council Comment Letter, supra note 116 (discussing the need to have information about investment vehicles that hold bank liabilities). 186Comment Letter of Stephen A. Keen to
Derivatives Concept Release (Nov. 8, 2011). statements in its shareholder reports and, as applicable, Web site disclosures in order to provide investors, particularly individual investors, with clear and consistent disclosures across funds concerning fund investments in derivatives in a human-readable format, as opposed to the structured format of proposed Form N–PORT. As outlined below, we are proposing amendments to Articles 6 and 12 of Regulation S–X that would: (1) Require new, standardized disclosures regarding fund holdings in open futures contracts, open forward foreign currency contracts, and open swap contracts,181 and additional disclosures regarding fund holdings of written and purchased option contracts; (2) update the disclosures for other investments, 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. Our amendments would also require prominent placement of disclosures regarding investments in derivatives in a fund’s financial statements, rather than allowing such schedules to be placed in the notes to the financial statements. Finally, our amendments would require a new disclosure in the notes to the financial statements relating to a fund’s securities lending activities. As discussed above, the proposed rules will renumber the current schedules in Article 12 of Regulation S–X and break out the disclosure of derivatives currently reported on
Schedule 12–13 into separate schedules.
These changes are summarized in
Figure 1, below.
PROPOSED CHANGES TO ARTICLE 12 OF REGULATION S–X Current rules Proposed rules 12–12 (Investments in securities of unaffiliated issuers) ....................... 12–12 (Investments in securities of unaffiliated issuers). 12–12A (Investments—securities sold short) ........................................ 12–12A (Investments—securities sold short). 12–12B (Open option contracts written) ................................................ 12–13 (Open option contracts written).* 12–12C (Summary schedule of investments in securities of unaffiliated issuers). 12–12B (Summary schedule of investments in securities of unaffiliated issuers).* 12–13 (Investments other than securities) ............................................ 12–13A (Open futures contracts).* 12–13B (Open forward foreign currency contracts).* 12–13C (Open swap contracts).* 12–13D (Investments other than those presented in §§ 210.12–12, 12–12A, 12–12B, 12–13, 12–13A, 12–13B, and 12–13C)* 12–14 (Investments in and advances to affiliates) ................................ 12–14 (Investments in and advances to affiliates).

Denotes new or renumbered schedules.
Figure 1
We believe the proposed amendments will assist comparability among funds, and increase transparency for investors regarding a fund’s use of derivatives and the liquidity of certain investments. We have endeavored to mitigate burdens on the industry by proposing to require similar disclosures both on Form NPORT and in a fund’s financial statements.182 As a further consideration, we believe that the amendments we are proposing today are generally consistent with how many funds are currently reporting investments (including derivatives), and other information according to current industry practices.

Enhanced Derivatives Disclosures
In 2011, as part of a wider effort to review the use of derivatives by management investment companies, we issued a concept release and request for comment on a range of issues.183 We received comment letters from a variety of stakeholders, including investors, fund groups, and third-party users of the information, who commented on a number of issues. Several commenters noted that holdings of derivative investments are not currently reported by funds in a consistent manner.184 Commenters also suggested that more disclosure on underlying risks was necessary, including more information on counterparty exposure and reporting relating to the notional amount of certain derivatives.185 Another commenter specifically requested that we revise Regulation S–X in order to keep ‘‘financial reporting current with developments in the financial markets.’’ 186 While the rules under Regulation S– X establish general requirements for portfolio holdings disclosures in fund financial statements, they do not prescribe standardized information to be included for derivative instruments

187The schedule to rule 12–13 requires disclosure of: (1) Description; (2) balance held at close of period—quantity; and (3) value of each item at close of period. See rule 12–13 of Regulation S–X. 188See, e.g., proposed rule 12–12, n.2 of Regulation S–X (instructions for categorizing investments); n.10 (disclosure of illiquid securities); n.12 (disclosure of costs basis for Federal income tax purposes); see also rule 12–13, n.7 of Regulation S–X (current requirement for disclosure of costs basis for Federal income tax purposes). 189Under current rule 12–12B, funds are required to report, for open option contracts, the name of the issuer, number of contracts, exercise price, expiration date, and value. See rule 12–12B of Regulation S–X [17 CFR 210.12–12B]. 190See supra note 116. This information should assist investors in identifying and monitoring the counterparty risks associated with a fund’s investments in over-the-counter derivatives. 191While rule 12–13 is specific to open option contracts written, the same disclosures also apply for purchased options as required by proposed instruction 3 to rule 12–12. See also proposed rule 12–12B, n.5 of Regulation S–X. 192See proposed rule 12–13 of Regulation S–X. 193See proposed rule 12–12, n.3 of Regulation S– X. 194See proposed rules 12–12, n.3; 12–12B, n.5; and 12–13, n.3 of Regulation S–X. 195See Item C.11.c.iii of proposed Form N–PORT. 196Under the proposal, the components would be required to be publicly available on a Web site as of the fund’s balance sheet date at the time of transmission to stockholders for any report required to be transmitted to stockholders under rule 30e–
1. The components would be required to remain
publicly available on a Web site as of the fund’s balance sheet date until 70 days after the fund’s next fiscal year-end. For example, components of an index underlying an option contract for a fund’s 12/ 31/14 annual report must be made publicly available on a Web site as of 12/31/14 by the time that the 12/31/14 annual report is transmitted to stockholders. The components must remain publicly available until 3/10/16. 197See proposed rule 12–13, n.3 of Regulation S–
X. See supra note 120 and accompanying text
(discussing the rationale for similar proposed requirements in Form N–PORT). 198See id. 199See proposed rule 12–13C, n.3 of Regulation S–X. 200See rule 12–13, n.4 of Regulation S–X (‘‘The term ‘investment not readily marketable’ shall include investments for which there is no independent publicly quoted market and investments which cannot be sold because of restrictions or conditions applicable to the investment or the company.’’). 201See proposed rule 12–13, n.6 of Regulation S– X; see also proposed rules 12–13A, n.4; 12–13B, n.2; 12–13C, n.5; and 12–13D, n.6 of Regulation S– X. other than options. Currently, rule 12– 13 of Regulation S–X (Investments other than securities) requires limited information on the fund’s investments other than securities—that is, the investments not disclosed under rules 12–12, 12–12A, 12–12B, and 12–14.187 Thus, under Regulation S–X, a fund’s disclosures of open futures contracts, open forward foreign currency contracts, and open swap contracts are generally reported in accordance with rule 12–13. To address issues of inconsistent disclosures and lack of transparency as to derivative instruments, we are proposing to amend Regulation S–X by proposing new schedules for open futures contracts, open forward foreign currency contracts, and open swap contracts. We are also proposing to modify the current disclosure requirements for purchased and written option contracts. Finally, we are proposing to include certain instructions regarding the presentation of derivatives contracts that are generally consistent with instructions that are currently included, or that we are proposing to add, in either rule 12– 12 (Investments in securities of unaffiliated issuers) or rule 12–13 (Investments other than securities).188 a. Open Option Contracts Written—Rule 12–13 (Current Rule 12–12B) and Options Purchased Our proposed rule would modify the current disclosure of written option contracts.189 First, we are adding new columns to the schedule for written option contracts that would require a description of the contract (replacing the current column for name of the issuer), the counterparty to the transaction,190 and the contract’s notional amount.191 Thus, under the new rule 12–13, for each open written options contract, funds would be required to disclose: (1) Description; (2) counterparty; (3) number of contracts; (4) notional amount; (5) exercise price; (6) expiration date; and (7) value.192 Second, we are proposing to add an instruction to current rule 12–12, which is the schedule on which purchased options are required to be disclosed, that would require funds to provide all information required by proposed rule 12–13 for written option contracts.193 We are also proposing for options where the underlying investment would otherwise be presented in accordance with another provision of rule 12–12 or proposed rules 12–13 through 12–13D that the presentation of that investment must include a description, as required by those
provisions.194 Thus, if another investment contains some sort of optionality (e.g., put or call features), the investment’s disclosure must include both a description of the optionality (as required by proposed rule 12–13), and a description of the underlying investments, as required by the applicable provisions of proposed rules 12–12, 12–12A, and 12–13 through 12–13D. For example, reporting for a swaption would include the disclosures required under both the swaps rule (proposed rule 12–13C) and the options rule (proposed rule 12–13). As required in proposed Form N– PORT,195 in the case of an option contract with an underlying investment that is an index or basket of investments whose components are publicly available on a Web site as of the fund’s balance sheet date,196 or if the notional amount of the holding does not exceed one percent of the fund’s NAV as of the close of the period, we are proposing that the fund provide information sufficient to identify the underlying investment, such as a description.197 If the underlying investment is an index whose components are not publicly available on a Web site as of the fund’s balance sheet date, or is based upon a custom basket of investments, and the notional amount of the option contract exceeds one percent of the fund’s NAV as of the close of the period, the fund would list separately each of the investments comprising the index or basket of investments.198 We believe that disclosure of the underlying investments of an option contract is an important element to assist investors in understanding and evaluating the full risks of the investment. We are also proposing to include a similar instruction for swap contracts.199 The disclosures in proposed instruction 3 would provide investors with more transparency into both the terms of the underlying investment and the terms of the option. We are also proposing several instructions to rule 12–13 and the other rules we are proposing concerning derivatives holdings (e.g., open futures contracts, open swap contracts) in order to maintain consistency with the disclosures required by current rule 12–
13. Current rule 12–13 contains an
instruction requiring identification of ‘‘each investment not readily marketable.’’ 200 We are proposing to modify this requirement in proposed rule 12–13 and the other rules concerning derivatives holdings in order to increase transparency into the marketability of, and observability of valuation inputs for, a fund’s investments by requiring separate identification of investments that are restricted securities, as well as those investments that were fair valued using significant unobservable inputs. Thus, we are proposing to require funds to indicate if an investment cannot be sold because of restrictions or conditions applicable to the investment.201 We are also proposing to require funds to indicate if a security’s fair value was

202See proposed rule 12–13, n.7 of Regulation S– X; see also proposed rules 12–13A, n.5; 12–13B, n.3; 12–13C, n.6; and 12–13D, n.7 of Regulation S–
X. These instructions would require funds to
identify each investment categorized in Level 3 of the fair value hierarchy in accordance with ASC Topic 820. See ASC 820–10–20 (defining ‘‘level 3 inputs’’ as ‘‘unobservable inputs for the asset or liability’’); see also ASC 820–10–35–37A (‘‘In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.’’) (emphasis added); see also discussion supra note 101. 203See rule 12–13, n.7 of Regulation S–X. 204See proposed rule 12–13, n.10 of Regulation S–X; see also proposed rules 12–13A, n.8; 12–13B, n.6; 12–13C, n.9; and 12–13D, n.11 of Regulation S– X. 205See 26 U.S.C. 851, et seq. 206See proposed rule 12–13, n.8 of Regulation S– X; see also proposed rules 12–13A, n.6; 12–13B, n.4; 12–13C, n.7; and 12–13D, n.8 of Regulation S–
X. See generally 1992 Release, supra note 100. As
previously stated, the staff is reviewing possible recommendations to the Commission for rulemaking to update liquidity standards for mutual funds and ETFs, which may result in changes to the Commission’s current guidance on this issue. See supra note 100. 207 Instruction 2 would add ‘‘description’’ and ‘‘counterparty’’ to the organizational categories of options contracts that must be listed separately. See proposed rule 12–13, n.2 of Regulation S–X. Instruction 4 would clarify that the fund need not include counterparty information for exchangetraded options. See proposed rule 12–13, n.4 of Regulation S–X. 208See proposed rule 12–13A of Regulation S–X. 209See rule 12–13 of Regulation S–X. 210See proposed rule 12–13A, columns D and E of Regulation S–X. 211See proposed rule 12–13A of Regulation S–X. 212See proposed rule 12–13A, n.7 of Regulation S–X. 213 Instruction 1 would require funds to organize long purchases of futures contracts and futures contracts sold short separately. See proposed rule 12–13A, n.1 of Regulation S–X. Instruction 2 would require funds to list separately futures contracts where the descriptions or expiration dates differ. See proposed rule 12–13A, n.2 of Regulation S–X. Instruction 3 would clarify that the description should include the name of the reference asset or index. See proposed rule 12–13A, n.3 of Regulation S–X. Instruction 4 would require the fund to indicate each investment which cannot be sold because of restrictions or conditions applicable to the investment. See proposed rule 12–13A, n.4 of Regulation S–X. Instruction 5 would require the fund to indicate each investment whose fair value was determined using significant unobservable inputs. See proposed rule 12–13A, n.5 of Regulation S–X. Instruction 6 would require the fund to identify each illiquid investment. See proposed rule 12–13A, n.6 of Regulation S–X. Instruction 8 would extend current rule 12–13’s tax basis disclosure to disclosures of open futures contracts. See proposed rule 12–13A, n.8 of Regulation S–X. 214We understand that many funds disclose either value or notional amount for open futures contracts, but may not disclose both. Our proposal would require disclosure of both value and notional amount. 215See proposed rule 12–13B of Regulation S–X. 216See rule 12–13 of Regulation S–X. 217See proposed rule 12–13B, column C of Regulation S–X. 218See proposed rule 12–13B of Regulation S–X. 219 Instruction 1 would require the fund to separately organize forward foreign currency contracts where the description of currency purchased, currency sold, counterparties, or settlement dates differ. See proposed rule 12–13B, n.1 of Regulation S–X. Instruction 2 would require the fund to indicate each investment which cannot be sold because of restrictions or conditions applicable to the investment. See proposed rule 12– 13B, n.2 of Regulation S–X. Instruction 3 would require the fund to indicate each investment whose fair value was determined using
significant unobservable inputs. See proposed rule 12–13B, n.3 of Regulation S–X. Instruction 4 would require the fund to identify each illiquid investment. See proposed rule 12–13B, n.4 of Regulation S–X. Instruction 5 would clarify that Column E (unrealized appreciation/depreciation) should be totaled and agree with the total of correlative amounts shown on the related balance sheet. See determined using significant unobservable inputs.202 Current rule 12–13 likewise contains an instruction to include tax basis disclosures for investments other than securities.203 We are extending this requirement to proposed rule 12–13, as well as the other rules concerning derivatives holdings.204 We believe that this type of tax basis information is important to investors in investment companies, which are generally passthrough entities pursuant to Subchapter M of the Internal Revenue Code.205 In order to provide greater transparency to investors into which investments are deemed illiquid, we are also proposing to require funds to identify illiquid investments.206 Liquidity is an important consideration for a fund’s investors in understanding the risk exposure of a fund. For example, in times of market stress, illiquid investments may not be readily sold at their approximate value. Indicating which investments are illiquid would allow an investor to understand which holdings in a fund are likely to be sold at a discount if a portion of the fund’s investments must be sold to meet cash needs, such as redemptions or distributions. Proposed rule 12–13 would also include other new instructions.207 b. Open Futures Contracts—New Rule 12–13A We are proposing new rule 12–13A, which would require standardized reporting of open futures contracts.208 For open futures contracts, funds are currently required to report under rule 12–13 a description of the futures contract (including its expiration date), the number of contracts held (under the balance held—quantity column), and any unrealized appreciation and depreciation (under the value column).209 In order to allow investors to better understand the economics of a fund’s investment in futures contracts, our proposal would also require funds to report notional amount and value.210 Therefore, under the proposal, funds with open futures contracts would report: (1) Description; (2) number of contracts; (3) expiration date; (4) notional amount; (5) value; and (6) unrealized appreciation and depreciation.211 In addition, instruction 7 would include the new requirement that funds should reconcile the total of Column F (unrealized appreciation/ depreciation) to the total variation margin receivable or payable on the related balance sheet.212 We believe that proposed instruction 7 would improve transparency by linking the information in the schedule of open futures contracts with the related balance sheet. As discussed above, our proposal also contains certain new instructions for rule 12–13A that are generally the same across
all of the schedules for derivatives contracts.213 Based on staff review of disclosures of open futures contracts of funds, we believe that these proposed disclosures are generally consistent with current industry practice.214
c. Open Forward Foreign Currency
Contracts—New Rule 12–13B We are also proposing new rule 12– 13B, which would require standardized disclosures for open forward foreign currency contracts.215 Currently, under rule 12–13, funds are required to report a description of the contract (including a description of what is to be purchased and sold under the contract and the settlement date), the amount to be purchased and sold on settlement date (under the balance held—quantity column), and any unrealized appreciation or depreciation (under the value column).216 In order to allow investors to better understand counterparty risk for forward foreign currency contracts, our proposal would additionally require funds to disclose the counterparty to each transaction.217 As proposed, funds holding open forward foreign currency contracts would therefore report the: (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.218 Based on staff review of disclosures of open forward foreign currency contracts of funds, we believe that these proposed disclosures are generally consistent with current industry practice. Our proposal would also include certain new instructions to the schedule that are similar to the other derivatives disclosure requirements we are proposing today.219

proposed rule 12–13B, n.5 of Regulation S–X. Instruction 6 would extend current rule 12–13’s tax basis disclosure to disclosures of open forward foreign currency contracts. See proposed rule 12– 13B, n.6 of Regulation S–X. 220See proposed rule 12–13C of Regulation S–X. 221See rule 12–13 of Regulation S–X. 222See proposed rule 12–13C, columns C, F, and G of Regulation S–X. 223For example, upfront payments disclose whether cash was paid or received when entering into a swap contract, allowing investors to better understand the initial cost of the investment, if any. 224See proposed rule 12–13C of Regulation S–X. The description and terms of payments to be paid and received (and other information) to and from another party should reflect the investment owned by the fund and allow an investor to understand the full nature of the transaction. 225See id. at n.1 (requiring the fund to list each major category of swaps by descriptive title); n.2 (requiring the fund to list separately each swap where description, counterparty, or maturity dates differ within each major category). 226See proposed rule 12–13C, n.3 of Regulation S–X. 227See proposed rule 12–13, n.3 of Regulation S–X. 228See Item C.11.f.i of proposed Form N–PORT. 229See proposed rule 12–13C, n.3 of Regulation S–X. 230See id. 231See proposed rule 12–13C, n.3; and 12–12, n.4 of Regulation S–X. 232 Instruction 4 would clarify that the fund need not list counterparty for exchange traded swaps. See proposed rule 12–13C, n.4 of Regulation S–X. Instruction 5 would require the fund to indicate each investment which cannot be sold because of restrictions or conditions applicable to the investment. See proposed rule 12–13C, n.5 of Regulation S–X. Instruction 6 would require the fund to indicate each investment whose fair value was determined using significant unobservable inputs. See proposed rule 12–13C, n.6 of Regulation S–X. Instruction 7 would require funds to identify each illiquid investment. See proposed rule 12– 13C, n.7 of Regulation S–X. Instruction 8 would require that columns F (value), G (upfront payments/receipts), and H (unrealized appreciation/depreciation) be totaled and agree with the totals of their respective amounts shown on the related balance sheet. See proposed rule 12– 13C, n.8 of Regulation S–X. Instruction 9 would extend current rule 12–13’s tax basis disclosure to disclosures of swap contracts. See proposed rule 12–13C, n.9 of Regulation S–X. 233See proposed rule 12–13D of Regulation S–X. 234 Id. 235See rule 12–13, n.4 of Regulation S–X. 236See proposed rule 12–13D, n.6 of Regulation S–X (requiring the fund to indicate each investment which cannot be sold because of restrictions or conditions applicable to the investment); n.7 (requiring the fund to indicate each issue of securities whose fair value was determined using significant unobservable inputs). 237 Instruction 1 would require the fund to organize each investment separately where any portion of the description
differs. See proposed rule 12–13D, n.1 of Regulation S–X. Instruction 2 would require the fund to categorize the schedule by the type of investment, and related industry, country, Continued d. Open Swap Contracts—New Rule 12– 13C We are also proposing new rule 12– 13C, which would require standardized reporting of fund positions in open swap contracts.220 Under rule 12–13, funds currently report description (including a description of what is to be paid and received by the fund and the contract’s maturity date), notional amount (under balance held—quantity column), and any unrealized appreciation or depreciation (under the value column).221 Our proposal would additionally require funds to report the counterparty to each transaction (except for exchange-traded swaps), the contract’s value, and any upfront payments or receipts.222 This additional information would allow investors to both better understand the economics of the transaction, as well as its associated risks.223 Thus, as proposed, funds would report for each swap the: (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.224 We are proposing these categories of information in an effort to increase transparency of swap contracts, while maintaining enough flexibility for the variety of swap products that currently exist and future products that might come to market.225 While instruction 3 of proposed rule 12–13C provides specific examples for the more common types of swap contracts (e.g., credit default swaps, interest rate swaps, and total return swaps), we recognize that other types of swaps exist (e.g., currency swaps, commodity swaps, variance swaps, and subordinated risk swaps).226 For example, a cross-currency swap has two notional amounts, one for the currency to be received and one for the currency to be paid. For a cross-currency swap, funds would report for purposes of Column A of proposed rule 12–13C, a description of the interest rate to be received and the notional amount that the calculation of interest to be received is based upon. Column B of proposed rule 12–13C would include a description of the interest rate to be paid and the notional amount that the calculation of interest to be paid is based upon. Column E would include both notional amounts and the currency in which each is denominated, or the same information could be presented in two separate columns. As required in our proposed disclosures for open option contracts 227 and in proposed Form N–PORT,228 in the case of a swap with a referenced asset that is an index whose components are publicly available on a Web site as of the fund’s balance sheet date, or if the notional amount of the holding does not exceed one percent of the fund’s NAV as of the close of the period, we are proposing
that the fund provide information sufficient to identify the referenced asset, such as a description.229 If the referenced asset is an index whose components are not publicly available on a Web site as of the fund’s balance sheet date, or is based upon a custom basket of investments, and the notional amount of the holding exceeds one percent of the fund’s NAV as of the close of the period, the fund would list separately each of the investments comprising the referenced assets.230 As with underlying investments for option contracts, we believe that disclosure of the underlying referenced assets of a swap would assist investors in better understanding and evaluating the full risks of investments in swaps. For swaps which pay or receive financing payments, funds would disclose variable financing rates in a manner similar to disclosure of variable interest rates on securities in accordance with instruction 4 to proposed rule 12–
12.231 Our proposal would also include
other instructions to this rule that are similar across all of our proposed rules for derivatives contracts.232 e. Other Investments — Rule 12–13D (Current Rule 12–13) We are also proposing to amend current rule 12–13 and, for organization and consistency, renumber it as proposed rule 12–13D. Proposed rule 12–13D is intended to continue, as is currently required by rule 12–13, to be the schedule by which funds report investments not otherwise required to be reported pursuant to Article 12.233 As proposed, rule 12–13D would require reporting of: (1) Description; (2) balance held at close of period-quantity; and (3) value of each item at close of period.234 We expect that funds would report, among other holdings, investments in physical holdings, such as real estate or commodities, pursuant to proposed rule 12–13D. As discussed above, our proposal would also modify current rule 12–13’s requirement that funds disclose ‘‘each investment not readily marketable’’ 235 in favor of disclosures concerning whether an investment is restricted and if an investment’s fair value was determined using significant unobservable inputs.236 Our proposal would also include certain new instructions to the schedule that are generally the same across all the schedules for derivatives contracts.237

or geographic region, as applicable. See proposed rule 12–13D, n.2 of Regulation S–X. Instruction 3 would require that the description of the asset include information sufficient for a user to understand the nature and terms of the investment. See proposed rule 12–13D, n.3 of Regulation S–X. Instruction 8 would require the fund to identify each illiquid investment. See proposed rule 12– 13D, n.8 of Regulation S–X. 238See supra note 104 and accompanying and following text (discussing how funds would report country codes for portfolio investments on Form N–PORT). We request comment on our proposed amendments to rules 12–13 through 12– 13D of Regulation S–X:

Many of our proposed portfolio
holdings disclosure requirements in
Article 12 conform with similar
requirements on proposed Form N–PORT. Are our proposed amendments to Article 12 appropriate for fund financial statements? Is there information that is currently proposed in Form N–PORT, but not in Article 12, that would benefit investors? For example, to the extent that proposed Form N–PORT instructs filers to report the country code that corresponds to the country of investment or issuer based on the concentrations of the risk and economic exposure of the investments, or, if different, the country where the issuer is organized, should those same instructions be integrated into Regulation S–X to standardize how funds report that information in their financial statements and in Form N– PORT? 238
Are there other categories of
investments not specifically covered in
Article 12 that should be specifically
addressed in a new rule or directly addressed in rule 12–13D?
To what extent are proposed rules
12–13 through 12–13D consistent with industry practices? How are our proposed amendments different? Are there other industry practices that we should include in our proposal with respect to the disclosure of derivative investments?
The schedules to rules 12–13
through 12–13D use the term ‘‘description’’ to require funds to disclose the information sufficient for a user of financial information to identify the investment. Should the instructions to any of those rules be enhanced or modified to clarify what is meant by the term ‘‘description?’’ If so, how should these be enhanced or modified?
The schedules to rules 12–13 (Open
option contracts written), 12–13B (Open forward foreign currency contracts), 12– 13C (Open swap contracts), and 12–13D (Other investments) would require disclosure of the counterparty to the transaction for non-exchange traded instruments. Should we, as proposed, require disclosure of the counterparty to certain transactions? Should the exchange or clearing member be disclosed for exchange-traded derivatives? Are there any additional counterparty or exchange risks that should be disclosed? If so, why? Are there any confidentiality or other concerns with requiring the disclosure of counterparties?
We request comment on our
proposed amendments to rule 12–13 (Open option contracts written). Should we require different or additional information about these contracts? Should any of the proposed information requirements be excluded? Is it appropriate to require disclosure of ‘‘notional amount’’ for option contracts? Is this metric useful to investors? Should we require the disclosures of open option contracts written to be grouped or subtotaled? For example, should we require over-the-counter option contracts to be grouped by counterparty?
As proposed, rule 12–13 would
require disclosure of each option contract with an underlying investment that is an index or basket of investments whose components are not publicly available on a Web site and the notional amount of the holding exceeds one percent of the NAV of the fund. Are there better alternatives to disclose the underlying investments for an options contract if it consists of a custom basket of securities? If so, what alternatives and why? To the extent such indices are proprietary or subject to licensing agreements, what would be the effect of this requirement? For example, would funds incur costs for amending licensing agreements? Would index providers be unwilling to amend existing licensing agreements? If so, how would this impact funds that make such investments and the marketplace generally? Are there other concerns about disclosing the components of proprietary indices? Should we alter this requirement, and if so how? Is our exceeding one percent of the NAV disclosure threshold appropriate? Should there be a different disclosure threshold applied to an option contract’s underlying investments? If so, what threshold and why? For example, should there be a disclosure threshold applied to individual holdings (e.g., if the notional amount of a single underlying investment in a custom basket is less than a certain percentage of a fund’s net assets)? Should we use a different percentage for the disclosure threshold, such as exceeding five percent of the NAV? Alternatively, would summary disclosure be adequate to inform investors, similar to instruction 3 of rule 12–12C, which requires disclosure of the 50 largest issues and any other issue the value of which exceeded one percent of net asset value of the fund as of the close of the period? If so, how should such a disclosure be handled? If the reference asset is a modified version of an index whose components are publicly available on a Web site as of the fund’s balance sheet date, for example a version that is customized to exclude certain issuers that the fund is restricted from owning, would requiring a narrative of those modifications be preferable to funds and investors rather than requiring each holding of the modified index to be listed?
We request comment on proposed
rule 12–13A (Open futures contracts). Should we require different or additional information about these contracts? Should any of the proposed information requirements be excluded? Our proposed rule would require disclosure of notional amount and value on open futures contracts. Should we require disclosure of notional amount for futures contracts? Should we require disclosure of value for futures contracts? Should we require the disclosures of open futures contracts to be grouped or subtotaled? If so, how? For example, should we require open futures contracts to be organized by country of issuance?
We request comment on proposed
rule 12–13B (Open forward foreign currency contracts). Should we require different or additional information about these contracts? Should any of the proposed information requirements be excluded? Rule 12–13B, as proposed, is limited to forward foreign currency contracts. Are there other types of forwards that should be addressed in this section that would not otherwise be presented as other derivative investments, such as swaps? Should we require the disclosures of open forward foreign currency contracts to be grouped or subtotaled? If so, how? For example, should we require open forward foreign currency contracts to be organized by currency or type of transaction (e.g., purchased or sold U.S. dollars)?
We request comment on proposed
rule 12–13C (Open swap contracts).
Should we require different or additional information about these contracts? Should any of the proposed information requirements be excluded? Instruction 1 to proposed rule 12–13C requires the schedule to be organized by descriptive title (e.g., credit default swaps, interest rate swaps). Should we require additional subgrouping of the schedules beyond what is already required? For example, should we

239See proposed rule 12–12, n.2 of Regulation S– X; see also proposed rules 12–12A, n.2; 12–12B, n.2; 12–13D, n.2; and 12–14, n.2 of Regulation S– X. 240See ASC 946–210–50–6, Financial Services— Investment Companies (‘‘ASC 946’’). 241See proposed rule 12–12, n.4 of Regulation S–X. 242See id. require over-the-counter swaps to be grouped by counterparty?

Instruction 3 of proposed rule 12–
13C contains examples of information that could be included for credit default swaps, interest rate swaps, and total return swaps. Is the example contained in proposed rule 12–13C adequate? Is there any other information that should be disclosed as part of the description for credit default swaps, interest rate swaps, and total return swaps? Are there other types of swaps that should be included as examples within proposed rule 12–13C? If so, what information should be included in the example?
As proposed, rule 12–13C would
require disclosure of each investment with a referenced asset that is an index whose components are not periodically publicly available on a Web site and the notional amount of the holding exceeds one percent of the NAV of the fund. Are there better alternatives to disclose the underlying assets of a swap if it consists of a custom basket of securities? If so, what alternative and why? To the extent such indices are proprietary or subject to licensing agreements, what would be the effect of this requirement? For example, would funds incur costs for amending licensing agreements? Would index providers be unwilling to amend existing licensing agreements? If so, how would this impact funds that make such investments and the marketplace generally? Are there other concerns about disclosing the components of proprietary indices? Should we alter this requirement, and if so how? Is our exceeding one percent of the NAV disclosure threshold appropriate? Should there be a different disclosure threshold applied to a swap’s referenced assets? If so, what threshold and why? For example, should there be a disclosure threshold applied to individual holdings (e.g., if the notional amount of a single underlying investment in a custom basket is less than a certain percentage of a fund’s net assets)? Should we use a different percentage for the disclosure threshold, such as exceeding five percent of the NAV? Alternatively, would summary disclosure be adequate to inform investors, similar to instruction 3 of rule 12–12C, which requires disclosure of the 50 largest issues and any other issue the value of which exceeded one percent of net asset value of the fund as of the close of the period? If so, how should such a disclosure be handled? Should we include this disclosure requirement for other investments? For example, should we require funds to disclose the referenced asset for futures contracts or forward foreign currency contracts if their underlying investments are composed of an index or custom basket of securities?
We request comment on our
proposed amendments in rule 12–13D (Investments other than those presented in rules 12–12, 12–12A, 12–12B, 12–13, 12–13A, 12–13B, and 12–13C). Should we require different or additional information about these contracts? Should any of the proposed information requirements be excluded?
We request comment on our
proposed requirements in rules 12–13 through 12–13D that the fund identify investments which cannot be sold because of restrictions or conditions applicable to the investment. Is this requirement appropriate? Why or why not? Would this requirement assist investors and other interested parties with understanding the marketability of an investment? Why or why not?
We request comment on our
proposed requirements in rules 12–13 through 12–13D that the fund identify investments whose fair value was determined using significant unobservable inputs. Is this requirement appropriate? Why or why not? Would this requirement assist investors and other interested parties with understanding risks associated with valuation?
Should we propose a disclosure
relating to ‘‘investments not readily marketable’’ as is currently required by rule 12–13? Why or why not?
We request comment on our
proposed requirements in rules 12–13 through 12–13D that the fund identify investments that are considered to be illiquid. Is this requirement appropriate? Why or why not? What are the costs and benefits associated with this requirement? Will independent accountants be able to audit this disclosure?
We request comment on our
proposed disclosures based on cost for Federal income tax purposes under proposed rule 12–12A and rules 12–13 through 12–13D. Do these disclosures provide meaningful information for investors in addition to tax basis disclosures required under U.S. GAAP? What are the costs and benefits associated with providing this disclosure? Should our proposed disclosures be reported in a separate stand-alone disclosure or, as proposed, as a note to each separate schedule? Should we eliminate the current disclosure requirement to present taxbasis cost and unrealized appreciation and depreciation in both semi-annual and annual shareholder reports? Why or why not? As an alternative, should we make the tax-basis disclosure an annual requirement?

Amendments to Rules 12–12 Through
12–12C
While we are not proposing changes to the schedules for rules 12–12, 12– 12A, and 12–12C, we are proposing certain additional rule instructions that would include new disclosures, as well as certain clarifying changes, including renumbering several of the schedules. We are proposing several modifications to the instructions to rule 12–12, the rule concerning disclosure of investments in securities of unaffiliated issuers. We are proposing to modify instruction 2 to rule 12–12 (and the corresponding instructions to proposed rules 12–12A, 12–12B, 12–13D, and 12–14) which would require funds to categorize the schedule by type of investment, the related industry, and the related country, or geographic region.239 U.S. GAAP requires investment companies that are nonregistered investment partnerships to categorize investments in securities by type, country or geographic region, and industry.240 In order to provide more transparency into the industry and the country or geographic region of a fund’s investments in securities, we believe that the disclosures provided by funds should provide investors with the same categorization as nonregistered investment partnerships. We also believe that disclosure of both the industry and the country or geographic region would be particularly beneficial for investors in global and international funds, where currently funds are only required to categorize their schedule by industry, country, or geographic region, as it would provide additional transparency into the investments owned by the fund. In order to provide more transparency to a fund’s investments in debt securities, we are proposing an instruction to rule 12–12 requiring the fund to indicate the interest rate or preferential dividend rate and maturity rate for certain enumerated debt instruments.241 When disclosing the interest rate for variable rate securities, we are proposing that the fund describe the referenced rate and spread.242 In proposing disclosures for variable rate securities, we considered other alternatives, such as period-end interest rate (e.g. the investment’s interest rate in effect at the end of the period).

243 Id. 244See rule 12–12, n.7 of Regulation S–X. 245See proposed rule 12–12, n.11 of Regulation S–X; see also proposed rule 12–12B, n.14 of Regulation S–X. 246See rule 12–12, n.3 of Regulations S–X; see also proposed rule 12–12B, n.2 of Regulation S–X. 247See proposed rules 12–13, n.7; 12–13A, n.5; 12–13B, n.3; 12–13C, n.6; and 12–13D, n.7 of Regulation S–X. 248See proposed rule 12–12, n.9 of Regulation S–
X. 249See proposed rules 12–12A, n.6 and 12–12B,
n.12 of Regulation
S–X. 250See proposed rules 12–13, n.8; 12–13A, n.6; 12–13B, n.4; 12–13C, n.7; and 12–13D, n.8 of Regulation S–X. 251See proposed rule 12–12, n.10 of Regulation S–X. 252See supra note 206 and accompanying text. 253 Instruction 2 would require the fund to organize the schedule in rule 12–12A in the same manner as is required by instruction 2 of rule 12–
12. See proposed rule 12–12A, n.2. Instruction 3
would require the fund to identify the interest rate or preferential dividend rate and maturity rate as required by instruction 4 of proposed rule 12–12. See proposed rule 12–12A, n.3 of Regulation S–X. Instruction 4 would require the subtotals for each category of investments be subdivided both by investment type and business grouping or instrument type, and be shown together with their percentage value compared to net assets, in the same manner as is required by proposed instruction 5 of rule 12–12. See proposed rule 12–12A, n.4 of Regulation S–X. Instruction 6 would require the fund to identify each issue of securities whose fair value was determined using significant unobservable inputs. See proposed rule 12–12A, n.6 of Regulation S–X. Instruction 7 would require the fund to identify each issue of securities held in connection with open put or call option contracts in the same manner as required by proposed instruction 11 of rule 12–12. See proposed rule 12– 12A, n.7 of Regulation S–X. Instruction 8 would extend rule 12–12’s tax basis disclosure to securities sold short. See proposed rule 12–12A, n.8 of Regulation S–X. 254See rule 6–10(c)(2) of Regulation S–X [17 CFR 210.6–10(c)(2)]; see also Quarterly Portfolio Holdings Adopting Release, supra note 19. 255 Instruction 2 would add ‘‘type of investment’’ to the current subtotal requirements for the summary schedule. See proposed rule 12–12B, n.2 of Regulation S–X. Instruction 3 would extend rule 12–12’s proposed requirement that funds indicate the interest rate or preferential dividend rate and maturity rate for certain enumerated securities. See proposed rule 12–12B, n.3 of Regulation S–X. Instruction 5 would require for options purchased all information that would be required by rule 12– 13 for written option contracts. See proposed rule 12–12B, n.5 of Regulation S–X. Instruction 12 would require the fund to indicate each issue of securities whose fair value was determined using significant unobservable inputs. See proposed rule 12–12B, n.12 of Regulation S–X. Instruction 13 would require the fund to identify illiquid securities. See proposed rule 12–12B, n.13 of Regulation S–X. Instruction 14 would extend rule 12–12’s requirement that the fund indicate where any portion of the issue is on loan. See proposed rule 12–12B, n.14 of Regulation S–X. However, we believe that disclosure of both the referenced rate and spread allow investors to better understand the economics of the fund’s investments in variable rate debt securities, such as the effect of a change in the reference rate on the security’s income. This proposal is intended to result in more consistency across funds in disclosures of the interest rate for variable rate securities. For securities with paymentsin-kind, we are proposing that the fund provide the rate paid in-kind in order to provide more transparency to investors when the fund is generating income that is not paid in cash.243 Our proposal would modify the current
instruction to rule 12–12 244 that requires a fund to identify each issue of securities held in connection with open put or call option contracts and loans for short sales, by adding the requirement to also indicate where any portion of the issue is on loan.245 We believe that this disclosure would increase the transparency of the fund’s securities lending activities. We are also proposing to modify current instruction 3 of rule 12–12 concerning the organization of subtotals for each category of investments, making the instructions consistent with those in proposed rule 12–12B (current rule 12– 12C), Summary schedule of investments in securities of unaffiliated issuers.246 As in our proposed derivatives disclosures,247 in order to increase transparency into the observability of inputs used in determining the value of individual investments, we are adding the requirement for funds to disclose those investments whose fair value was determined using significant unobservable inputs.248 Here, as in our proposed derivatives disclosures, we would expect funds to identify each investment categorized in Level 3 of the fair value hierarchy in accordance with ASC Topic 820. We are also extending this requirement to proposed rules 12– 12A and 12–12B.249 As in proposed rules 12–13 through 12–13D,250 proposed instruction 10 to rule 12–12 would contain a requirement to identify each issue of illiquid securities.251 Like other proposed rules, we believe that this requirement would provide investors with greater transparency and understanding of the liquidity of a fund’s investments.252 Likewise, we are proposing several modifications to rule 12–12A regarding the presentation of securities sold short, in order to conform the instructions to proposed rule 12–12.253 Funds are permitted to include in their reports to shareholders a summary portfolio schedule, in lieu of a complete portfolio schedule, so long as it conforms with current rule 12–12C (Summary schedule of investments in securities of unaffiliated issuers).254 In order to maintain numbering consistency and organization throughout the regulation, we are proposing to rename current rule 12– 12C (Summary schedule of investments in securities of unaffiliated issuers) as rule 12–12B. As in rule 12–12 and 12– 12A, we are not proposing to modify the
schedule of proposed rule 12–12B
(current rule 12–12C), but again added similar changes to its instructions.255 We request comment on our amendments to proposed rules 12–12 through 12–12B of Regulation S–X:

Are our proposed amendments to
rule 12–12 through 12–12B appropriate? Are there other amendments to rules 12–12 through 12–12B that should be made to improve disclosures regarding the investments that would be reported under the rules? If so, what amendments and why?
We request comment on proposed
amendments to rule 12–12 (Investments in securities of unaffiliated issuers). For variable rate securities, we propose to require disclosure of a description of the reference rate and spread (e.g., USD LIBOR 3-month + 2%). Is this requirement appropriate? Should we alternatively require disclosure of the period end interest rate?
We request comment on instruction
2 to proposed rule 12–12 (and the corresponding instructions to rules 12– 12A, 12–12B, and 12–14) which would require funds to categorize the schedule by type of investment, the related industry, and the related country, or geographic region. Should we include this instruction in our proposed rules? What are the costs or benefits associated with such a requirement?
We request comment our proposed
modifications in rules 12–12 and 12– 12B that would require a fund to indicate where any portion of the issue is on loan. Should we include this requirement in our proposed rules? Why or why not?
We request comment on instruction
4 to proposed rule 12–12. Should we require funds to disclose the interest rate or preferential dividend rate and maturity rate for certain debt instruments? Are there any types of securities that should (or should not) be included in instruction 4’s list of applicable debt instruments?
We request comment on our
proposal to require a fund to disclose each issue of illiquid securities. Should we include this requirement in our proposed rules? Why or why not? Would the fund’s independent accountants be able to audit this disclosure?
We request comment on our
proposed requirements in rules 12–12, 12–12A, and 12–12B that the fund identify investments whose fair value

256See proposed rule 12–14 of Regulation S–X. 257See rule 12–14 of Regulation S–X. 258See proposed rule 12–14, column C of Regulation S–X. Column C of current rule 12–14 requires disclosure of the ‘‘amount of equity in net profit and loss for the period,’’ which is derived from the controlled company’s income statement and does not directly translate to the impact to a fund’s statement of operations. We are proposing to replace this requirement with ‘‘net realized gain or loss for the period.’’ 259See id. at column D. 260See proposed rule 12–14, nn.6(e) and (f) of Regulation S–X. 261See id. at n.7; see also proposed rule 12–12, n.5, 12–12A. n.4, 12–12B, n.2 of Regulation S–X. 262 Instruction 1 would delete the instruction to segregate subsidiaries consolidated in order to make the disclosures under rule 12–14 consistent with the fund’s balance sheet. See proposed rule 12–14, at n.1 of Regulation S–X. Instruction 2 would require the fund to organize the schedule to rule 12–14 in the same manner as is required by instruction 2 of rule 12–12. See proposed rule 12– 14, at n.2 of Regulation S–X. Instruction 3 would require the fund to identify the interest rate or preferential dividend rated and maturity rate, as applicable. See proposed rule 12–14, at n.3 of Regulation S–X. Instruction 4 would add column F to the columns to be totaled and update the instruction to state that Column F should agree with the correlative amount shown on the related balance sheet. See proposed rule 12–14, at n.4 of Regulation S–X. Instruction 5 would update the reference to instruction 8 of rule 12–12 and reference to rule 12–13 to reflect the changes in the numbering of the instructions for those rules. See proposed rule 12–14, at n.5 of Regulation S–X. Instruction 6(a) and (b) would update references to column D to reference Column E in order to reflect our proposed changes to rule 12–14’s schedule. See proposed rule 12–14, at nn.6(a) and (b) of Regulation S–X. Instruction 6(d), which proposes to add clarifying language from instruction 7 of rule 12–12, would provide the fund with more detail on the definition of non-income producing securities. See proposed rule 12–14, at n.6(d) of Regulation S–
X. Instruction 8 would require the fund to identify
each issue of securities whose fair value was determined using significant unobservable inputs. See proposed rule 12–14, at n.8 of Regulation S–X. Instruction 9 would require the fund to identify illiquid securities. See proposed rule 12–14, at n.9 of Regulation S–X. Instruction 10 would require the fund to indicate 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, as required by note 11 to rule 12–
12. See proposed rule 12–14, at n.10 of Regulation
S–X. Instruction 11 would extend rule 12–12’s tax basis disclosure to investments in and advances to affiliates. See proposed rule 12–14, at n.11 of Regulation S–X. 263We are also proposing to amend the reference in rule 6–03(c) to § 210.3A–05, as that section of Regulation S–X was rescinded in 2011. See Rescission of Outdated Rules and Forms, and Amendments to Correct References, Securities Act Release No. 33–9273 (Nov. 4, 2011) [76 FR 71872 (Nov. 21, 2011)]. 264See proposed rules 6–01; 6–03; 6–03(c)(1); 6– 03(d); 6–03(i); 6–04; and 6–07 of Regulation S–X. A BDC is a closed-end fund that is operated for the purpose of making investments in small and developing businesses and financially troubled businesses and that elects to be regulated as a BDC. Continued was determined using significant unobservable inputs. Is this requirement appropriate? Why or why not? Would this requirement assist investors and other interested parties with understanding risks associated with valuation?

Are our amendments to proposed
rules 12–12 through 12–12B consistent with industry practices? If not, how are our amendments different and what would be the costs and benefits associated with such differences? Are there other industry practices that we should include in our proposal?

Investments In and Advances to
Affiliates
We are proposing amendments to rule 12–14 (Investments in and advances to affiliates).256 Rule 12–14 requires a fund to make certain disclosures about its investments in and advances to any ‘‘affiliates’’ or companies in which the investment company owns 5% or more of the outstanding voting securities.257 The rule currently requires that a fund disclose the ‘‘amount of equity in net profit and loss for the period’’ for each controlled company, but does not require disclosure of realized or unrealized gains or losses. Based upon staff experience, we believe that the presentation of realized gains or losses and changes in unrealized appreciation or depreciation would assist investors with better understanding the impact of each affiliated investment on the fund’s statement of operations. As a result, we are proposing to modify column C of the
schedule to rule 12–14 to require ‘‘net
realized gain or loss for the period,’’ 258 and column D to require ‘‘net increase or decrease in unrealized appreciation or depreciation for the period’’ for each affiliated investment.259 Likewise, in instruction 6(e) and (f), we are proposing to require disclosure of total realized gain or loss and total net increase or decrease in unrealized appreciation or depreciation for affiliated investments in order to correlate these totals to the statement of operations.260 Disclosure of realized gains or losses and changes in unrealized appreciation or depreciation, in addition to the current requirement to disclose the amount of income, would allow investors to understand the full impact of an affiliated investment on a fund’s statement of operations. Additionally, we are proposing a new instruction 7 in order to make the categorization of investments in and advances to affiliates consistent with the method of categorization used in proposed rules 12–12, 12–12A, and 12– 12B.261 We are also proposing several other modifications to the instructions to rule 12–14 in order to, in part, conform the rule to our proposed disclosure requirements in rules 12–12 and 12–13.262 We request comment on our proposed amendments to rule 12–14 of Regulation S–X:

Are our proposed amendments to
rule 12–14 appropriate? Are there other amendments to rule 12–14 that should be made to improve disclosures regarding the investments that would be reported under the rule? If so, what amendments and why?
In proposed rule 12–14, we are no
longer requiring information about the fund’s equity in the profit or loss of each controlled portfolio company. Instead, we are proposing to require the realized gain or loss and change in unrealized appreciation or depreciation for all affiliated investments. Is this change appropriate? Is it still important to understand the equity in the profit or loss of each controlled company in addition to the controlled portfolio company’s effect on the fund’s statement of operations? Would the presentation of realized gains or losses and changes in unrealized appreciation or depreciation assist investors with better understanding the impact of each affiliated investment on the fund’s statement of operations? Why or why not? Are there other changes to the disclosure of affiliated transactions that would better assist investors with understanding the impact of affiliated investments on the fund’s statement of operations?
In addition to those discussed
above, what are the costs and benefits associated with the proposed changes? Would the proposed changes under rule 12–14 reduce any burdens on filers? If so, how?
Are our amendments to proposed
rule 12–14 consistent with industry practices? If not, how are our amendments different? Are there other industry practices that we should include in our proposal with respect to the disclosure of affiliated investments?

Form and Content of Financial
Statements
Finally, we are proposing revisions to
Article 6 of Regulation S–X, which
prescribes the form and content of financial statements filed for funds. Many of the revisions we are proposing today are intended to conform Article 6 with our proposed changes to Article 12 and update other financial statement requirements.263 As part of these changes, we are proposing to modify the title and description of Article 6 from ‘‘Registered Investment Companies’’ to ‘‘Registered Investment Companies and Business Development Companies’’ to clarify that BDCs are subject to Article 6 of Regulation S–X.264 This does not

See section 2(a)(48) of the Investment Company Act (defining BDCs). BDCs are not subject to periodic reporting requirements under the Investment Company Act, although they must comply with periodic reporting requirements under the Exchange Act. 265See Instruction 1.a to Item 6.c of Form N–2 (‘‘A business development company should comply with the provisions of Regulation S–X generally applicable to registered management investment companies. (See section 210.3–18 [17 CFR 210.3– 18] and sections 210.6–01 through 210.6–10 of Regulation S–X [17 CFR 210.6–01 through 210.6– 10]).’’). 266See proposed rule 6–10 of Regulation S–X. 267See rule 6–10 of Regulation S–X. 268Additionally, in order to conform proposed rule 6–10(b) with the new requirements under
Article 12, we added schedules corresponding to
our proposed new schedules of derivatives investments. 269See proposed rules 6–03(d), 6–04.3 and 6–04.9 of Regulation S–X. 270See rule 6–04.4 of Regulation S–X [17 CFR 210.6–04.4]. 271See proposed rule 6–03(d) of Regulation S–X. 272See proposed rules 6–04.3; 6–04.6; and 6–04.9 of Regulation S–X. 273See ASC 210, Balance Sheet (‘‘ASC 210’’) and ASC 815. 274See proposed rule 6–05.3 of Regulation S–X. 275See rule 6–05.3 of Regulation S–X [17 CFR 210.6–05.3]. 276See proposed rule 6–05.3 of Regulation S–X. 277See supra note 71 and accompanying text. 278See proposed rule 6–03(m) of Regulation S–X. change existing requirements for BDCs.265 In order to allow a more uniform presentation of investment schedules in a fund’s financial statements, we are proposing to rescind subparagraph (a) of rule 6–10 under Regulation S–X, regarding which schedules are to be filed.266 We believe that a fund and its consolidated subsidiaries should present their consolidated investments for each applicable schedule, without indicating which are owned directly by the fund or which are owned by the consolidated subsidiaries. Moreover, current rule 6–10(a) provides that if the information required by any schedule (including the notes thereto) is shown in the related financial statement or in a note thereto without making such statement unclear or confusing, that procedure may be followed and the schedule omitted.267 We believe that some funds may have interpreted this guidance as allowing presentation of some Article 12 schedules (e.g., rules 12–13 and 12–14) in the notes to the financial statements, as opposed to immediately following the schedules required by rules 12–12, 12–12A, and 12–12C, and are therefore proposing to eliminate rule 6–10(a). In light of the increased use of derivatives by funds, we believe that all schedules required by rule 6–10 should be presented together within a fund’s financial statements, and not in the notes to the financial statements. We recognize that our proposal would change current practice for some funds but believe that, coupled with more detailed disclosure rules for derivatives, this amendment would provide more consistent disclosure and improve the usability of financial statements for investors.268 We are also proposing changes to rules 6–03 and 6–04 to specifically reference the investments required to be reported on separate schedules in amended Article 12.269 Additionally, we are proposing to eliminate current rule 6–04.4, which requires disclosure of ‘‘Total investments’’ on the balance sheet under ‘‘Assets,’’ recognizing that investments reported under proposed rules 12–13A through 12–13D could potentially be presented under both assets and liabilities on the balance sheet.270 For example, a fund may hold a forward foreign currency contract with unrealized appreciation and a different forward foreign currency contract with unrealized depreciation. The fund presents on its balance sheet an asset balance for the contract with
unrealized appreciation and a liability balance for the contract with unrealized depreciation. Totaling the amounts of investments reported under assets could be misleading to investors in this example, or in other examples where a fund holds derivatives in a liability position (e.g., unrealized depreciation on an interest rate swap contract). A ‘‘Total investments’’ amount in the Assets section of the fund’s balance sheet would include the fund’s investments in securities and derivatives that are in an appreciated position, but it would not include the unrealized depreciation on the interest rate swap contract, which would be classified under the Liabilities section of the fund’s balance sheet. Given the increasing use of derivatives by funds, we believe eliminating current rule 6–
04.4 would provide more complete
information to investors. We are also proposing a corresponding change in rule 6–03(d) to remove the reference to ‘‘total investments reported under [rule 6–04.4].’’ 271 We are also proposing to amend rule 6–04 to refer individually to our derivatives disclosures in proposed rules 12–13A through 12–13C.272 As is currently the case, these proposed amendments are not meant to require gross presentation where netting is allowed under U.S. GAAP.273 For example, if a fund held a forward foreign currency contract which had unrealized appreciation and another forward foreign currency contract which had unrealized depreciation, the fact that forward foreign currency contracts are mentioned in proposed rules 6– 04.3(b) and 6–04.9(d) is not meant to require both contracts to be presented gross on the balance sheet if netting were allowed under U.S. GAAP. Proposed rule 6–05.3 would also specifically require presentation of items relating to investments other than securities in the notes to financial statements.274 Current rule 6–05.3 only requires presentation in the notes to financial statements of disclosure required by rules 6–04.10 through 6– 04.13, which include information relating to securities sold short and open option contracts written.275 Our proposal would also amend rule 6–05.3 to require fund financial statements to reflect all unaffiliated investments other than securities presented on separate schedules under Article 12.276 We are also proposing to add new disclosure requirements that are designed to increase transparency to investors about certain investments and activities. First, we are proposing to add new subsection (m) to rule 6–03 that would require funds to make certain disclosures in connection with a fund’s securities lending activities and cash collateral management.277 Specifically, we are proposing to require disclosure of (1) the gross income from securities lending, including income from cash collateral reinvestment; (2) the dollar amount of all fees and/or compensation paid by the registrant for securities lending activities and related services, including borrower rebates and cash collateral management services; (3) the net income from securities lending activities; (4) the terms governing the compensation of the securities lending agent, including any revenue sharing split, with the related percentage split between the registrant and the securities lending agent, and/or any fee-forservice, and a description of services included; (5) the details of any other fees paid directly or indirectly, including any fees paid directly by the registrant for cash collateral management and any management fee deducted from a pooled investment vehicle in which cash collateral is invested; and (6) the monthly average of the value of portfolio securities on loan.278 We believe that these proposed disclosures would allow investors to better understand the income generated from, as well as the expenses associated with, securities lending
activities. Second, our proposal would also amend rule 6–07 to require funds to make a separate disclosure for income from

279See proposed rule 6–07.1 of Regulation S–X. 280See proposed rule 6–07.7(a) of Regulation S–X. 281See proposed rule 6–07.7(c) of Regulation S–X. 282See Item B.5.c of proposed Form N–PORT. 283See ASC 815. 284See rule 6–07.7(c) of Regulation S–X [17 CFR 210.6–07.7(c)]. 285See ASC 815. 286 Id. Rule 6–07.7(c) requires disclosure in a note to the financial statements of the number and associated dollar amounts as to option contracts written: (i) At the beginning of the period; (ii) during the period; (iii) expired during the period; (iv) closed during the period; (v) exercised during the period; (vi) balance at end of the period. The balances at the beginning of the period and end of the period are available in the prior period-end and current period-end schedules of open option contracts written, respectively. By eliminating the written options roll-forward, investors would no longer have information regarding the number of contracts expired, closed, or exercised during the period. However, disclosures required by ASC 815 provide gains and losses on derivative instruments, including written options, along with information that would enable users to understand the volume of derivative activity during the period. 287See rule 6–10(c)(1) Schedule II of Regulation S–X; see also proposed rule 6–10(b)(1) Schedule II of Regulation S–X. non-cash dividends and payment-inkind interest on the statement of operations.279 Our proposed amendment to rule 6–07 is intended to increase transparency for investors in order to allow them to better understand when fund income is earned, but not received, in the form of cash. We are proposing to amend rule 6– 07.7(a) in order to conform statement of operations disclosures of the net realized gains or losses from investments to include our additional derivatives disclosures in proposed rules 12–13A through 12–13C.280 Likewise, we are proposing similar changes to proposed 6–07.7(c) (current rule 6–07.7(d)) in order to conform statement of operations disclosures of the net increase or decrease in the unrealized appreciation or depreciation of investments to include our new derivatives disclosures.281 We recognize that Regulation S–X, which organizes net realized gains and losses (and net increases or decreases in the unrealized appreciation or depreciation) by investment type, diverges from our approach in proposed Form N–PORT, which organizes net realized gain or loss and net change in unrealized appreciation or depreciation attributable to derivatives by each instrument’s primary underlying risk exposure.282 While we believe that organizing these disclosures by exposure type, which are derived from ASC Topic 815, are appropriate for Form N–PORT; we also believe that it is more appropriate for statement of operations disclosures to be organized by major types of investment transactions, as doing so would be consistent with the types of investments requiring separate schedules in Article 12 and allow investors to relate the
disclosures in the schedule of investments with the statement of operations.283 We are also proposing to eliminate Regulation S–X’s requirement for specific disclosure of written options activity under current rule 6–07.7(c).284 This provision was adopted prior to FASB adopting disclosures generally applicable to derivatives, including written options, now required by ASC Topic 815.285 We are proposing that the requirement for specific disclosures for written options activity be removed because they are generally duplicative of the requirements of ASC Topic 815, which include disclosure of the fair value amounts of derivative instruments, gains and losses on derivative instruments, and information that would enable users to understand the volume of derivative activity.286 We are also proposing to eliminate the exception in Schedule II of current rule 6–10 which does not require reporting under current rule 12–13 if the investments, at both the beginning and end of the period, amount to one percent or less of the value of total investments.287 We believe that it is appropriate to propose eliminating this exception, because a fund may have significant notional amount in its portfolio that could be valued at one percent or less of the value of total investments. Accordingly, removing this exception would provide more transparency to investors regarding a fund’s derivatives activity. We request comment on our proposed changes to Article 6 of Regulation S–X.

Are our proposed amendments to
Article 6 of Regulation S–X appropriate?
If not, which amendments are not appropriate and why? Are there other amendments to Article 6 of Regulation S–X that we should propose? If so, what amendments and why?
Are there alternative methods of
presentation of derivatives that we should consider, rather than the proposed requirement that all schedules be presented in the same location? If so, what method and why is it preferable?
As we discussed above, among
others, our basis for proposing to eliminate rule 6–10(a) was our belief that a fund and its consolidated subsidiaries should present their consolidated investments for each applicable schedule, without indicating which are owned directly by the fund and which are owned by the consolidated subsidiaries. Is this proposed change appropriate? Why or why not? Should we require different or additional information about consolidated investments?
We request comment on our
proposal to eliminate rule 6–04.4, which requires disclosure of ‘‘Total investments’’ on the balance sheet under ‘‘Assets,’’ and the corresponding reference to rule 6–04.4 in rule 6–03(d). Are these proposed changes appropriate? Why or why not? Would eliminating current rule 6–04.4 provide more complete information to investors?
We request comment on our
proposal to amend rule 6–05.3 to specifically require presentation of items relating to investments other than securities in the notes to the financial statements, as well as require fund financial statements to reflect all unaffiliated investments presented on separate schedules under Article 12. Are our proposed changes appropriate? Why or why not?
Would the disclosure required
under proposed rule 6.03(m) concerning income and expenses in connection with securities lending activities provide meaningful information to investors or other potential users? For example, would the disclosures regarding compensation and other fee and expense information relating to the securities lending agent and cash collateral manager be useful to fund boards in evaluating their securities lending arrangements? Would these disclosures be sufficient for this purpose, or would additional information be necessary, for example, to put the fee and expense information in context (e.g., the nature of the services provided by the securities lending agent and cash collateral manager)? Should the Commission instead require that these or other similar disclosures, be provided elsewhere in the fund’s financial statements (e.g., the Statement of Operations), or provided as part of other disclosure documents (e.g., the Statement of Additional Information) or reporting forms (e.g., proposed Form N– CEN)? Why or why not?
Is the proposed disclosure under
rule 6–07.1 for non-cash dividends and payment-in-kind interest on the statement of operations meaningful to investors or other potential users of the fund’s financial statements? Should all non-cash interest be disclosed, including amortization and accretion, or should just payment-in-kind interest be disclosed?
Do our proposed amendments to
rules 6–07.7(a) and 6–07.7(c) omit any classifications of gains or loss or changes in unrealized appreciation or

288See section 30(e) of the Investment Company Act [15 U.S.C. 80a–29(e)]; rule 30e–1 (reports to stockholders of management companies); rule 30e–2 (reports to shareholders of unit investment trusts substantially all the assets of which consist of securities issued by a management company). 289See generally Use of Electronic Media for Delivery Purposes, Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (‘‘1995 Release’’) (providing Commission views on the use of electronic media to deliver information to investors, with a focus on electronic delivery of prospectuses, annual reports to security holders and proxy solicitation materials under the federal securities laws); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information, Investment Company Act Release No. 21945 (May 9, 1996) [61 FR 24644 (May 15, 1996)] (‘‘1996 Release’’) (providing Commission views on electronic delivery of required information by broker-dealers, transfer agents and investment advisers); Use of Electronic Media, Investment Company Act Release No. 24426 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (‘‘2000 Release’’) (providing updated interpretive guidance on the use of electronic media to deliver documents on matters such as telephonic and global consent; issuer liability for Web site content; and legal principles that should be considered in conducting online offerings). More recently, the Division of Investment Management published guidance stating the staff’s position that electronic delivery of a notice pursuant to rule 19a–1 under the Investment Company Act, consistent with the Commission’s electronic delivery guidance, would satisfy the purposes and policies underlying the rule. See Division of Investment Management, Securities and Exchange Commission, Shareholder Notices of the Sources of Fund Distributions—Electronic Delivery, IM Guidance Update No. 2013–11 (Nov. 2013), available at http://www.sec.gov/divisions/ investment/guidance/im-guidance-2013-11.pdf (‘‘2013–11 IM Guidance Update’’). 290See id. 291 In 2011, the Commission engaged a consultant to conduct investor testing regarding shareholder reports. We have placed the consultant’s report concerning that testing (‘‘Investor Testing of Mutual Fund Shareholder Reports’’) in the comment file for the proposed rule (available at www.sec.gov/ comments/s7-08-15/s70815.shtml). Separately, Commission staff prepared a study of investor financial literacy pursuant to section 917 of the Dodd-Frank Act. Materials relating to this study, including the staff’s report, are available at http:// www.investor.gov/publications-research-studies/ sec-research. Also, in 2007, the Commission engaged a consultant to conduct focus group interviews and a telephone survey concerning investors’ views and opinions about various disclosure documents filed by companies, including mutual funds. We have placed the consultant’s report concerning the focus
group testing and related transcripts in the comment file for the proposed rule (available at www.sec.gov/comments/s7-08-15/s70815.shtml). The consultant’s report concerning the telephone survey (‘‘Telephone Survey Report’’) is available at http://www.sec.gov/pdf/disclosuredocs.pdf. Respondents to the telephone survey who had received a mutual fund shareholder report, for example, were asked about their preferences for a mode of delivery of the information contained in a depreciation that should be disclosed? If so, which categories and why?

We request comment on our
proposal to eliminate Regulation S–X’s requirements for specific disclosure of written options activity under rule 6– 07.7(c). Does the current requirement for specific disclosure of written options activity under rule 6–07.7(c) provide a user of financial statements with sufficient incremental benefit to merit retaining this disclosure in addition to the disclosures required by ASC Topic 815? Why or why not?
Proposed rule 6–10(b) would no
longer allow funds to omit the schedule of investments other than securities if the investments, other than securities, at both the beginning and end of the period amount to one percent or less of the value of total investments. Is this change appropriate? Are there any costs associated with this change? If so, what are they?
Are our amendments to Article 6 of
Regulation S–X generally consistent with industry practices, except where specifically noted in the discussion above? If not, how are our amendments different? Are there other industry practices that we should include in our proposal with respect to the form and content of financial statements? D. Option for Web Site Transmission of Shareholder Reports

Overview
The Commission is proposing new rule 30e–3 under the Investment Company Act, which would, if adopted, permit, but not require, a fund to satisfy requirements under the Act and rules thereunder to transmit reports to shareholders if the fund makes the reports and certain other materials accessible on its Web site. Reliance on the rule would be subject to certain conditions, including conditions relating to (1) the availability of the shareholder report and other required information, (2) prior shareholder consent, (3) notice to shareholders of the availability of shareholder reports, and (4) shareholder ability to request paper copies of the shareholder report or other required information. This new option is intended to modernize the manner in which periodic information is transmitted to shareholders. We believe it would improve the information’s overall accessibility while reducing burdens such as printing and mailing costs borne by funds, and ultimately, by fund shareholders. As described below, today’s proposal draws on the Commission’s experience with use of the Internet as a medium to provide documents and other information to investors. The proposal is supported by recent Commission investor testing efforts and other empirical research concerning investors’ preferences about report transmission methods and use of the Internet for financial and other purposes generally. At the same time, the Commission recognizes that empirical research, discussed below, demonstrates that some investors continue to prefer to receive paper reports. The proposal therefore incorporates a set of protections intended to avoid investor confusion and protect the ability of investors to choose their preferred means of communication. Reliance on the rule would be optional. Funds that do not maintain Web sites or that otherwise wish to transmit shareholder reports in paper or pursuant to the Commission’s existing electronic delivery guidance would continue to be able to satisfy transmission requirements by those transmission methods. Furthermore, under the rule as proposed, a fund relying on the rule to satisfy shareholder report transmission obligations with respect to certain shareholders would not be precluded from transmitting shareholder reports to other shareholders pursuant to the Commission’s electronic delivery guidance. We expect that funds would continue to rely on the Commission’s guidance to electronically transmit reports to shareholders who have elected to receive reports electronically, and rely on the rule with respect to shareholders who have not so elected (i.e., those who currently receive printed shareholder reports by mail).
Discussion
Funds are generally required to transmit reports to shareholders on a semiannual basis.288 Historically, these reports have been printed and mailed to shareholders. With advances in technology and, in particular, the increasing use of the Internet as a medium through which information, financial or otherwise, is made accessible, we have previously issued guidance describing the circumstances under which transmission of disclosure documents may be effected through electronic means.289 Under that guidance, funds may transmit documents electronically provided that a number of conditions related to shareholder notice, access, and evidence of delivery are met.290 Recent investor testing and Internet usage trends have highlighted that preferences about electronic delivery of information have evolved, and that many investors would prefer enhanced availability of fund information on the Internet. For example, investor testing sponsored by the Commission and conducted in 2011 291 suggested that an

shareholder report, and ‘‘an Internet Web site’’ received the highest ratings (with 49% rating it 7 or above on a 10 point scale), compared with 42% of respondents who rated ‘‘a paper copy’’ 7 or above. See Telephone Survey Report at 96. 292See Investor Testing of Mutual Fund Shareholder Reports, supra note 291, at 72. When asked ‘‘If you wanted to see a mutual fund annual report, how would you access/obtain the report? Please check all that apply.,’’ 59.5% of respondents selected ‘‘look on the mutual fund company’s Web site,’’ compared with 33.3% who selected ‘‘ask my financial advisor,’’ 24.5% who selected ‘‘request by mail,’’ 21.0% who selected ‘‘do a web search (Google, etc.),’’ 18.8% who selected ‘‘request by phone,’’ 12.3% who selected ‘‘check with my employer’s HR or employee benefits representative,’’ 11.3% who selected ‘‘look on the SEC’s Web site or on EDGAR,’’ and 2.3% who selected ‘‘other.’’ Id. 293See id. at 185. When asked ‘‘How would you prefer to receive information about your mutual fund investments?,’’ 25.8% of respondents selected ‘‘online through a link provided in an email, with the option to request a print version,’’ compared with 19.5% of respondents who selected ‘‘in print through the mail, with a web address provided for an online version,’’ 18.5% who selected ‘‘online through a link provided in an email,’’ 16.5% who selected ‘‘a print summary of the key information through the mail, with a web address provided for a complete online version,’’ 13.8% who selected ‘‘in print through the mail,’’ and 6.0% who selected ‘‘I don’t have a preference.’’ Id. 294See Pew Research Center, Who’s Not Online and Why, at 2 (Sept. 25, 2013), available at http://pewinternet.org/Reports/2013/Non-internetusers.aspx. 295See Pew Research Center, Older Adults and Technology Use, at 1 (Apr. 3, 2014), available at http://www.pewinternet.org/2014/04/03/olderadults-and-technology-use/. 296See 2015 ICI Fact Book, at 129, supra note 4. For example, the study found the following with respect to Internet access in mutual fund owning households: (1) Head of household age 65 or older, 86% have access, (2) education level of high school diploma or less, 84% have access, and (3) household income of less than $50,000, 84% have access. 297See 2014 Investment Company Fact Book, Investment Company Institute, at 115–17, available at http://www.ici.org/pdf/2014_factbook.pdf. 298Currently, funds report their complete portfolio holdings as of the first and third fiscal quarters on Form N–Q, which is accessible only through EDGAR. There is no separate requirement for funds to transmit or otherwise make this information available to shareholders. 299Proposed rule 30e–3(a). investor looking for a fund’s annual report is most likely to seek it out on the fund’s Web site, rather than request it by mail or phone or by retrieving it from the Commission’s EDGAR system.292 Many investors indicated that they would prefer that fund information be made available in both
electronic and print versions, with a plurality of respondents preferring electronic transmission by email with the option to easily request a print copy of a particular report, though a significant minority indicated that they would still prefer to receive a print copy through the mail.293 In the time since this investor testing was conducted, access to and use of the Internet has continued to increase significantly, including among demographic groups that have previously been less apt to use the Internet. For example, a study conducted by the Pew Research Center’s Internet & American Life Project in 2013 found that only 15% of American adults ages 18 and older do not use the Internet or email—falling from 26% in 2011, when our investor testing was conducted, and from 39% a decade before in 2001.294 These researchers also found that for the first time in 2012, more than half of adults over the age of 64 used the Internet, a figure that climbed to 59% in 2013.295 These trends have also extended to use of the Internet for financial purposes. For example, a recent survey by the Investment Company Institute found that in 2014, 94% of U.S. households owning mutual funds had Internet access (up from 68% in 2000), with widespread use among various age groups, education levels and income levels.296 The year before, the Investment Company Institute found that 82% of U.S. households owning mutual funds used the Internet for financial purposes.297 Given the evolving preferences and trends in Internet usage, in particular with regard to the delivery of financial information, we believe that it is appropriate to propose a rule that would permit the Web site transmission of fund shareholder reports, while maintaining the ability of shareholders who prefer to receive reports in paper to receive reports in that form. Funds and their shareholders would benefit from the reductions in related printing and mailing costs. Also, the rule, as proposed, would consolidate current and historical portfolio holdings information in one location (i.e., a particular Web site, as opposed to having some information on one Web site and other information on EDGAR), whereas currently, funds are not required to transmit or otherwise make accessible to investors holdings information as to the first and third fiscal quarters.298 Although we believe the proposed rule would benefit many investors, we recognize that there are concerns associated with how some investors may be affected. For example, as discussed above, investor testing suggests that a significant minority of investors prefer to receive paper reports and that some demographic groups of investors may be less likely to use the Internet. Some of these investors might not fully understand the actions they would need to take under the proposed rule to continue to receive their reports in paper. We believe that it is critical that these investors continue to receive disclosure in a means that is convenient and accessible for
them. In addition, there is a risk that even some investors that prefer to use the Internet might be less likely to review reports electronically than they would in paper. We also believe it is critical that the proposed rule communicate the importance of the information that would be made available on the Web site. Accordingly, as discussed below, the proposed rule would include certain safeguards for investors who wish to continue to receive shareholder reports in paper, by requiring prior consent of investors, and continuing to make shareholder reports and other required information available in paper upon request. The proposed rule would also include requirements intended to emphasize the importance of the information available on the Web site. These protections are intended to maintain the ability of investors who prefer to receive reports in paper to continue to do so without confusion, as well as to provide to investors clear and prominent printed notifications each time a new shareholder report is made available online. We request comment below on the potential concerns articulated above, as well as the steps we are proposing to address them while capturing the potential benefits for investors and funds of electronic communication.
3. Rule 30e–3
As proposed, new rule 30e–3 would provide that a fund’s annual or semiannual report to shareholders would be considered transmitted to a shareholder of record if certain conditions set forth in the rule are satisfied as to (a) availability of the report and other materials, (b) shareholder consent, (c) notice to shareholders, and (d) delivery of materials upon request of the shareholder.299 As discussed below, these conditions are generally consistent with similar conditions in other rules adopted by the Commission, including its rules regarding the use of a summary prospectus, internet delivery of proxy materials, and ‘‘householding’’ of certain disclosure documents. a. Availability of Report and Other Materials Under the rule as proposed, the fund’s report to shareholders under rule 30e– 1 or 30e–2 would be required to be publicly accessible, free of charge, at a

300Proposed rule 30e–3(b)(1).
301 Id.
302See 1995 Release, supra note 289 (noting that to satisfy access requirements under the Commission’s electronic delivery guidance, ‘‘as is the case with a paper document, a recipient should have the opportunity to retain the information or have ongoing access equivalent to personal retention). 303Proposed rule 30e–3(b)(1)(ii). Thus, for example, a fund with a December 31 fiscal year end wishing to rely on rule 30e–3 to transmit its annual report to shareholders would also be required to ensure that its semiannual report as of June 30 is similarly accessible. Only those annual and semiannual reports that are required under rule 30e–1 or rule 30e–2 are required to be accessible in order to rely on rule 30e–3. Thus, for example, if a fund is transmitting a report for its first operational semiannual period, the fund could rely on rule 30e–3 to transmit that report, despite not having made a previous report publicly accessible provided that it meets the other required conditions. 304See proposed rule 30e–3(b)(1)(iii). 305See proposed rule 30e–3(b)(2). For example, a fund with a December 31 fiscal year end wishing to rely on rule 30e–3 to transmit its annual report to shareholders would also be required to ensure that its complete portfolio holdings for the first quarter of the next year is similarly available. 306See rule 2a–7(h)(10). In 2014, we adopted certain amendments to the Web site disclosure requirements for money market funds under rule 2a–7. The compliance date for these amendments is April 14, 2016. See Money Market Fund Reform 2014 Release, supra note 13, at sections III.E.9 and III.N.4. 307See rule 30b1–5. 308See proposed rule 30b1–9. 309Proposed rules 30e–3(b)(1) and (b)(2). 310 Id. 311See supra Part II.A.2.j. 312See generally supra note 27. 313These requirements are largely similar to the accessibility requirements of rule 498 under the Securities Act, which allows funds to use a summary prospectus, and rule 14a–16 under the Securities Exchange Act, which requires issuers and other soliciting persons to furnish proxy materials by posting these materials on a public Web site and notifying shareholders of the availability of these materials and how to access them. 314See proposed rule 30e–3(b)(3). Currently, the Commission’s electronic filing system for fund documents is EDGAR. 315See proposed rules 30e–3(b)(4) and (5). 316See proposed rule 30e–3(b)(6). The rule provides that the conditions in paragraphs (b)(1) through (b)(5) of the rule (i.e., the posting requirements) shall be deemed to be met, notwithstanding the fact that the materials required by paragraph (b)(1) of the rule are not available for a period of time in the manner required by the posting requirements, so long as certain conditions are met. See id. 317See proposed rules 30e–3(b)(6)(i) and (ii). The rule would require prompt action ‘‘as soon as practicable following the earlier of the time at which it knows or reasonably should have known’’ that the required documents
are not available in the manner prescribed by the posting requirements of the rule. specified Web site address.300 The report would need to be accessible beginning no later than the date of the transmission in reliance on this option, and ending no earlier than the date when the fund next ‘‘transmits’’ a report required by rule 30e–1 or 30e–2.301 This requirement is intended to provide shareholders with the opportunity for ongoing access from the date of intended transmission until the date that the fund transmits its next shareholder report.302 In addition to the most current shareholder report, the rule as proposed would require that the fund post on its Web site (1) any previous shareholder report transmitted to shareholders of record within the last 244 days,303 and (2) in the case of a fund that is not a money market fund or an SBIC, the fund’s complete portfolio holdings as of the close of its most recent first and third fiscal quarters, if any, after the date on which its registration statement became effective.304 In addition, a fund that is not a money market fund or an SBIC would be required to make its portfolio holdings as of the end of the next fiscal quarter accessible in the same manner within 60 days after the close of that period.305 We are proposing exceptions to the posting requirement of first and third fiscal quarter portfolio holdings schedules for money market funds and SBICs because money market funds are currently required to post certain portfolio holdings and other information on their Web sites pursuant to rule 2a–7,306 and because SBICs are neither currently required to file reports on Form N–Q,307 nor would SBICs be required to file reports on proposed Form N–PORT.308 These materials would also be required to be publicly accessible in the same manner and for the same time period as the current shareholder report.309 We are proposing this requirement so that shareholders have access to a complete year of portfolio holdings information in one location (i.e., the Web site on which the report transmitted under the proposed rule is made accessible), rather than have to separately access portfolio holdings information for the first and third quarters by accessing the fund’s reports on Form N–PORT for those periods. To conform the form and content of the portfolio holdings schedules for the first and third quarters to those schedules presented in the fund’s shareholder reports for the second and fourth quarters, the proposed rule would require the schedules for the first and third quarters to be presented in accordance with the schedules set forth in §§ 210.12–12—12–14 of Regulation S–X [17 CFR 210.12–12—12–14], which need not be audited.310 As discussed above, we have also proposed to require that these materials be filed as exhibits to Form N–PORT, regardless of whether the fund intends to rely on the rule to satisfy its shareholder report transmission obligations.311 These Web site portfolio disclosure requirements would
be generally consistent with funds’ current disclosure obligations under Regulation S–X for reports filed on Forms N–Q and N–CSR.312 Accordingly, we anticipate that most funds would have established procedures in place to report and validate such disclosures, and that funds would be familiar with these disclosure requirements. These Web site portfolio disclosure requirements are also intended to provide disclosures that would be easily understood and familiar to investors, because these disclosures would contain similar information and would be presented in a similar manner as those currently included in shareholder reports. Proposed rule 30e–3 would require compliance with certain conditions designed to ensure the accessibility of shareholder reports and other required materials.313 First, the Web site address on which the shareholder reports and other required portfolio information are made accessible could not be the Commission’s Web site address for electronic filing.314 Second, the materials required to be posted on the Web site would have to be presented in a format that is convenient for both reading online and printing on paper, and persons accessing the materials would have to be able to permanently retain (free of charge) an electronic copy of the materials in this format.315 These conditions are designed to ensure that shareholder reports and other information posted on a fund’s Web site pursuant to the proposed rule are userfriendly and allow shareholders the same ease of reference and retention abilities they would have with paper copies of the information. Third, the rule as proposed would include a safe harbor provision that would allow a fund to continue relying on the rule even if it did not meet the posting requirements of the rule for a temporary period of time.316 In order to rely on this safe harbor, a fund would be required to have reasonable procedures in place to ensure that the required materials are posted on its Web site in the manner required by the rule and take prompt action to correct noncompliance with these posting requirements.317 We are proposing this safe harbor because we recognize that there may be times when, due to events beyond a fund’s control, such as system outages or other technological issues, natural disasters, acts of terrorism, pandemic illnesses, or other circumstances, a fund is temporarily not

318Compare rule 498(e)(4) of the Securities Act (providing a similar safe harbor under the summary prospectus rule for the same reasons). 319See supra notes 291–296 and accompanying text. 320These conditions are substantially similar to certain of the conditions relating to the Commission’s rules on ‘‘householding’’ prospectuses, shareholder reports, and proxy statements and information statements to investors who share an address. See, e.g., rule 154 under the Securities Act [17 CFR 230.154] (permitting householding of prospectuses); rules 30e–1 and 30e–2 under the Investment Company Act (permitting householding of fund shareholder reports); rules 14a–3 and 14c–3 under the Exchange Act (permitting householding of proxy statements and information statements). See generally Delivery of Disclosure Documents to Households, Investment Company Act Release No. 24123 (Nov. 4, 1999) [64 FR 62540 (Nov. 16, 1999)] (adopting householding rules with respect to prospectuses and shareholder reports); Delivery of Proxy Statements and Information Statements to Households, Investment Company Release No. 24715 (Oct. 27, 2000) [65 FR 65736 (Nov. 2, 2000) (adopting householding rules with respect to proxy statements and information statements). For purposes of the householding rules, consent may be written or implied. 321While the householding rules require that consent be ‘‘in writing,’’ we are not proposing a similar ‘‘in writing’’ requirement as, consistent with the Commission’s guidance on electronic delivery, consent may be provided in a number of ways, including in writing, electronically, or telephonically. See 1995 Release, supra note 289 (noting that one method for satisfying evidence of delivery is to obtain informed consent from an investor to receive information through a particular medium); 1996 Release, supra note 289 (stating that informed consent should be made by written or electronic means); 2000 Release, supra note 289 (stating Commission’s view that an issuer or market intermediary may obtain an informed consent telephonically, as long as a record of that consent is retained). 322Proposed rule 30e–3(c). 323See id. 324See proposed rule 30e–3(c)(1). For purposes of the rule, ‘‘Initial Statement’’ would be defined as the notice described in paragraph (c)(1) of the rule. See proposed rule 30e–3(h)(2). 325See proposed rules 30e–3(c)(1) and (e). See also A Plain English Handbook, Securities and Exchange Commission, available at https:// www.sec.gov/pdf/handbook.pdf. 326Proposed rule 30e–3(c)(1)(i). 327Proposed rule 30e–3(c)(1)(ii). 328Proposed rule 30e–3(c)(1)(iii). 329Proposed rule 30e–3(c)(1)(iv). 330Proposed rule 30e–3(c)(1)(v). This legend would be required to appear on the envelope on which the Initial Statement is delivered, or alternatively, if the Initial Statement is delivered separately from other communications to investors, the legend may appear either on the Initial Statement or on the envelope in which the Initial Statement is delivered.
331See proposed rule 30e–3(c)(2). 332See proposed rule 30e–3(c)(3). For purposes of the proposed rule, (1) ‘‘summary prospectus’’ would mean the summary prospectus described in paragraph (b) of rule 498, (2) ‘‘statutory prospectus’’ would mean a prospectus that satisfies the requirements of section 10(a) of the Securities Act, and (3) ‘‘statement of additional information’’ means the statement of additional information required by Part B of the registration form applicable to the fund. See proposed rule 30e–3(h). 333Proposed rule 30e–3(c)(4). 334See proposed rule 30e–3(d). For purposes of the rule, ‘‘Notice’’ would be defined as the notice described in paragraph (d) of the rule. See proposed rule 30e–3(h)(3). 335See rule 14a–16 under the Exchange Act [17 CFR 240.14a–16]. in compliance with the Internet posting requirements of the rule.318 b. Shareholder Consent While we believe that many investors would prefer electronic transmission of shareholder reports based on investor testing and Internet usage trends, we also acknowledge that there likely will be investors that may continue to prefer receiving shareholder reports in paper.319 To maintain the ability of those shareholders to receive paper copies of their shareholder reports, the rule as proposed would require that a fund obtain shareholder consent prior to relying on the rule to satisfy transmission obligations with respect to a particular shareholder.320 Specifically, rule 30e–3 as proposed would permit electronic transmission of shareholder report to a particular shareholder only if the shareholder has either previously consented to this method of transmission,321 or has been determined to have provided implied consent under certain conditions specified in the rule.322 Under the proposed rule, each series of a registrant offering multiple series would need to obtain separate consent as to a shareholder, regardless of whether consent was obtained from that shareholder by other series offered by that registrant.323 To obtain implied consent as to a shareholder, the fund would be required to transmit to the shareholder a separate written statement (‘‘Initial Statement’’), at least 60 days before it begins to rely on the rule, notifying the shareholder of the fund’s intent to make future shareholder reports available on the fund’s Web site until the shareholder revokes consent.324 As proposed, the Initial Statement must be written using plain English principles so that it will be easily understood by most investors 325 and:

State that future shareholder reports
will be accessible, free of charge, at a Web site; 326
explain that the fund will no longer
mail printed copies of shareholder reports to the shareholder unless the shareholder notifies the fund that he or she wishes to receive printed reports in the future; 327
include a toll-free telephone
number and be accompanied by a reply form that is pre-addressed with postagepaid and that includes the information that the fund would need to identify the shareholder, and explain that the shareholder can use either of those two methods at any time to notify the fund that he or she wishes to receive printed reports in the future; 328
state that the fund will mail printed
copies of future shareholder reports within 30 days after the fund receives notice of the shareholder’s preference; 329 and
contain a prominent legend in boldface type that states: ‘‘How to Continue
Receiving Printed Copies of Shareholder Reports.’’ 330 The Initial Statement is designed to permit funds to infer that a shareholder has consented to electronic transmission of future shareholder reports by alerting the shareholder to the fact that the shareholder will no longer receive printed copies in the future unless the shareholder notifies the fund that he or she wishes to receive print copies of such reports in the future. Because of the importance of this information, in addition to the required prominent legend on the envelope in which the Initial Statement is delivered or on the Initial Statement itself, the proposed rule would require certain conditions intended to ensure that the Initial Statement is not obscured by other materials. Specifically, the proposed rule would require that the Initial Statement could not be incorporated into or combined with another document,331 nor could it be sent along with other shareholder communications (with the exception of the fund’s current summary prospectus, statutory prospectus, statement of additional information, or Notice of Internet Availability of Proxy Materials under rule 14a–16 under the Exchange Act).332 If the fund does not receive the reply form or other notification indicating that a particular shareholder wishes to continue to receive paper reports by mail within 60 days after the fund sends the Initial Statement, then the fund may begin to transmit shareholder reports to that shareholder electronically, provided that it meets the other conditions of the rule.333
c. Notice
Proposed rule 30e–3 would require funds relying on the rule with respect to a shareholder who has consented to electronic transmission pursuant to the conditions of paragraph (c)(1) of the rule to send a notice (‘‘Notice’’) within 60 days of the close of the fiscal period to which the report relates.334 The proposed requirements for a Notice largely mirror the notice requirements under the Commission’s rules mandating the posting of proxy materials online.335 As proposed, the Notice, like the Initial Statement, would be required to

336See proposed rules 30e–3(d)(1) and (e). 337Proposed rule 30e–3(d)(1)(i). The rule as proposed would also require that the legend include the specific fund name to which the Notice relates, or the fund complex name. 338Proposed rule 30e–3(d)(1)(ii). 339Proposed rule 30e–3(d)(1)(iii). A fund could send a joint Notice with other funds held by the same shareholder in a fund complex; however, the Notice would have to include a link to each of those funds’ shareholder reports. A fund may also send a separate Notice if it so wishes. 340Proposed rule 30e–3(d)(1)(iv). The Web site address would have to be specific enough to lead investors directly to the documents that are required to be posted online under the rule. The Web site address could be a central site with prominent links to each document, but could not be a home page or section of the Web site other than where the documents are posted. See id. 341Proposed rule 30e–3(d)(1)(v). 342Proposed rule 30e–3(d)(1)(vi). 343See proposed rule 30e–3(d)(3). 344See proposed rule 30e–3(d)(2). 345See proposed rule 30e–3(d)(4). 346See, e.g., rule 154 under the Securities Act (permitting householding of prospectuses); rules 30e-1 and 30e-2 under the Investment Company Act (permitting householding of fund shareholder reports); rules 14a–3 and 14c–3 under the Exchange Act (permitting householding of proxy statements and information statements). 347See proposed rule 30e–3(d)(5). 348See proposed rule 30e–3(d)(6). 349Proposed rule 30e–3(f). 350See, e.g., 1995 Release, supra note 289 (stating the Commission’s belief that ‘‘as a matter of policy, where a person has a right to receive a document under the federal securities laws and chooses to receive it electronically, that person should be provided with a paper version of the document if any consent to receive documents electronically were revoked or the person specifically requests a paper copy (regardless of whether any previously provided consent was revoked.’’). 351See rule 30e–1(d). 352Proposed rule 30e–3(g). 353See, e.g., Instruction 1 to Item 27(b)(1) of Form N–1A (permitting the inclusion of Schedule VI— Summary schedule of investments in securities of unaffiliated issuers under Rule 12–12C of Regulation S–X in lieu of Schedule 1 — Investments of securities of unaffiliated issuers under Rule 12–12 of Regulation S–X. be written using plain English principles so that it will be easily understood by most investors.336 and:

Contain a prominent legend in
bold-face type stating that an important report to shareholders is available online and in print by request; 337
state that each shareholder report
contains important information about the fund, including its portfolio holdings, and is available on the Internet or, upon request, by mail, and encouraging shareholders to access and review the report; 338
include a Web site address that
leads directly to each report the fund is transmitting to the recipient shareholder in reliance on rule 30e–3; 339
include the Web site address where
the shareholder report and other required portfolio information is posted; 340
provide instructions on how a
shareholder may request, at no charge, a paper copy of the shareholder report or other materials required to be made accessible online, and an indication that the shareholder will not receive a paper copy of the report unless requested; 341 and
include a toll-free telephone
number and must be accompanied by a reply form that is pre-addressed with postage-paid and that includes the information that the fund would need to identify the shareholder, and explain that the shareholder can use either of those two methods at any time to notify the fund that he or she wishes to receive printed reports in the future.342 The proposed Notice is designed to alert shareholders to the availability of a shareholder report online and to provide shareholders with information on how to obtain a paper copy of the report if they should want one. We believe it is important to limit the information in the Notice and the other materials sent along with the Notice in order to ensure that shareholders are made aware of the availability of a shareholder report and so that the availability of the report does not become obscured. Therefore, the rule as proposed would limit the information contained in the Notice to the information required by the rule.343 The Notice also could not be incorporated into or combined with another document,344 nor could it be sent along with other shareholder communications (with the exception of the fund’s current summary prospectus, prospectus, statement of additional information, or Notice of Internet Availability of Proxy Materials under rule 14a–16 under the Exchange Act).345 Similar to the Commission’s rules on householding prospectuses, shareholder reports, and proxy statements and information statements,346 proposed rule 30e–3 also would allow funds to send one Notice to shareholders who share an address so long as the fund addresses the Notice to the shareholders individually or as a group.347 In addition, the proposed rule would require funds to file a form of the Notice with the Commission not later than 10 days after the Notice is sent to shareholders.348 This filing would occur on a new EDGAR submission type which would be created by the Commission. We believe the Notice filing requirement would assist us in overseeing compliance with the rule. d. Delivery Upon Request Proposed rule 30e–3 would also require, as a condition to reliance on the rule to transmit shareholder reports electronically, that the fund (or a financial intermediary through which shares of the fund may be purchased or sold) must send, at no cost to the requestor and by U.S. first class mail or other reasonably prompt means, a paper copy of any of the materials discussed above—viz., the fund’s most recent annual and semiannual reports, and the fund’s portfolio holdings as of its most recent first and third fiscal quarters—to any person requesting such a copy within three business days after receiving a request for a paper copy.349 This requirement is intended to allow for investors to receive shareholder reports and portfolio information in print format, if they so prefer, even if they have consented to electronic transmission without revoking the consent.350 e. Prospectuses and Statements of Additional Information Transmitted Under
Rule 30e–1(d) Rule 30e–1(d) under the Investment Company Act permits an open-end management investment company to transmit a copy of its prospectus or statement of additional information in place of its shareholder report, if it includes all of the information that would otherwise be required to be contained in the shareholder report.351 We recognize that the nature and purpose of the fund prospectus is different from that of fund shareholder reports. Accordingly, at this time, we are not proposing to permit a similar regime for fund prospectus delivery obligations under the Securities Act. As a result, we do not believe that it would be appropriate to permit the transmission of statutory prospectuses in the manner provided under the proposed rule. Therefore, the proposed rule would not be available to a fund seeking to transmit a copy of its currently effective statutory prospectus or statement of additional, or both, as permitted by paragraph (d) of rule 30e– 1.352

Use of Summary Schedule of
Investments
Under the current rules, in lieu of providing a complete schedule of portfolio investments as part of the financial statements included in its shareholder report, a fund may provide a summary schedule of portfolio investments (‘‘Summary Schedule’’).353 Pursuant to Rule 12–12C of Regulation S–X, the Summary Schedule generally must list separately the 50 largest issues and any other issue the value of which

354See rule 12–12C, n.3 Regulation S–X [17 CFR 210.12–12C]. 355For example, a fund using the summary
schedule for considerations relating to printing and
mailing costs would likely have fewer such concerns if the report is posted on its Web site in reliance on the proposed rule. 356For example, a shareholder consenting to electronic transmission that wishes to view the complete portfolio holdings would, pursuant to the rule as proposed, first receive a notice of the availability of the report, then take the step to access the report on the fund’s Web site, only to have to take a subsequent step to request or otherwise access the full schedule. 357See proposed amendments to Item 27(b) of Form N–1A; Item 24, Instruction 7 of Form N–2; and Item 28(a), Instruction 7(i) of Form N–3. 358See rule 498 under the Securities Act [17 CFR 230.498]. 359See rule 498(b)(1)(v)(A) under the Securities Act. 360See id. 361See proposed rules 498(f)(2) under the Securities Act and 14a–16(f)(2)(iii) under the Exchange Act. 362See proposed rule 30e–3(d)(4). exceeded one percent of the net asset value of the fund at the close of the period.354 We believe that use of the summary
schedule may be unnecessary,355 and in
particular, may be potentially confusing or cumbersome to investors seeking to access the fund’s complete portfolio holdings.356 For these reasons, we are proposing amendments to our registration forms that would restrict funds relying on proposed rule 30e–3 from providing a Summary Schedule in their shareholder reports in lieu of a complete schedule.357
5. Related Disclosure Amendments
We are also proposing some related amendments to certain of our rules and forms. First, we are proposing to amend rule 498 under the Securities Act, which concerns the use of a summary prospectus,358 to require funds relying on proposed rule 30e–3 to include as
part of the legend on the cover page of
the fund’s summary prospectus the Web site address required to be included in the Notice.359 As proposed, the Web site address that leads to shareholder report information could be the same as the Web site address that leads to prospectus information, provided that the other conditions of each rule are met, but funds would also be permitted to use different Web site addresses for each type of material and provide both addresses in the legend.360 This requirement is intended to provide investors an additional reminder of the availability of shareholder report and related portfolio holdings information on the fund’s Web site. Second, we are proposing to amend rule 498 under the Securities Act and rule 14a–16 under the Exchange Act to include an Initial Statement or Notice that would be required by proposed rule 30e–3 among the materials that are permitted to accompany and have equal or greater prominence than the summary prospectus prepared in reliance on rule 498 and a notice of Internet availability of proxy materials.361 These amendments are intended to permit a fund’s Initial Statement and Notice to be sent with its summary prospectus or notice of Internet availability of proxy materials if the fund wishes to send them in that manner.362
6. Requests for Comment
We request comments on our proposal that would permit electronic transmission of shareholder reports.

To what extent are funds currently
relying on the Commission’s guidance on the use of electronic media to deliver or transmit disclosure documents and other information to shareholders? To what extent have shareholders elected to receive disclosure documents and other information in general, and shareholder reports in particular, through electronic means? In the case of shareholders who have elected electronic delivery of disclosure documents in general, and delivery of shareholder reports in particular, to what extent are those shareholders accessing those materials online? Please provide supportive data to the extent available.
If proposed rule 30e–3 is adopted,
to what extent would funds (i) choose to rely on the rule, and (ii) continue to rely on guidance concerning electronic transmission that we have already issued?
Would availability of the rule
change in any way current industry practices on transmitting shareholder reports electronically? For example, we expect that funds would continue to rely on the Commission’s guidance to electronically transmit reports to shareholders who have elected to receive reports electronically, and rely on the rule with respect to shareholders who have not so elected. For administrative or other purposes, would funds discontinue their reliance on the Commission’s guidance and instead rely on the rule to transmit reports electronically with respect to their entire shareholder base? If so, why? What impact, if any, would the proposed rule have on the transmission of reports to shareholders of UITs required to transmit reports pursuant to rule 30e–2 under the Investment Company Act? What impact, if any, would the proposed rule have on the transmission of reports to shareholders holding fund shares through financial intermediaries or other omnibus type arrangements? Should we permit funds that rely on rule 30e–3 to continue to rely on prior electronic transmission guidance for certain of their shareholders? Why or why not?
If rule 30e–3 is adopted as
proposed, in the case of funds relying on the rule to transmit reports electronically to one or more shareholders, would funds nonetheless seek shareholder consent to transmit reports to those shareholders pursuant to the Commission’s electronic guidance in lieu of the rule? Why or why not?
Should we, as we have proposed,
allow funds to transmit reports to shareholders electronically by making them accessible on a Web site? Would investors prefer that these materials be transmitted in this manner? What would be the effect of proposed rule 30e–3 on the ability of investors to access shareholder reports? Would the shareholder report information be more useful or less useful if transmitted in the manner proposed? Would investors be more aware or less aware of the availability of the information if transmitted in reliance on the proposed rule?
Would any positive or negative
effect of the proposed rule on investors be disproportionately greater for certain investors than for others? If so, which investors would be disproportionately affected, to what extent, and how would such effects manifest? What, if any, additional measures could help mitigate any such disproportionate effects? Please provide supportive data to the extent available.
Rule 30e–3 as proposed contains a
number of conditions to be satisfied for reliance on the rule. Are the proposed conditions appropriate? Are there conditions that should be added or are any of the proposed conditions inappropriate? If so, state the conditions and the reasons why.
The rule as proposed would require
that the materials required to be accessible online be publicly accessible, free of charge, at the Web site specified in the Notice, and does not expressly require that the Web site be the fund’s Web site. Should the rule require that the materials be accessible at the fund’s Web site? Why or why not?
What materials should be required
to be accessible in order for a fund to rely on the rule? For example, we have proposed that a fund relying on the rule would be required to make accessible the shareholder report, the shareholder report for the prior period, and in the case of a fund that is a management

company other than a money market fund or an SBIC, the complete portfolio holdings for the most recent first and third fiscal quarters. Is it appropriate to require funds to post holdings information covering a full year? Should we require information be posted covering a longer period or a shorter period? If so, why? Should money market funds and SBICs relying on the rule be required to post complete portfolio holdings for the first and third quarters? Why or why not?

The rule as proposed would require
that the materials made accessible on the Web site be presented in a format or formats that are convenient for both reading online and printing on paper. Is the proposed format requirement appropriate? Are there liability or other concerns that would arise in connection with meeting a fund’s obligation to transmit shareholder reports under
Section 30(e) and the rules thereunder?
Should we instead require that the materials be presented in a format or formats that are human-readable and capable of being printed on paper in human-readable format? Why or why not?
How soon should each of the
materials be required to be accessible, and how long should each be required to remain accessible?
The proposed rule would contain a
safe harbor for instances in which the materials required to be made accessible are not available for a temporary period of time. Is the safe harbor as proposed appropriate, or should it be modified? For example, should the rule be more proscriptive as to the period of time in which action must be taken to resolve any issues?
Should we require the Web site on
which the proposed rule’s required materials are made accessible to incorporate safeguards to protect the anonymity of its visitors? For example, should we require similar conditions to those provided in rule 14a–16 under the Exchange Act relating to Internet availability of proxy materials? Why or why not? If so, what specific requirements should we consider?
Should the proposed rule require
that a shareholder consent to electronic transmission of shareholder reports before a fund begins to rely on the rule? Should we permit funds to obtain implied consent, as proposed, or should we require funds to receive express consent? Are there certain circumstances in which funds should not be permitted to obtain implied consent? For example, if an investor upon opening a new account does not opt-in to electronic delivery of documents, should the fund be permitted nonetheless to seek to rely on the proposed rule as to that shareholder? Why or why not?
Under the proposed rule, each
series of a registrant offering multiple series would need to obtain separate consent as to a shareholder, regardless of whether consent was obtained from that shareholder by other series offered by that registrant. If a fund has obtained implied consent from a shareholder as to a particular series, and subsequently the shareholder invests in one or more other series offered by the fund, should the fund be required to obtain consent as to those other series, or should the fund be permitted to infer consent as to all series offered by the fund? Why or why not? Should the fund be permitted to infer consent as to only other series offered by the registered investment company, or should the fund be permitted to infer consent as to other funds within the fund complex? What, if any, are the special considerations relating to investors who invest through intermediaries?
Under the proposed rule, to obtain
implied consent as to a shareholder, the fund would be required to transmit to the shareholder an Initial Statement, at least 60 days before it begins to rely on the rule. Are the proposed disclosures for the Initial Statement appropriate? Should a fund be required to provide to a shareholder other disclosures before inferring consent to electronic transmission?
Should the rule require funds to
provide multiple written statements (i.e., in addition to the Initial Statement) prior to inferring consent to electronic transmission? If so, how many additional statements and how long after the Initial Statement should they be provided? What period of time after a fund transmits the Initial Statement should we permit the fund to infer consent? Is 60 days an appropriate time? Why or why not?
What methods should shareholders
be permitted to use to deny or revoke consent to electronic transmission?
Should we permit the Initial
Statement to be incorporated into, or combined with, one or more other documents? If so, which documents should we permit the Initial Statement to be incorporated into or combined with?
The rule as proposed would require
that the Initial Statement must be sent separately from other types of communications and may not accompany any other document or materials except the fund’s current summary prospectus, statutory prospectus, statement of additional information, or Notice of Internet Availability of Proxy Materials. Is this requirement appropriate? Should we permit the Initial Statement to accompany one or more other documents? If so, which documents?
Should we, as we have proposed for
the Notice, permit the Initial Statement to be sent in a ‘‘householded’’ manner?
Should we require that the Initial
Statement not contain any additional information other than that specified in the rule? Why or why not? Absent any requirement specified by rule, what other information would funds generally include in the Initial Statement? For example, would funds provide information on how shareholders could elect to receive the shareholder report and other documents and information electronically by satisfying the conditions contained in the Commission’s guidance on use of electronic media relating to notice, access, and evidence of delivery?
Should the rule permit funds to
obtain implied consent from shareholders who have previously revoked consent? If so, should the rule prescribe a minimum period of time after consent was revoked before reattempting to obtain implied consent from a shareholder? What period should that be and why?
Should each fund be required to
send a shareholder a Notice each time it transmits a shareholder report electronically under the proposed rule? Why or why not?
We anticipate that the Notice would
be sent in paper and mailed to shareholders. Should we permit the Notice to be sent by email if the shareholder has provided an email address? Why or why not? For example, are there any concerns that under such an approach, while a shareholder may have provided an email address (e.g., as
part of opening an account), the
shareholder may nonetheless neither prefer nor expect to receive documents or other information through that medium? To what extent are funds and intermediaries, pursuant to regulatory requirements or otherwise, maintaining up-to-date email addresses for investors? Would an investor be more likely to view a Notice delivered by one method versus another (i.e., print versus electronically)? Would an investor be more likely to access the related shareholder report and other required materials when notified by one method or the other?
Are the proposed disclosures for the
Notice appropriate? Should we require that the disclosure in the Notice concerning a shareholder’s ability to indicate a preference for paper transmission in the future be preceded

363We are proposing to rescind Form N–SAR and replace it with a new census reporting form, Form N–CEN, rather than to amend Form N–SAR in order to avoid technical difficulties that could arise with filing reports on an amended Form N–SAR (e.g., difficulties related to changes to filing format and form specifications). 364See rules 30b1–1 and 30a–1. 365See proposed amendments to rule 30a–1. by an additional bold-face legend or otherwise made more prominent?

Should we permit the Notice to be
incorporated into, or combined with, one or more other documents? If so, which documents should we permit the Notice to be incorporated into or combined with?
The rule as proposed would require
that the Notice must be sent separately from other types of communications and may not accompany any other document or materials except the fund’s current summary prospectus, statutory prospectus, statement of additional information, or Notice of Internet Availability of Proxy Materials. Is this requirement appropriate? Should we permit the Notice to accompany one or more other documents? If so, which documents? For example, in the case of a Notice sent to a shareholder for the first time, should we permit or require the Notice to be accompanied with materials explaining the new transmission regime? Why or why not?
Should we, as proposed, permit
funds to either send separate Notices for each fund or send combined Notices for more than one fund held by a particular shareholder, or should the rule require one or the other of those approaches?
Should we require that the Notice
not contain any additional information other than that specified in the rule? Why or why not? Absent any restriction by rule, what other information would funds generally include in the Notice? For example, would funds provide information on how shareholders could elect to receive the shareholder report and other documents and information electronically by satisfying the conditions contained in the Commission’s guidance on use of electronic media relating to notice, access, and evidence of delivery?
In the case of management
companies that are not SBICs, should we require such funds to send a notice each time the fund makes accessible its complete portfolio holdings for the first or third fiscal quarters? Why or why not?
Should we, as proposed, permit the
Notice to be sent in a ‘‘householded’’ manner?
We are proposing that funds would
file a form of the Notice with the Commission not later than 10 days after it is sent to shareholders. Is 10 days sufficient to meet this proposed filing requirement, or should some other filing period be required? If so, what time period and why?
We anticipate that the form of
Notice would be filed with the Commission on EDGAR pursuant to a separate EDGAR submission type. Should we instead require that the form of Notice be filed as an exhibit to a report filed with the Commission? For example, should we require that the form of Notice be filed as part of the fund’s report on Form N–CSR or Form N–CEN? Why or why not?
Should we require, as proposed,
that funds send a paper copy of a shareholder report upon request? If so, how soon should a fund be required to send the report after receiving a request?
Should we restrict funds relying on
the proposed rule from using the summary schedule of investments? Why or why not? Are there considerations relating to the use of the summary
schedule of investments other than
those relating to printing and mailing costs that would make the summary
schedule an important option for funds
to provide portfolio holdings disclosures? Should we restrict funds from using the summary schedule only in reports transmitted pursuant to the rule, and permit funds to use the summary schedule in printed reports that are mailed to shareholders? Would funds prefer this additional flexibility? Why or why not?
Are the proposed amendments to
rule 498 and the registration forms regarding Web site availability of documents appropriate? Should we also, for example, specifically require funds relying on the rule to disclose on the cover page or elsewhere in the summary prospectus or statutory prospectus its reliance on the rule and what specific documents are made available on the Web site?
To what extent would the proposed
rule reduce burdens such as printing and mailing costs borne by funds? Would these burden reductions ultimately accrue to fund shareholders in the form of lower total fund operating expenses? For example, would these reductions ultimately accrue to shareholders in funds with arrangements that permit or limit payments to service providers or intermediaries such as broker-dealers in connection with the printing and mailing of shareholder reports? Please provide supportive data to the extent available.
In addition to allowing funds to
electronically transmit reports to shareholders, should we also consider options for permitting similar delivery of summary or statutory prospectuses? Why or why not? E. Form N–CEN and Rescission of Form N–SAR

Overview
We are proposing to amend the framework by which registered investment companies report censustype information to the Commission by rescinding Form N–SAR and replacing it with a new form—Form N–CEN.363 Form N–SAR was adopted by the Commission in 1985 and requires that funds report a wide variety of census information to the Commission, including information relating to a fund’s organization, service providers, fees and expenses, portfolio strategies and investments, portfolio transactions, and share transactions. Funds generally must file reports on Form N–SAR semiannually, except for UITs, which file annually.364 By contrast, as discussed further below, we are proposing to have all funds file reports on Form N–CEN annually.365 In recent years, Commission staff has found that the utility of the information reported on Form N–SAR has become increasingly limited. We believe there are two primary reasons for this limited utility. First, in the past two decades, we have not substantively updated the information reported on the form to reflect new market developments, products, investment practices, or risks. Second, the technology by which funds file reports on Form N–SAR has not been updated and limits the Commission staff’s ability to extract and analyze the data reported. Accordingly, we believe that by updating the content and format requirements for census reporting, as discussed below, the Commission will be better able to carry out its regulatory functions, while at the same time reducing burdens on filers. Proposed Form N–CEN would gather similar census information about the fund industry that funds currently report on Form N–SAR, which could be aggregated and analyzed by Commission staff to better understand industry trends, inform policy, and assist with the Commission’s examination program. However, in order to improve the quality and utility of information reported, proposed Form N–CEN would streamline and update information reported to the Commission to reflect current Commission staff information

366We are proposing to streamline our data collection, in part, through the use of yes/no questions in order to flag certain information for follow-up, if necessary, by Commission staff. See, e.g., Item 11 and Item 30.a of proposed form N– CEN. For example, staff of our Office of Compliance Inspections and Examinations may rely on responses to flag questions in Form N–CEN to indicate areas for follow-up discussion or to request additional information. 367The Commission has adopted a number of other forms that are structured in an XML format, including Form N–MFP. Reports on Form N–SAR, by contrast, are filed with an outdated filing application. 368See supra Part II.A.3 (discussing benefits to the use of XML for reports on Form N–PORT). 369Face-amount certificate companies are investment companies which are engaged or propose to engage in the business of issuing faceamount certificates of the installment type, or which have been engaged in in such businesses and have any such certificates outstanding. See section 4(1) of the Investment Company Act [15 U.S.C. 80a– 4(1)]. Face amount certificate companies are not currently required to file reports on Form N–SAR. See General Instruction A to Form N–SAR. Face amount certificate companies would continue to file periodic reports pursuant to section 13 or
section 15(d) of the Exchange Act.
370See proposed amendments to rule 30a–1. Consistent with Form N–SAR, BDCs, which are not registered investment companies, would not be required to file reports on Form N–CEN. 371Proposed General Instruction A. Unlike Form N–PORT where separate reports would be filed for each series, registrants would file one report on Form N–CEN covering all series (as is currently done with reports on Form N–SAR). We are proposing this framework for Form N–CEN to help minimize reporting burdens, as much of the information that would be required by Form N–CEN (for example, the information reported pursuant to Parts A and B) would be the same across a fund’s various series. We note that Form N–SAR’s approach to series information is slightly different than that of proposed Form N–CEN, in that Form N–SAR allows registrants to indicate instances where the information is the same across all series, rather than requiring repetitive information. See General Instruction D(8) of Form N–SAR. Unlike Form N–SAR, however, we have sought to organize the information requested in proposed Form N– CEN so that information that is the same for all series is reported in Parts A and B of the form, with
Part C, the part of the form that requires each series
to respond separately, requesting information that is more likely to differ between series. Accordingly, we anticipate the need to report repetitive information should be limited. 372See General Instruction A (Rule as to Use of Form N–CEN) to proposed Form N–CEN. As reflected in General Instruction A, registrants would be required to respond to each item in their required sections. To the extent an item in a required section is inapplicable to a registrant, the registrant would respond ‘‘N/A’’ to that item. Registrants would not, however, have to provide responses to items in sections they are not required to fill out. 373Certain investment products known as ‘‘exchange-traded managed funds’’ would also be required to complete Part E: of proposed Form N– CEN. 374Management companies that are registered on Form N–3 would also complete certain items in Part F as directed by Item 7.c.i of proposed Form N– CEN. See General A to proposed Form N–CEN. 375See rule 30b1–1. 376See rule 30a–1. 377See proposed amendments to rule 30a–1. 378As discussed above, certain items that are currently reported on Form N–SAR that would be helpful to have updated on a more frequent basis would be moved to proposed Form N–PORT. For example, item 28 of Form N–SAR requires the fund to provide its monthly sales and repurchases of the Registrant’s/Series’ shares. In order to increase the timeliness of the information reported to the staff for funds flows, certain information relating to monthly flows would be reported on item B.6 of proposed Form N–PORT, if adopted. 379Management companies are currently required to file Form N–SAR reports no more than 60 days after the close of their fiscal year and fiscal second quarter. See rule 30b1–1 under the Investment Company Act [17 CFR 270.30b1–1]. Accordingly, we anticipate that management companies, which would constitute the largest number of funds filing reports on proposed Form N–CEN, generally will already have processes in place for reporting census-type information at the end of their fiscal years. Thus, we believe requiring reports on proposed Form N–CEN after the close of a fund’s fiscal year, rather than calendar year, would be the least burdensome approach for most funds. 380See rule 30b1–1 under the Investment Company Act [17 CFR 270.30b1–1]; but see rule 30a–1 under the Investment Company Act [17 CFR 270.30a–1] (requiring UITs to file annual reports on Form N–SAR no more 60 days after the close of the calendar year). needs and developments in the industry.366 Additionally, where possible, we have endeavored to exclude items from proposed Form N– CEN that are disclosed or reported pursuant to other Commission forms, or are otherwise available; however, in some limited cases, we are proposing to collect information that may be similarly disclosed or reported elsewhere, but that the staff would benefit from collecting in a structured format. In order to improve the utility of the information reported to the Commission, we
are also proposing that reports on Form N–CEN be structured in an XML format.367 By requiring reports on Form N–CEN to be filed in XML format, filers will no longer be required to use outdated technology for census reporting. Additionally, requiring reports on Form N–CEN to be filed in an updated structured format will allow reported information to be more efficiently and effectively validated, retrieved, searched, and analyzed through automated means and, therefore, more useful to end users.368
2. Who Must File Reports on Form N–
CEN
We are proposing to require that all registered investment companies, except face amount certificate companies,369 file reports on Form N–CEN.370 Funds offering multiple series would be required to report information in Part C of the form as to each series separately, even if some information is the same for two or more series.371 Like Form N–SAR, the sections of Form N–CEN that a fund is required to complete would depend on the type of registrant in order to better tailor the disclosure requirements.372 All funds would be required to complete Parts A and B, and file any attachments required under Part G. In addition, funds would complete the following Parts as applicable:

All management companies, other
than SBICs, would complete Part C;
closed-end funds and SBICs would
complete Part D;
ETFs (including those that are UITs)
would complete Part E; 373 and
UITs would complete Part F.374
We request comment on who must file Form N–CEN.
Should we require any other types
of investment companies to file reports on Form N–CEN? For example, should face-amount certificate companies be required to file reports on Form N–CEN?
Should funds offering multiple
series be required to file a report for each series separately, rather than one report covering multiple series, as proposed?

Frequency of Reporting and Filing
Deadline
Management investment companies currently file reports on Form N–SAR semi-annually,375 and UITs file such reports annually.376 To reduce reporting burdens, we are proposing that reports on Form N–CEN be filed annually, regardless of type of filer.377 Form N– CEN would require census-type information, which in our experience does not change as frequently as, for example, portfolio holdings information. Accordingly, we believe that an annual filing requirement would be sufficient for purposes of review by Commission staff, as well as investors and other market participants that might use this information.378 We are proposing a filing period of 60 days after the end of the fiscal year for funds to file reports on Form N–CEN.379 This is the same filing period that management companies currently have to file reports on Form N–SAR.380 As with Form N–SAR, and having considered the amount and nature of the information that would be requested in proposed Form N–CEN, we continue to believe that a sixty-day filing period would appropriately balance the staff’s need for timely information against the time necessary for a fund to collect, verify, and report the required information to the Commission. Rule 30b1–3 under the Investment Company Act currently requires a fund to file a transition report on Form N– SAR when a fund’s fiscal year

381See rule 30b1–3.
382See General Instruction C of proposed Form N–CEN. 383 Id. 384See General Instruction E of proposed Form N–CEN. Pursuant to section 34(b) of the Investment Company Act, we expect that funds would correct a material mistake in a Form N–CEN report by filing an amendment to that report. 385 Id. 386 Item 1 of proposed Form N–CEN. 387See Instruction to Part B: of proposed Form N–CEN. 388 Item 2.a of proposed Form N–CEN. 389 Item 2.b of proposed Form N–CEN. 390 Item 2.c of proposed Form N–CEN. 391 Item 2.d of proposed Form N–CEN; see also supra note 43 (discussing comment letters received on the FSOC Notice supporting the use of LEIs). 392 Item 3 of proposed Form N–CEN. 393 Item 4 of proposed Form N–CEN.; see also infra notes 397–399 and accompanying text. 394 Items 1 and 2 of Form N–SAR. 395See supra Part II.A.2.a. As discussed above, commenters to the FSOC Notice expressed support for the regulatory acceptance of LEI identifiers. See supra note 43. 396 Item 5 of proposed Form N–CEN. 397See Item 33 of Form N–1A, Item 32 of Form N–2, Item 36 of Form N–3, Item 30 of Form N–4, and Item 31 of Form N–6. changes.381 Because reports on Form N– CEN would be filed annually rather semi-annually, we believe that a rule outlining the requirements for a transition report would no longer be necessary as transition report filing requirements for fiscal year changes involve less complexity in the case of reports required to be filed once a year rather than twice a year. Consequently, we are proposing to rescind rule 30b1–
3. We are, however, proposing to require
that reports on Form N–CEN not cover a period of more than 12 months.382 Thus, if a fund changes its fiscal year, a report filed on Form N–CEN may cover a period shorter than 12 months, but would not be permitted to cover a period longer than 12 months or a period that overlaps with a period covered by a previously filed report.383 In addition, a fund would be able to file an amendment to a previously filed report on proposed Form N–CEN at any time, including an amendment to correct a mistake or error in a previously filed report.384 A fund that files an amendment to a previously filed report on the form would provide information in response to all items of Form N–CEN, regardless of why the amendment is filed.385 We request comment on the proposed frequency of reporting and proposed reporting deadline:

Should reports on Form N–CEN be
filed more frequently than annually, as proposed? Should we require management companies to file reports on Form N–CEN semi-annually and UITs to file reports annually, as is currently required by Form N–SAR? Are certain information items on Form N– CEN of a nature that they may change frequently or such that more frequent information about them should be reported to the Commission? If so, should any information items in proposed Form N–CEN be reported on proposed Form N–PORT or another form instead? If so, what items and on which forms?
Consistent with the treatment of
Form N–SAR filings for management companies, we are proposing that reports be filed 60 days after the end of the fund’s fiscal year. Should we require a different filing period? If so, what period should we require and why? How long would it take funds to collect, verify, and file reports covering the information required by proposed Form N–CEN? Would the burdens associated with reports on proposed Form N–CEN be greater or less than those associated with reports on Form N–SAR?
We have proposed that reports on
Form N–CEN be filed as of the end of the fund’s fiscal year. We understand that funds have other filing requirements that are tied to their fiscalyear end. Should we require some other period end date, such as end of calendar year? Should UITs be required to file reports as of the end of their fiscal year, as proposed, or should they file reports as of the end of their calendar year as they currently do with reports on Form N–SAR?
We are proposing to eliminate rule
30b1–3 under the Investment Company Act. Should we instead retain the rule? Are the general instructions to Form N– CEN, as proposed, sufficiently clear as to the filing requirements when a fund changes its fiscal year end? If not, how should the general instructions be revised, or in the alternative, should a transition period rule be provided in connection with Form N–CEN? If so, how should a transition period be defined and what deadlines or timeframes should such a rule address?
Should a fund be required to file an
amendment to its Form N–CEN report or file a current report within a certain period of time if previously reported information changes? If so, what types of changes should trigger an amendment requirement? What filing period should be required for such an amendment requirement?

Information Required on Form
N–CEN a. Part A—General Information
Part A of Form N–CEN, which would
be completed by all funds, would collect information about the reporting period covered by the report. It would require funds to report the fiscal-year end date and indicate if the report covers a period of less than 12 months.386 We request comment on the information items proposed to be reported in Part A. b. Part B—Information About The Registrant
Part B of Form N–CEN, which would
also be completed by all funds, would require certain background and other identifying information about the fund. In the case of funds offering multiple series, if the response to an item in Part B of the form differs between series, the fund would be instructed to provide a response for each series, as applicable, and label the response with the name and series identification number of the series to which a response relates.387 This background information would allow the staff to quickly categorize filers by fund type and will assist with our oversight of funds. Included in this background information would be the fund’s name,388 Investment Company Act filing number,389 and other identifying information, such as its CIK 390 and LEI.391 In addition, the form would require the fund’s address, telephone number, and public Web site (if any),392 and the location of the fund’s books and records.393 While the fund’s name, address, and filing number are currently required by Form N–SAR,394 some of the additional information, such as the fund’s CIK, LEI, public Web site and location of books and records would be new. As discussed in the Form N–PORT
section above, information such as the
CIK and LEI would assist the Commission with organizing the data received by the Commission and allow the staff to cross-reference the data reported on Form N–CEN with data received from other sources.395 For tracking purposes, the proposed form would require information relating to whether the filing was the initial or final filing.396 As discussed above, funds would be required to include the location of their books and records in reports on proposed Form N–CEN. We note that books and records information is currently required by fund registration forms; 397 however, this information is not filed with us in a structured format. We believe that having books and records information in a structured format would increase our efficiency in preparing for exams as well as our ability to identify current industry trends and practices and, thus, we are

398Additionally, by including books and records information in Form N–CEN, we may receive more frequently updated books and records information from closed-end funds. Closed-end funds do not update their registration statements as regularly as open-end funds and, thus, the information regarding their books and records may not always be up-to-date. 399Funds that have not yet filed a report on proposed Form N–CEN would have to continue to include this information in their registration statement filings. 400 Items 19, 94 and 116 of Form N–SAR; see also General Instruction H of Form N–SAR (defining ‘‘family of investment companies’’). 401See id.; see also instruction 1 to Item 17 of Form N–1A. 402 Instruction to Item 6 of proposed Form N–CEN. The instruction, like the definition of ‘‘family of investment companies’’ in Form N–SAR, would also clarify that insurance company separate accounts that may not hold themselves out to investors as related companies (products) for purposes of investment and investor services should consider themselves part of the same family if the operational or accounting or control systems under which these entities function are substantially similar. See General Instruction H to Form N–SAR. 403 Item 7 of proposed Form N–CEN; see also Items 5, 6, 27, 58, 59 and 117 of Form N–SAR. If the registrant is an open-end fund, proposed Form N–CEN would also require information on the total number of series of the registrant and, if a series of the registrant was terminated during the reporting period, information regarding that series. Item 7.a.i– Item 7.a.ii of proposed Form N–CEN. In addition, registrants that indicate they are management companies registered on Form N–3 are directed by Item 7 to respond to certain additional items in Part F of the form that relate to insurance company separate accounts. Item 7.c.i of proposed Form N–CEN. 404 Item 8 of proposed Form N–CEN. 405 Item 9 of proposed Form N–CEN. 406See, e.g., Items 17 and 27(b)(5) of Form N–1A. 407Because we expect that funds will provide the CCO’s direct phone number in response to this information request, the CCO’s phone number would be a non-public field in all Form N–CEN filings. 408 Item 10 of proposed Form N–CEN. 409 Item 10.j of proposed Form N–CEN. 410See, e.g., Item 17 of Form N–1A (requesting information regarding fund officers). For example, Form N–1A defines the term ‘‘officer’’ to mean ‘‘the president, vice-president, secretary, treasurer, controller, or any other officer who performs policymaking functions.’’ It is our understanding that in some fund complexes, the CCO does not fit within the category of officers covered by this definition (i.e., the CCO does not perform a policy-making function), and therefore, information as to their CCO is not provided pursuant to the item. 411See Item 11 of proposed Form N–CEN. 412See Item 77.C of Form N–SAR; see also Instruction to Specific Items for Item 77C. 413This information request would apply to UITs as well
as management companies. The Form N–SAR requirement applies only to management companies. See id. We believe it is important for the Commission to have information for all registered investment companies on matters submitted for security holder vote in order to assist us in our oversight and examination functions. 414 Item 12 of proposed Form N–CEN. As in Form N–SAR Item 77.E, if there were any material legal proceedings, or if a proceeding previously reported had been terminated, the registrant would file an attachment as required by Part G: Of proposed Form N–CEN. See Item 79.a.i of proposed Form N–CEN. We note that Form N–CEN, unlike Form N–SAR, would require UITs to respond to the information request related to material legal proceedings. For the same reasons discussed above with respect to matters submitted for security holder vote, we believe it is important to have information on material legal proceedings of all registered investment companies. See supra n.413. 415Form N–SAR Items 80–85 and 105–110. 416 Item 13 of proposed Form N–CEN; cf. Item 83 of Form N–SAR. proposing to include this information in proposed Form N–CEN.398 In addition, so as not to create unnecessary burdens, we are proposing to amend Forms N–1A, N–2, N–3, N–4, and N–6 to exempt funds from those forms’ respective books and records disclosure requirements if the information is provided in a fund’s most recent report on proposed Form N–CEN.399 Similar to Form N–SAR,400 Form N–CEN would require information regarding whether the fund is part of a ‘‘family of investment companies.’’ The form, which would include a substantially similar definition as Form N–SAR,401 would define a ‘‘family of investment companies’’ to mean, except with respect to insurance company separate accounts, any two or more registered investment companies that (i) share the same investment adviser or principal underwriter; and (ii) hold themselves out to investors as related companies for purposes of investment and investor services.402 This item would assist Commission staff with analyzing multiple funds across the same family of investment companies. Similar to Form N–SAR, proposed Form N–CEN would also require the fund to provide its classification (e.g., open-end fund, closed-end fund).403 In addition, unlike Form N–SAR, the proposed form would specifically ask whether the fund issues a class of securities registered under the Securities Act.404 These questions are intended to elicit background information on the fund, which will assist us in our monitoring and oversight functions (for example, identifying those funds that have not issued securities registered under the Securities Act). Under proposed Form N–CEN, a management company would report information about its directors, including each director’s name, whether they are an ‘‘interested person’’ (as defined by section 2(a)(19) of the Investment Company Act), and the Investment Company Act file number of any other registered investment company
for which they serve as a director.405 Although this information is reported in a management company’s Statement of Additional Information and provided in annual reports to shareholders, providing this information to the Commission in a structured format will allow the Commission and other potential users to sort and analyze the data more efficiently.406 In addition, the fund would be required to provide the chief compliance officer’s (‘‘CCO’s’’) name, CRD number (if any), address, and phone number,407 as well as indicate if the CCO has changed since the last filing.408 If the fund’s CCO is compensated or employed by any person other than the fund, or an affiliated person of the fund, for providing CCO services, the fund would also be required to report the name and Employer Identification Number of the person providing such compensation.409 Although some funds provide information relating to their CCO in their registration statements, not all funds do.410 This new requirement would provide staff with information on all fund CCOs and would allow the staff to contact a fund’s CCO directly.
Part B would also include an item
regarding matters that have been submitted to a vote of security holders during the relevant period.411 Information regarding submissions of matters to a vote of securities holders is currently reported in Form N–SAR by management companies in the form of an attachment with multiple reporting requirements.412 In order to alleviate the burden on filers, we are proposing to reduce the information to be reported regarding votes of security holders to a yes/no question that is primarily meant to allow staff to quickly identify funds with such votes, so that they can follow up as appropriate, such as by reviewing more detailed information required by other filings.413 Like Form N–SAR, the proposed form would also include an item relating to material legal proceedings during the reporting period.414 Form N–SAR currently requires management companies to report a number of data points relating to fidelity bond and errors and omissions insurance policy coverage.415 In order to limit the number of items to those most useful to the Commission staff and reduce burdens on filers, we are proposing to limit this request to two separate items in Form N–CEN. One item would ask if any claims were filed under the management company’s fidelity bond and the aggregate dollar amount of any such claims.416 The other item would ask if the management company’s officers or directors are covered under any directors and officers/errors and omissions insurance policy and, if so, whether any claims were filed under the policy during the

417 Item 14 of proposed Form N–CEN; cf. Item 85 of Form N–SAR. 418For example, a fund is required to provide and maintain a fidelity bond against larceny and embezzlement, which in general covers each officer and employee of the fund who has access to securities or funds. See rule 17g–1(a) under the Investment Company Act [17 CFR 270.17g–1]. 419 Item 15 of proposed Form N–CEN. 420See Money Market Fund Reform 2014 Release, supra note 13. 421See Instruction to Item 15 of proposed Form N–CEN; see also Part C of Form N–CR. 422See id. 423 Item 79.a.ii of proposed Form N–CEN. This requirement would not apply to money market funds, as money market funds currently provide this information through reports on Form N–CR. 424 Item 16 of proposed Form pN–CEN. Form N–SAR currently requires funds to attach information required to be reported on Form N–1Q pursuant to an existing exemptive order. See Instructions to Specific Items 77P and 102O of Form N–SAR. Form N–CEN would require the fund to file as an attachment any information required to be filed pursuant to exemptive orders issued by the Commission and relied on by the fund. Instruction to Item 79.a.vi of proposed Form N– CEN. 425See Item 16.a.i of proposed Form N–CEN. 426 Items 11, 13, 77.K, 91, 102.J, 114, 115 of Form N–SAR. 427 Item 17 of proposed Form N–CEN. 428 Item 18 of proposed Form N–CEN. 429 Item 17 and Item 18 of proposed Form N–CEN. 430 Item 79.a.iii of proposed Form N–CEN. 431 Item 21 of proposed Form N–CEN. Valuation methodologies are approved by fund directors for use by funds to determine, in good faith, the fair value of portfolio securities (and other assets) for which market quotations are not readily available. For example, valuation methodology changes may include, but are not limited to, changing from use of bid price to mid price for fixed income securities or changes in the trigger threshold for use of fair value factors on international equity securities. 432See Item 77.J and Item 102.I of Form N–SAR. Also unlike Form N–SAR, this requirement would apply to UITs as well as management investment companies. We believe it is important for the Commission to have information on accounting and valuation for all registered investment companies in order to assist us in our oversight and examination functions. 433Compare Item 77.J of Form N–SAR with Item 21 of proposed Form N–CEN. An instruction to Item 21 of proposed Form N–CEN would clarify that we do not expect responses to this item to include changes to valuation techniques used for individual securities (e.g., changing from market approach to income approach for a private equity security). Form N–SAR does not elaborate on the type of information it is seeking by asking for changes in the method of valuation of the registrant’s assets. We are proposing to include this instruction to provide clarity for filers and because we believe that responding to Item 21 of proposed Form N–CEN for individual securities may be overly burdensome for
filers. 434See Item 77.L and Item 102.K of Form N–SAR. 435 Item 22 and Item 79.a.v of proposed Form N–CEN. Like the information requested regarding changes in valuation methods, Form N–SAR only requests information from management companies regarding changes in accounting principles and practices. Unlike Form N–SAR, Form N–CEN would require this information from UITs as well, for the same reasons as discussed above with respect to changes in valuation methods. See supra n.432 436See Item 77.B of Form N–SAR; Item 79.a.iv of proposed Form N–CEN. As noted above, management companies (other than SBICs) are currently required to file a copy of the independent public accountant’s report on internal control with their reports on Form N–SAR. We continue to believe that a copy of the management company’s report on internal control should be filed with the Commission and thus are proposing to carry over the filing requirement to Form N–CEN. 437 Item 19 of proposed Form N–CEN. reporting period with respect to the registrant.417 These questions will help alert Commission staff to insurance claims made by the fund or its officers and directors as a result of legal issues related to the fund.418 In order to better understand instances when funds receive financial support from an affiliated entity, our proposal would also require new information regarding the provision of such financial support.419 We recently adopted disclosure requirements relating to fund sponsors’ support of money market funds as part of our money market reform amendments in 2014, including a new requirement that money market funds file reports on Form N–CR disclosing, among other things, the receipt of financial support.420 As with money market funds, we believe that it is important that the Commission understand the nature and extent that a fund’s sponsor provides financial support to a fund, and are therefore proposing to extend this requirement to all funds that would file reports on Form N–CEN. Although we believe it is an infrequent practice, based on staff experience, non-money market funds have received sponsor support in the past and we believe this item would allow Commission staff to readily identify any funds that have received such support for further analysis and review, as appropriate. For consistency, Form N–CEN would include a substantially similar definition of ‘‘financial support’’ as provided by Form N–CR.421 In addition, the definition in Form N–CEN would also explicitly exclude certain routine transactions from the definition of financial support, as is the case for money market funds.422 If the fund received financial support, it would also be required to provide more detailed information in the form of an attachment as required by Part G of Form N–CEN.423 In addition, Form N–CEN would include a new item requiring reporting as to whether the fund relied on orders from the Commission granting the fund an exemption from one or more provisions of the Investment Company
Act, Securities Act or Securities Exchange Act during the reporting period.424 Funds would identify any such order by release number.425 We are proposing to collect this information in a structured format to better monitor fund reliance on exemptive orders, which will assist us with our oversight functions. As with Form N–SAR,426 proposed Form N–CEN would require identifying information for the fund’s principal underwriters 427 and independent public accountants,428 including, as applicable, name, SEC file number, CRD number, PCAOB number, LEI (if any), state or foreign country, and whether a principal underwriter was hired or terminated or if the independent public accountant changed since the last filing.429 If the independent public accountant changed since the last filing, the fund would have to provide a detailed narrative attachment to Form N–CEN.430 We are proposing to include for all funds several other accounting and valuation related items that are currently required for management companies by Form N–SAR, and that provide important information to the Commission regarding possible accounting and valuation issues related to a fund. These items include a question relating to material changes in the method of valuation of the fund’s assets.431 However, unlike reports on Form N–SAR, proposed Form N–CEN would not require a separate attachment detailing the circumstances surrounding a change in valuation methods.432 Instead, to facilitate review of this information in a structured format, our proposal would include specific items in the form itself, including the date of change, explanation of change, type of investment, statutory or regulatory basis for the change, and the fund(s) involved.433 We would also carry over to proposed Form N–CEN the requirement from Form N–SAR434 that the fund identify whether there have been any changes in accounting principles or practices, and, if any, to provide more detailed information in a narrative attachment to the form.435 Form N–CEN would also require, like Form N–SAR, that management companies, other than SBICs, file a copy of their independent public accountant’s report on internal control as an attachment to their reports on the form.436 However, Form N–CEN would also include a new question that asks whether the report on internal control found any material weaknesses.437 Form N–CEN would also contain a new requirement that the fund disclose if the certifying accountant issued an opinion other than an unqualified opinion with respect to its audit of the fund’s

438 Item 20 of proposed Form N–CEN.
439 Item 23 of proposed Form N–CEN.
440 Item 24 of proposed Form N–CEN. Section 19(a) of the Investment Company Act generally prohibits a fund from making a distribution from any source other than the fund’s net income, unless that payment is accompanied by a written statement that adequately discloses the source or sources of the payment. See 15 U.S.C. 80a–19(a). Rule 19a–1 under the Investment Company Act specifies the information required to be disclosed in the written statement. See 17 CFR 270.19a–1; see also 2013–11 IM Guidance Update, supra note 289. 441 General Instruction A to proposed Form N– CEN. financial statements.438 These questions will elicit information on potential accounting issues identified by a fund’s accountant. Unlike Form N–SAR, proposed Form N–CEN would also include an item relating to whether, during the reporting period, an open-end fund made any payments to shareholders or reprocessed shareholder accounts as a result of an NAV error.439 Proposed Form N–CEN would also require information from management companies regarding payments of dividends or distributions that required a written statement pursuant to section 19(a) of the Investment Company Act and rule 19a–1 thereunder.440 These questions will assist the staff in monitoring valuation of fund assets and the calculation of the fund’s NAV, as well as compliance with distribution requirements under section 19(a) and rule 19a–1. We request comment on the proposed information items to be reported in Part B:

Should any additional information
regarding the fund be requested? Should any of the information that would be requested by proposed Form N–CEN be excluded? Should any of the information requested for all Registrants be limited to only certain Registrants?
Should any other identifying
number other than file number and LEI be requested?
Should another definition or term
be used to capture affiliations across related funds rather than ‘‘family of investment companies’’? Should a broader term, such as ‘‘fund complex’’ as defined by instruction 1(b) to Item 17 of Form N–1A, be used instead? If so, why would a broader definition be better?
Should Form N–CEN request any
additional information concerning the board of directors or individual directors? For example, should Form N–CEN request information about the length of service of directors?
Should Form N–CEN request
information regarding a fund’s CCO, as proposed? Should we, as proposed, make the CCO’s phone number a nonpublic data field on all Form N–CEN filings? Are there any privacy concerns with the other information that would be requested? Would these concerns still exist if the information is reported in a non-public data field? Are there any other concerns with the information that would be requested? Is there other information we should request in lieu of information that presents such concerns?
The current proposal eliminates
Form N–SAR’s attachment regarding matters submitted to a vote of security holders. Should we retain this requirement in Form N–CEN? Why or why not? Are there any costs to eliminating Form N–SAR’s attachment in Item 77C in favor of yes/no type questions? Should the item regarding votes submitted to security holders apply to UITs?
We request comment on Item 12 of
proposed Form N–CEN. Should this item apply to UITs? Should ‘‘legal proceedings’’ be defined? Should it include administrative, mediated, or arbitrated matters? Are there any other litigation matters that should be deemed inherently material besides those enumerated in the instructions to the item? Is there any additional information that should be requested regarding material legal proceeding matters?
Should Form N–CEN request
information about the fidelity bond beyond what has been proposed (e.g., bond amount, the cost of the bond, or the number of insured persons)? Should any additional information regarding claims filed or that could have been filed under the fidelity bond be requested? For example, should dates of claims filed or that could have been filed be requested? Should the nature of the claim be disclosed?
Is the term ‘‘errors and omissions
insurance’’ clear or should the form include a definition? In addition to requesting information on whether any errors and omissions insurance claim was made as proposed, should dates of insurance claims and amounts of claims be requested? Should Form N–CEN permit funds to exclude the advancement of expenses under a policy from disclosure as a claim?
The definition of ‘‘financial
support’’ in proposed Form N–CEN would include a non-exclusive list of examples of actions that would (and would not) be deemed ‘‘financial support.’’ Money market funds currently report this information in reports on Form N–CR. Should the definition in proposed Form N–CEN be further expanded or limited from our definition in Form N–CR, and if so, how and why? For example, should we include a requirement to report information relating to inter-fund lending? Should we require non-money market funds to report receipt of financial support on a more timely basis? For example, should we require non-money market funds to file reports on Form N–CR or a similar form if they receive financial support?
Should any additional information
concerning exemptive or other orders be requested?
We also considered whether to
require funds to disclose reliance on noaction letters. If we were to require this information, should we limit it to certain no-action letters and, if so, which ones?
Should we request additional
information regarding fund accounting and valuation? If so, what information? Should the items relating to changes in valuation methods and changes in accounting principles and practices apply to UITs, as proposed?
We request comment on Items 23
and 24 of proposed Form N–CEN.
Should we request information regarding NAV errors and/or dividend and distribution payments that required a written statement pursuant to section 19(a) and rule 19a–1? Why or why not? Is there additional information we should request?
c. Part C—Items Relating to
Management Investment Companies
i. Background and Classification of
Funds
Part C of Form N–CEN would be
completed by management investment companies other than SBICs. For management companies offering multiple series, this information would be completed separately as to each series.441 The proposed information requirements in this section are intended to provide the Commission and its staff with background information on the fund industry and to assist us in meeting our legal and regulatory requirements, such as requirements under the Paperwork Reduction Act. Additionally, certain demographic information would allow the Commission to better identify particular types of management companies for monitoring and analysis if, for example, an issue arose with respect to a particular fund type. Similar to Form N–SAR, proposed Form N–CEN would include general identifying information on management companies and any series thereof, including the full name of the fund, the fund’s series identification number and LEI, and whether it is the fund’s first

442 Item 25 of proposed Form N–CEN; see also supra n.43 (discussing comment letters received on the FSOC Notice supporting the use of LEIs). The proposed requirements relating to the name of the fund and if this is the first filing with respect to the fund are currently required by Form N–SAR. See Items 3 and 7.C of Form N–SAR. 443 Item 26.a–Item 26.c of proposed Form N–CEN. 444 Item 26.d of proposed Form N–CEN. 445 Item 27 of proposed Form N–CEN. As discussed herein, many of the types of funds listed in Item 27 are defined in proposed Form N–CEN. With the exception of ‘‘index fund’’ and ‘‘money market fund,’’ these terms are not currently defined in Form N–SAR. See General Instruction H and Item 69 of Form N–SAR. 446For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘exchange-traded fund’’ as an open-end management investment company (or series or class thereof) or UIT, the shares of which are listed and traded on a national securities exchange at market prices, and that has formed and operates under an exemptive order under the Investment Company Act granted by the Commission or in reliance on an exemptive rule under the Act adopted by the Commission. We also propose to defined ‘‘exchange-traded managed fund’’ as an open-end management investment company (or series or class thereof) or UIT, the shares of which are listed and traded on a national securities exchange at NAV-based prices, and that has formed and operates under an exemptive order under the Investment Company Act granted by the Commission or in reliance on an exemptive rule under the Act adopted by the Commission. General Instruction F of proposed Form N–CEN. We believe these are appropriate definitions as they are similar to the one used for determining the applicability of ETF registration statement disclosure requirements for open-end funds. See General Instruction A to Form N–1A. Currently, all ETFs and exchangetraded managed funds rely on relief from certain provisions of the Investment Company Act that is granted by Commission order. See ETF Proposing Release, supra note 5; Eaton Vance Management, et al.; Notice of Application, Investment Company Act Release No. 31333 (Nov. 6, 2014) [79 FR 67471 (Nov. 13, 2014)] (Notice); Eaton Vance Management, et al.; Order, Investment Company Act Release No. 31361 (Dec. 2, 2014) (Order). The Commission has, however, proposed to codify the exemptive relief previously granted to ETFs by order. See ETF Proposing Release, supra note 5 (proposing rule 6c– 11). 447For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘index fund’’ as an investment company, including an ETF, which seeks to track the performance of a specified index. See Instruction 2 of Item 27 of proposed Form N– CEN. We believe this is an appropriate definition as it is substantively similar to the definition of ‘‘index fund’’ in Form N–SAR, but also takes into account the emergence of ETFs. See Instruction to Item 69 of Form N–SAR.
Additionally, the proposed definition is largely similar to the definition of ‘‘index fund’’ in rule 2a19–3 under the Investment Company Act. See 17 CFR 270.2a19–3 (referring to an index fund for purposes of the rule as a fund that has ‘‘an investment objective to replicate the performance of one or more broad-based securities indices. . . .’’). 448For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘interval fund’’ as a closed-end management company that makes periodic repurchases of its shares pursuant to rule 23c–3 under the Investment Company Act. See Instruction 3 of Item 27 of proposed Form N–CEN. We believe this is an appropriate definition because the term ‘‘interval fund’’ is commonly used to refer to funds that rely on rule 23c–3. See 17 CFR 270.23c–3. 449For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘fund of funds’’ as a fund that acquires securities issued by another investment company in excess of the amounts permitted under section 12(d)(1)(A) of the Investment Company Act. See 15 U.S.C. 80a– 12(d)(1)(A); Instruction 1 of Item 27 of proposed Form N–CEN. We believe this is an appropriate definition because ‘‘funds of funds’’ is a term typically used to refer to funds that invest in other funds beyond the limits of the Investment Company Act. Additionally, the proposed definition of ‘‘fund of funds’’ largely tracks FINRA’s definition of ‘‘fund of funds’’ in its rules. See FINRA Code of Conduct Rule 2830(b)(11) (defining ‘‘fund of funds’’). 450For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘master-feeder fund’’ as a two-tiered arrangement in which one or more funds holds shares of a single fund in accordance with section 12(d)(1)(E) of the Investment Company Act. See Instruction 4 of Item 27 of proposed Form N–CEN. We believe this is an appropriate definition as it is the same definition as used for purposes of Form N–1A. See General Instruction A to Form N– 1A. 451For purposes of reporting on proposed Form N–CEN, we propose to define ‘‘target date fund’’ as an investment company that has an investment objective or strategy of providing varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures that changes over time based on an investor’s age, target retirement date, or life expectancy. See Instruction 5 of Item 27 of proposed Form N–CEN. We believe this is an appropriate definition as it is the same definition as proposed by the Commission in our 2010 proposing release relating to target date funds. See Investment Company Advertising Release, supra note 6. 452See Item 27.a; Item 27.b; and Item 27.f of proposed Form N–CEN. 453See Item 27.a.i and Item 27.a.ii. 454With respect to index funds that are ETFs, we would expect a fund to use its NAV-based total return, rather than market-based total return, in responding to Items 27.b.i. and ii. 455 Item 27.b.i of proposed Form N–CEN. The tracking difference is the
return difference between the fund and the index it is following, annualized. Johnson, Ben, et al., On the Right Track: Measuring Tracking Efficiency in ETFs, Morningstar ETF Research, at 29 (Feb. 2013), available at http:// media.morningstar.com/uk/MEDIA/Research_ Paper/Morningstar_Report_Measuring_Tracking_ Efficiency_in_ETFs_February_2013.pdf (‘‘Morningstar Paper’’), at 29. Thus, tracking difference = (1 + RNAV—RINDEX)1/N—1, where RNAV is the total return for the fund over the reporting period, RINDEX is the total return for the index for the reporting period, and N is the length of the reporting period in years. N will equal to 1 if the reporting period is the fiscal year. Id. 456See Item 27.b.ii of proposed Form N–CEN. Tracking error is commonly understood as the standard deviation of the daily difference in return between the fund and the index it is following, annualized. Morningstar Paper, supra note 455, at
29. Thus, tracking error = std (RNAV ¥ RINDEX) ×
√n, where RNAV is the daily return for the fund, RINDEX is the daily return for the index, std(•) represents the standard deviation function, and n is the number of trading days in the fiscal year. Id. 457See Morningstar Paper, supra note 455, at 29. 458See Morningstar Paper, supra note 455, at 5. We believe this information would help data users understand which funds are best tracking their target indices and could highlight outlier funds. 459See Item 27.b.i.1 and Item 27.b.ii.1 of proposed Form N–CEN. time filing the form.442 Unlike Form N– SAR, we are proposing to request specific information on the classes of open-end management companies, including information relating to the number of classes authorized, added, and terminated during the relevant period.443 Form N–CEN would also include a new requirement to specifically provide identifying information for each share class outstanding, including the name of the class, the class identification number, and ticker symbol.444 Pursuant to proposed Form N–CEN, a management company also would be required to identify if it is any of the following types of funds: 445 ETF or exchange-traded managed fund (‘‘ETMF’’); 446 index fund; 447 fund seeking to achieve performance results that are a multiple of a benchmark, the inverse of a benchmark, or a multiple of the inverse of a benchmark; interval fund; 448 fund of funds; 449 master-feeder fund; 450 money market fund; target date fund; 451 and underlying fund to a variable annuity or variable life insurance contract. ETFs and ETMFs, index funds and master-feeder funds would also be required to provide the additional information discussed below.452 First, proposed Form N–CEN would require a management company to further indicate if it is an ETF or an ETMF.453 Second, index funds would be required to report certain standard industry calculations of relative performance. In particular, index funds would be required to report a measure of the difference between the index fund’s total return during the reporting period 454 and the index’s return both before and after fees and expenses— commonly called the ‘‘tracking difference’’— 455 and also a measure of the volatility of the day-to-day tracking difference over the course of the reporting period—commonly called the fund’s ‘‘tracking error.’’ 456 Specifically, the proposed tracking difference data item would equal the annualized difference between the index fund’s total return during the reporting period and the index’s return during the reporting period, and the proposed tracking error data item would equal the annualized standard deviation of the daily difference between the index fund’s total return and the index’s return during the reporting period.457 Reporting of these measures will help data users, including the Commission, investors, and other potential users, evaluate the degree to which particular index funds replicate the performance of the target index.458 In addition, tracking difference and
tracking error before fees and expenses 459 would allow data users to better understand the effect of factors other than fees and expenses on the degree to which the

460See Morningstar Paper, supra note 455, at 9. 461 Item 27.f.i of proposed Form N–CEN. 462 Item 27.f.ii of proposed Form N–CEN. 463 Item 28 of proposed Form N–CEN. 464See Item 60 of Form N–SAR. 465Based on Form N–SAR data between July 2014–December 2014, 74% of funds were diversified during the reporting period. 466For example, if a fund generally operates as a non-diversified fund, but as a result of market conditions or other reasons, happens to meet the definition of ‘‘diversified fund’’ as of the end of the reporting period, it would still be required to indicate that it was a non-diversified fund for purposes of this item. 467 Item 29 of proposed Form N–CEN. An instruction to Item 29 of proposed Form N–CEN would define ‘‘controlled foreign corporation’’ as having the meaning provided in section 957 of the Internal Revenue Code. 468See supra Parts II.A.2.d and II.A.2.g.v. 469See proposed rule 6–03(m) of Regulation S–X.; see also supra Parts II.C.3 and II.C.5. 470 Item 30.a–Item 30.b of proposed Form N–CEN. index fund replicates the performance of the target index.460 Finally, master funds would be required to provide identifying information with respect to each feeder fund, including information on unregistered feeder funds (i.e., feeder funds not registered as investment companies with the Commission), such as offshore feeder funds.461 Similarly, a feeder fund would provide identifying information of its master fund.462 Proposed Form N–CEN would also require the management company to report if it seeks to operate as a nondiversified company, as defined in
section 5(b)(2) of the Investment
Company Act.463 Form N–SAR, however, asks if the management company was a diversified investment company at any time during the period or at the end of the reporting period.464 We are proposing to require reporting on the non-diversified status of a management company, rather than the diversified status, because it is less common for funds to be nondiversified.465 Additionally, the question in proposed Form N–CEN is forward looking rather than backward looking as in Form N–SAR. This change is intended to include as part of the universe of non-diversified funds those funds that seek to operate as nondiversified companies even if they should happen to meet the definition of a ‘‘diversified company’’ as of the end of a particular reporting period.466 We believe this change will allow our staff to more accurately pinpoint the universe of non-diversified funds and, thus, better able the staff to assist us in our analysis and inspection functions. We request comment on the Part C questions relating to the fund’s background and classification:

Should additional identifying
information be requested with regard to series or classes of management investment companies? Should any of the information proposed to be included in proposed Form N–CEN be excluded?
We request comment on our list of
types of fund. Are there any types of funds that we should add to or remove from the list? If so, which ones and why? Should we include additional categories based on investment strategy, as proposed? If so, which categories? Are the definitions in proposed Form N–CEN of the type of funds listed appropriate? Should any different definitions be used for types of funds? If so, what definitions and why? Are any terms that are not defined sufficiently clear or should we provide definitions? If so, what terms and what definitions?
We request comment on the
information to be required for index funds. Should we require the difference between the fund’s total return during the reporting period and the index’s return during the reporting period? Is this a meaningful methodology? Is there a better methodology for calculating tracking difference or tracking error?
Should the form solicit information
about the intent of a management company to operate as a non-diversified fund or should it request information about past operations during the reporting period?
ii. Investments in Certain Foreign
Corporations
We are also proposing to require a management company to identify if it invests in a controlled foreign corporation for the purpose of investing in certain types of instruments, such as commodities, including the name and LEI of such corporation, if any.467 As discussed supra Part II.A.2.b, some funds use CFCs for making certain investments, particularly in commodities and commodity-linked derivatives, often for tax purposes. Information regarding assets invested in a controlled foreign corporation for the purpose of investing in certain types of instruments would provide investors greater insight into special purpose entities, such as CFCs, that may have certain legal, tax, and country-specific risks associated with them. Combined with the information that we are proposing to collect in Form N–PORT, Commission staff would likewise benefit from this information by better understanding the use of CFCs and other similar entities, which could allow for more efficient collaboration with foreign regulatory authorities to the extent the Commission may need books and records or other information for specific funds or general inquiries related to CFCs. We request comment on the Part C questions relating to the fund’s investments in certain foreign corporations:
Should we request additional
information on whether the management company invested in a foreign corporation or subsidiary, including CFCs? For example, should we request information on the types of investing activities the CFCs engage in or certain balance sheet items from the CFC?
iii. Securities Lending
As discussed above, we are proposing that funds provide certain securities lending information in reports on Form N–PORT to help inform the Commission, investors and other market participants about the scale of securities lending activity by funds and their collateral reinvestments.468 Additionally, we are proposing to require that funds include in their financial statements certain information concerning their income and expenses associated with securities lending activities in order to increase the transparency of this information to investors and other potential users.469 We believe, however, that some important information concerning securities lending activity by funds should be reported in a structured format, but on a less frequent basis than reports on proposed Form N–PORT. In this regard, we believe an annual reporting requirement on Form N–CEN may yield sufficiently timely data and may more appropriately balance the requirements’ benefits with their associated costs than would additional monthly reporting requirements on Form N–PORT. Accordingly, we propose to require that each management company report annually on new Form N–CEN, in addition to whether it is authorized to engage in securities lending transactions and whether it loaned securities during the reporting period,470 information about the fees associated with securities lending activity and information about the management company’s relationship with certain securities-lending-related service providers. First, we propose to require that management companies that loaned any securities during the reporting period disclose certain information that would illuminate the commonality of borrower default. Specifically, we propose to require that those management companies disclose annually whether any borrower of securities had defaulted on its

471 Item 30.b.i of proposed Form N–CEN. 472 Item 30.c.iv and Item 30.c.v.1–Item 30.c.v.2 of proposed Form N–CEN. 473As discussed above, commenters to the FSOC Notice suggested that enhanced securities lending disclosures could be beneficial to investors and counterparties. See supra note 71. 474 Item 30.c.i–Item 30.c.ii and Item 30.d.i–Item 30.d.ii of proposed Form N–CEN. 475 Item 30.c.iii and Item 30.d.iv of proposed Form N–CEN. 476Section 17(d) of the Investment Company Act makes it unlawful for first- and second- tier affiliates, among others, acting as principal, to effect any transaction in which the fund, or a company it controls, is a joint or a joint and several participant in contravention of Commission rules. 15 U.S.C. 80a–17(d). Rule 17d–1(a) prohibits firstand second-tier affiliates of a registered fund, among others, acting as principal from participating in or effecting any transaction in connection with any joint enterprise or other joint arrangement or profit-sharing plan in which the fund (or any company it controls) is a participant unless an application or arrangement or plan has been filed with the Commission and has been granted. 17 CFR 270.17d–1. These provisions would prohibit a fund from compensating a securities lending agent that is a first- or second-tier affiliate with a share of loan revenue or lending to a borrower that is a first- or second-tier affiliate without an exemptive order, and generally from investing cash collateral in a first- or second-tier affiliated liquidity pool unless the fund satisfies the conditions in rule 12d1–1 under the Investment Company Act, which provides exemptive relief for fund investments in an affiliated registered money market fund and pooled investment vehicle that would be an investment company but for sections 3(c)(1) and 3(c)(7) of the Investment Company Act and that operate in compliance with money market fund regulations subject to certain conditions. A management company that has a service agreement with an affiliated securities lending agent, under which compensation is not based on a share of loan revenue generated by the lending agent’s efforts, generally is not a joint enterprise or other joint arrangement or profit-sharing plan and, thus, does not need an exemptive order. See Norwest Bank Minnesota, N.A., SEC Staff No-action Letter (pub. avail. May 25, 1995) available at http:// www.sec.gov/divisions/investment/noaction/1995/ norwest052595.pdf. 477 Item 30.e of proposed Form N–CEN. Management companies that report that other payments were made to one or more securities lending agents or cash collateral managers during the reporting period would also be required to describe the type or types of other payments. Item 30.e.vi of proposed Form N–CEN. 478 In evaluating the fees and services of any securities lending agent, the board of directors of a management company that engages in securities lending may be assisted by reviewing and comparing information on securities
lending agent fee arrangements of other management companies. See, e.g., SIFE Trust Fund, SEC No-action Letter (publ. avail. Feb. 17, 1982) (management company’s board of directors determines that the securities lending agent’s fee is reasonable and based solely on the services rendered); Neuberger Berman Equity Funds, et al., Investment Company Act Release No. 25880 (Jan. 2, 2003) (notice), Investment Company Act Release No. 25916 (Jan. 28, 2003) (order) (management company’s board of directors, including a majority of independent directors, will determine initially and review annually, among other things, that (i) the services to be performed by the affiliated securities lending agent are appropriate for the lending fund, (ii) the nature and quality of the services to be provided by the agent are at least equal to those provided by others offering the same or similar services; and (iii) the fees for the agent’s services are fair and reasonable in light of the usual and customary charges imposed by others for services of the same nature and quality). 479 Item 30.d.iii of proposed Form N–CEN. obligations to the management company to return loaned securities or return them on time in connection with a security on loan during that period.471 Under proposed Form N–CEN, management companies would also be required to disclose 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.472 Together, these reporting requirements would yield data that would allow the Commission, investors, and other potential users to assess the counterparty risks associated with borrower default in the securities lending market and the extent to which those risks are mitigated by—or concentrated in—third parties that provide indemnification against default.473 Because management companies sometimes engage external service providers as securities lending agents or cash collateral managers, we believe that some of the risks associated with securities lending activities by management companies could be impacted by these service providers and the nature of their relationships with the management companies and one another. Accordingly, we propose to require that management companies report some basic identifying information about each securities lending agent and cash collateral manager.474 In addition, we propose to require that funds disclose whether each of these service providers is a first- or second-tier affiliated person of the management company,475 which data would highlight those funds that might be expected to rely on Commission exemptive relief with respect to those transactions.476 We also propose to require each management company to disclose whether it has made each of several specific types of payments, including a revenue sharing split, nonrevenue sharing split (other
than an administrative fee), administrative fee, cash collateral reinvestment fee, and indemnification fee, to one or more securities lending agents or cash collateral managers during the reporting period.477 These disclosures will allow the Commission, investors and other management company boards of directors to understand better the type of fees a management company pays in connection with securities lending activities and whether, for example, the revenue sharing split that the company pays to a securities lending agent includes compensation for other services such as administration or cash collateral management.478 Finally, our proposed disclosure of whether the cash collateral manager is a first- or secondtier affiliate of the securities lending agent 479 could alert the Commission, investors, and other market participants to potential conflicts of interest when an entity managing a cash collateral reinvestment portfolio is affiliated with a securities lending agent that is compensated with a share of revenue generated by the cash collateral reinvestment pool. Together, the data that these proposed requirements would yield would allow the Commission to monitor the interaction of these service providers with management companies. In addition to informing the Commission’s risk analysis and, potentially, future policymaking concerning securities lending activity by management companies, we believe that this information could also help inform other data users about the use of, and possible risks associated with, the lending of portfolio securities by management companies. We request comment on the Part C questions relating to the management company’s securities lending activities:

Should management companies be
required to report any or all of the proposed information concerning securities lending activity? If not, which items should not be required, and why? Should we collect any additional information?
Should we require, as proposed,
that management companies disclose annually whether any borrower of securities defaulted on its obligations to the management company? Why or why not? Should we instead, or additionally, require management companies to report monthly on Form N–PORT whether any borrower of securities defaulted on its obligations to the management company?
Should we require, as proposed,
that management companies report certain information about each securities lending agent and each cash collateral manager? Why or why not? Should we require that these funds disclose whether each of these external service providers is a first- or secondtier affiliate of the fund?
In addition to requiring
management companies to report whether they made each of the proposed types of payments associated with securities lending, should the Commission also require disclosure of

480 Item 31 of proposed Form N–CEN.
481Compare id. (requiring management companies to identify if they relied upon any of the following rules: rule 10f-3 (exemption for the acquisition of securities during the existence of an underwriting or selling syndicate), rule 12d1–1 (exemptions for investments in money market funds), rule 15a–4 (temporary exemption for certain investment advisers), rule 17a–6 (exemption for transactions with portfolio affiliates), rule 17a–7 (exemption of certain purchase or sale transactions between an investment company and certain affiliated persons thereof), rule 17a–8 (mergers of affiliated companies), rule 17e–1 (brokerage transactions on a securities exchange), rule 22d–1 (exemption from section 22(d) to permit sales of redeemable securities at prices which reflect sales loads set pursuant to a schedule), rule 23c–1 (repurchase of securities by closed-end companies), rule 32a–4 (independent audit committees)) with Items 40, 77.N, 77.O, 102.M, 102.N of Form N–SAR (requiring information regarding rules 2a–7 (money market funds), 10f–3 (see above for description) and 12b–1 (distribution of shares by registered open-end management investment company). 482See proposed amendments to rule 10f–3. 483See rule 10f–3(c)(12) under the Investment Company Act [17 CFR 270.10f–3(c)(12)]. 484See rule 10f–3(c)(9). 485Similar exemptive rules take this approach and do not require filings with the Commission. See rule 17a–7 under the Investment Company Act [17 CFR 270.17a–7] and rule 17e–1 under the Investment Company Act [17 CFR 270.17e–1]. We note that we previously proposed deleting this filing requirement from rule 10f–3 in 1996. See Exemption for the Acquisition of Securities During the Existence of an Underwriting Syndicate, Investment Company Act Release No. 21838 (Mar. 21, 1996) [61 FR 13620 (Mar. 27, 1996)]. We chose not to adopt it in light of the other amendments to the rule at that time, including the increase in the percentage limit on the principal amount of an offering that an affiliated fund could purchase. See Exemption for the Acquisition of Securities During the Existence of an Underwriting of Selling Syndicate, Investment Company Act Release No. 22775 (July 31, 1997) [62 FR 42401 (Aug. 7, 1997]. 486See Items 53.A–C of Form N–SAR (requiring the fund to identify if expenses of the Registrant/ Series were limited or reduced during the reporting period by agreement, and, if so, identify if the limitation was based upon assets or income). 487 Item 32 of proposed Form N–CEN. 488 Id. Proposed Form N–CEN would also include an instruction that filers should provide information in response to the item concerning any direct or indirect limitations, waivers or reductions, on the level of expenses incurred by the fund during the reporting period. The instructions would also provide an example of how an expense limit may be applied—when an adviser agrees to accept a reduced fee pursuant to a voluntary fee waiver or for a temporary period such as for a new fund in
its start-up phase. See Instruction to Item 32 of proposed Form N–CEN. 489See Items 8 and 10–15 of Form N–SAR. 490 Item 33 of proposed Form N–CEN. 491 Item 34 of proposed Form N–CEN. Form N– SAR equates a ‘‘shareholder servicing agent’’ with specific rates and/or amounts paid during the reporting period of each enumerated type of compensation, similar to the disclosures we are proposing to require in the financial statements concerning the terms governing the compensation of the securities lending agent and collateral manager? Would that additional information be useful in proposed Form N–CEN in a structured format for risk monitoring and use by investors or other market participants, including other management company boards of directors that are evaluating securities lending agent services?

Would the proposed reporting
requirements regarding securities lending yield beneficial information? If not, what information should the Commission collect instead to conduct appropriate risk monitoring of securities lending activity by management companies? How should this information be collected?
Would the proposed reporting
requirements concerning securities lending activity be burdensome?
Should proposed Form N–CEN
include a specific definition for ‘‘securities lending agent’’? Why or why not? If so, how should the term be defined? Should the form include a specific definition for ‘‘cash collateral manager’’? Why or why not? If so, how should the term be defined?
Are there other reporting
requirements that the Commission should adopt for securities lending activity? If so, would these additional reporting requirements assist with Commission risk monitoring, inform the public, or both?
iv. Reliance on Certain Rules
Like Form N–SAR, proposed Form N– CEN would include a requirement that management companies report whether they relied on certain rules under the Investment Company Act during the reporting period.480 However, proposed Form N–CEN would require this information with respect to additional rules not currently covered by Form N– SAR.481 We are proposing to collect information on these additional rules to better monitor reliance on exemptive rules and to assist us with our accounting, auditing and oversight functions, including, for some rules, compliance with the Paperwork Reduction Act. For example, reporting of reliance on rules 15a–4 and 17a–8 under the Investment Company Act will allow the staff to monitor significant events relating to interim investment advisory agreements and affiliated mergers, respectively. In addition, we are proposing to amend rule 10f–3 to eliminate the requirement that funds provide the Commission with reports on Form N– SAR regarding any transactions effected pursuant to the rule.482 Rule 10f–3 currently requires funds to maintain and preserve certain information—the same information also required to be filed pursuant to Form N–SAR—in its records regarding rule 10f–3 transactions.483 Our proposed amendments to rule 10f– 3 would eliminate the requirement to periodically report this information,484 but would not alter the requirement to maintain and preserve it. The Commission believes it is unnecessary for funds to continue to file this information because Commission staff can request the information in connection with staff inspections, examinations and other inquiries.485 We request comment on the Part C questions relating to the management company’s reliance on certain exemptive rules and orders:
Should any additional information
concerning exemptive or other rules be requested?
We request comment on our
proposal to eliminate the requirement under rule 10f–3 that funds provide the Commission with periodic reports on Form N–SAR. Should we eliminate this requirement or continue it under Form N–CEN? Why or why not? Are there any costs or benefits associated with eliminating this requirement?
v. Expense Limitations
As in Form N–SAR,486 Form N–CEN would require information regarding expense limitations.487 The requirements in Form N–CEN, however, would be modified from Form N–SAR by requiring information on whether the management company had an expense limitation arrangement in place, whether any expenses of the fund were waived or reduced pursuant to the arrangement, whether the waived fees are subject to recoupment, and whether any expenses previously waived were recouped during the period.488 We believe that more specific questions relating to management company expense limitation arrangements would reduce burdens and limit uncertainty for management companies when responding to these items. We request comment on the Part C questions relating to the management company’s expense limitations and fee waivers:
Are the proposed Form N–CEN
items relating to expense limitations appropriate? Is there any additional information that we should request on the management company’s expense limitations? If so, what items and why?
vi. Service Providers
Similar to Form N–SAR,489 Form N– CEN would collect identifying information on the management company’s service providers, including its advisers and sub-advisers,490 transfer agents,491 custodians (including submstockstill on DSK4VPTVN1PROD with PROPOSALS2

a ‘‘transfer agent.’’ See Instruction to Item 12 of Form N–SAR. 492 Item 37 of proposed Form N–CEN. 493 Item 38 of proposed Form N–CEN. 494 Item 39 of proposed Form N–CEN. 495 Item 40 of proposed Form N–CEN. 496See, e.g., Items 33.a.vii, b and c.vii; 34.a.vi and b of proposed Form N–CEN. 497Compare Items 15.E and 18 of Form N–SAR with Item 37.a.vii.6–Item 37.a.vii.7 of proposed Form N–CEN. 498 Item 35 of proposed Form N–CEN. 499 Item 36 of proposed Form N–CEN. 500 Item 41 of proposed Form N–CEN. 501 Item 42 of proposed Form N–CEN. 502 Items 20–23 of Form N–SAR. Form N–SAR includes an instruction designed to help filers distinguish between agency and principal transactions for purposes of reporting information regarding brokerage commissions and principal transactions. See Instruction to Items 20–23 of Form N–SAR. A substantially similar instruction would be included in Form N–CEN. See Instructions to Item 41-Item 42 of proposed Form N–CEN. 503 Item 43 of proposed Form N–CEN; see also Item 26.B of Form N–SAR (requiring disclosure if the fund’s receipt of investment research and statistical information from a broker or dealer was a consideration which affected the participation of brokers or dealers or other entities in commissions or other compensation paid on portfolio transactions of Registrant). Section 28(e) of the Exchange Act establishes a safe harbor that allows money managers to use client funds to purchase ‘‘brokerage and research services’’ for their managed accounts under certain circumstances without breaching their fiduciary duties to clients. See 15 U.S.C. 78bb(e); see also Commission Guidance Regarding Client Commission Practices Under
Section 28(e) of the Securities Exchange Act of
1934, Release No. 33–54165 (July 18, 2006) [71 FR 41978 (July 24, 2006)]. We continue to believe that an item indicating whether a fund uses soft dollars will assist our staff in their examinations and provide census data as to the number and type of funds that rely on the safe harbor provided by
section 28(e).
504See Items 86–88 of Form N–SAR (relating specifically to closed-end funds) and Items 89–110 of Form N–SAR (relating specifically to SBICs). custodians),492 shareholder servicing agents,493 third-party administrators,494 and affiliated broker-dealers.495 We are also proposing new requirements that the management company provide information on whether the service provider was hired or terminated during the reporting period and whether it is affiliated with the fund or its adviser(s).496 In addition, like Form N– SAR, Form N–CEN would ask custodians to indicate the type of custody, but would expand upon the types of custody listed.497 Together, these items would assist the Commission in analyzing the use of third-party service providers by management companies, as well as identify service providers that service large portions of the fund industry. Based on staff experience, management companies and their boards often rely on pricing agents to help price securities held by the fund. Therefore, we are proposing a new requirement that management companies provide identifying information on persons that provided pricing services during the reporting period,498 as well as persons that formerly provided pricing services to the management company during the current and immediately prior reporting period that no longer provide services to that company.499 This would assist the Commission in assessing the use of pricing services by the fund industry and the role they play in valuing fund investments.
Part C would also require identifying
information on the ten entities that, during the reporting period, received the largest dollar amount of brokerage commissions from the management company 500 and with which the management company did the largest dollar amount of principal transactions.501 Form N–SAR also requests identifying information on these entities 502—information that is not available elsewhere in a structured format. Moreover, we continue to believe that brokerage commission and principal transaction information provides valuable information to Commission staff about management company brokerage practices, and would assist the staff in identifying the types of broker-dealers who service management company clients, monitoring for changes in business practices, and assessing the types of trading activities in which funds are engaged. Finally, similar to Form N– SAR, we are proposing to ask whether the management company paid commissions to broker-dealers for ‘‘brokerage and research services’’ within the meaning of section 28(e) of the Exchange Act.503 We request comment on the Part C questions relating to the fund’s service providers:

Are the proposed Form N–CEN
items relating to service providers appropriate? Should any of the service providers or information regarding the service providers included in proposed Form N–CEN be excluded from the form? Are there other service providers for which we should require information? For example, should we request information on index providers and, in particular, affiliated index providers?
Are the service providers identified
in proposed Form N–CEN sufficiently clear or should we provide definitions for each provider? If so, what definitions should we use and why?
Should additional information be
requested regarding advisers or subadvisers? Should the form provide a definition of the term sub-adviser?
Should any additional specific
service provider information be requested? Is there any proposed service provider information that should not be requested? Should proposed Form N– CEN request information on whether the service provider was hired or terminated, or on the affiliation of the service provider, as proposed?
In addition to requesting service
provider city and state or foreign country information as proposed, should street address, phone or email information be requested? Would inclusion of this additional information in proposed Form N–CEN raise any privacy or other concerns?
Should the form request
information regarding sub-transfer agents or other shareholder servicers?
Should any additional information
on service provider fees be requested? For example, should custodian, audit, or administrator fees be requested? Is certain service provider fee information unnecessary as redundant with financial statements?
Is the use of the term ‘‘pricing
service’’ appropriate as proposed?
Should the form provide a definition of ‘‘pricing service’’?
Should we, as proposed, include
custody pursuant to rules 17f–6 and 17f–7 under the Investment Company Act (types of custody not currently listed in Form N–SAR) on the list of types of custody in proposed Form N– CEN?
Is there additional information
regarding broker-dealers that should be requested? Should we use a different methodology other than largest amount of brokerage commissions or collect information for a larger or smaller number of brokers?
Is there additional information
regarding payments by the management companies to brokers or dealers for ‘‘brokerage and research services’’ that should be requested? We request comment on Part C, generally:
Are there any additional questions
regarding management companies that we should include in proposed Form N– CEN? d. Part D—Closed-End Management Companies and Small Business Investment Companies Proposed Form N–CEN would, as Form N–SAR does, recognize that closed-end funds and SBICs have particular characteristics that warrant questions targeted specifically to them.504 Like Form N–SAR, Form N– CEN would require additional

505As discussed above, SBICs are unique investment companies that operate differently than other management investment companies. See supra note 35. 506 Item 44 of proposed Form N–CEN; cf. Items 87–88 and 96 of Form N–SAR (requesting information on the title and ticker of each class of securities issued on an exchange and information regarding certain specific types of securities). An instruction to Item 44 of proposed Form N–CEN would indicate that the fund should provide the ticker symbol for any security not listed on an exchange, but that has a ticker symbol. 507 Item 45 of proposed Form N–CEN. 508 Item 46 of proposed Form N–CEN. 509See Item 45 and Item 46 of proposed Form N–CEN. Item 45.c of proposed Form N–CEN would also ask for the percentage of participation in a primary rights offering and an accompanying instruction to this item would address the method of calculating such percentage. 510See Items 86 and 95 of Form N–SAR. 511 Item 47 of proposed Form N–CEN. 512We note that, with respect to closed-end funds, financial information relating to monthly sales and repurchases of shares would be reported monthly on proposed Form N–PORT. See Item B.6 of proposed Form N–PORT (requiring the aggregate dollar amounts for sales and redemptions/ repurchases of fund shares during each of the last three months). 513See Items 77.G and 102.F of Form N–SAR. 514 Item 48 of proposed Form N–CEN. 515 Item 49 of proposed Form N–CEN. 516 Items 77.G and 102.F of Form N–SAR. 517 Item 48 of proposed Form N–CEN would require, with respect to any default on long-term debt, the nature of the default, the date of the default, the amount of the default per $1000 face amount, and the total amount of default. An instruction to this item would define ‘‘long-term debt’’ to mean a debt with a period of time from date of initial issuance to maturity of one year or greater. Item 49 of proposed Form N–CEN would require, with respect to any dividends in arrears, the title of the issue and the amount per share in arrears. This item would define ‘‘dividends in arrears’’ to mean dividends that have not been declared by the board of directors or other governing body of the fund at the end of each relevant dividend period set forth in the constituent instruments establishing the rights of the stockholders. 518 Items 77.I and 102.H of Form N–SAR. 519 Item 50 of proposed Form N–CEN. 520 Item 79.b.ii of proposed Form N–CEN. 521 Item 79.b.i of proposed Form N–CEN. 522 Item 79.b.iii of proposed Form N–CEN. 523 Item 79.b.iv of proposed Form N–CEN. 524 Item 79.b.v of proposed Form N–CEN. This item applies only to SBICs because other management investment companies, including closed-end funds, provide this information in filings on Form N–CSR. See Items 2 and 3 of Form N–CSR; see also rule 30d–1 under the Investment Company Act [17 CFR 270.30d–1]. 525Compare Item 79.b of proposed Form N–CEN with Items 77.Q.1, 77.Q.2, 102.P.1, 102.P.2, and 102.P.3 of Form N–SAR; see also Instructions to
Specific Items 77Q1(a), 77Q1(e), 77Q2, 102P1(a), 102P1(e), 102P2, and 102P3 of Form N–SAR. 526 Item 51 of proposed Form N–CEN; cf. Items 47–52 and 72.F of Form N–SAR (requesting advisory fee information for management companies, including closed-end funds). Whereas Form N–SAR requests information regarding the advisory fee rate and the dollar amount of gross advisory fees, an instruction to Item 51 of proposed Form N–CEN would explain that the management fee reported should be based on the percentage of amounts incurred during the reporting period. 527 Item 52 of proposed Form N–CEN; cf. Items 72.X and 97.X of Form N–SAR (requesting total expenses in dollars for closed-end funds and SBICs). 528Management fee information for open-end funds is currently tagged in XBRL format in the fund’s risk return summary and is therefore not required by proposed Form N–CEN. See General Instruction C.3.G of Form N–1A. information to be reported by closedend funds in Part D of the form and would also treat SBICs differently than other management investment companies, requiring them to complete
Part D of the form in lieu of Part C.505
The information requested in Part D would provide us with information that is particular to closed-end funds and SBICs and, thus, would assist us in monitoring the activities of these funds and our examiners in their preparation for exams of these funds. Similar to Form N–SAR, we are proposing to require in Part D of proposed Form N–CEN information on the securities that have been issued by the closed-end fund or SBIC, including the type of security issued (common stock, preferred stock, warrants, convertible securities, bonds, or any security considered ‘‘other’’), title of each class, exchange where listed, and ticker symbol.506 We are also proposing to require new information relating to rights offerings 507 and secondary offerings by the closed-end fund or SBIC,508 including whether there was such an offering during the reporting period and if so, the type of security involved.509 Together, this information will allow the staff to quickly identify and track the securities and offerings of closed-end funds and SBICs when monitoring and examining these funds. Like Form N–SAR,510 we are also proposing to require that each closedend fund or SBIC report information on repurchases of its securities during the reporting period.511 However, unlike Form N–SAR, which requires information on the number of shares or principal amount of debt and net consideration received or paid for sales and repurchases for common stock, preferred stock, and debt securities, Form N–CEN would only require the closed-end fund or SBIC to indicate if it repurchased any outstanding securities issued by the closed-end fund or SBIC during the reporting period and indicate which type of security.512 We are also proposing to carry over Form N–SAR’s requirements 513 relating to default on long-term debt 514 and dividends in arrears.515 However, unlike Form N–SAR, which requires an attachment stating detailed information on defaults and arrears on senior securities,516 we are proposing that Form N–CEN only require a yes/no question and text-based responses directly in the form.517 We are similarly proposing to carry over the Form N–SAR requirement 518 regarding modifications to the constituent’s instruments defining the rights of holders.519 Similar to Form N–SAR, if a closed-end fund or SBIC made modifications to such an instrument, it would also be required to file an attachment in Part G of Form N–CEN with a more detailed description of the modification.520 This item provides the Commission with information on and copies of documents reflecting changes to shareholders’ rights.
Part G of proposed Form N–CEN
would also require closed-end funds or SBICs to file attachments regarding material amendments to organizational documents,521 new or amended investment advisory contracts,522 information called for by Item 405 of Regulation S–K,523 and, for SBICs only, senior officer codes of ethics.524 Where possible, we sought to eliminate the need to file attachments with the census reporting form in order to simplify the filing process and maximize the amount of information we receive in a data tagged format. However, the attachments proposed to be required with reports on Form N–CEN, provide us with information that is not otherwise updated or filed with the Commission and, thus, we believe they should continue to be filed in attachment form. All of the attachments in proposed Form N–CEN that are specific to closed-end funds and SBICs are also currently required by Form N–SAR.525 Similar to Form N–SAR, we are proposing to require other census-type information relating to management fees and net operating expenses. Closed-end funds would be required to report the fund’s advisory fee as of the end of the reporting period as a percentage of net assets.526 Additionally, closed-end funds and SBICs would both be required to report the fund’s net annual operating expenses as of the end of the reporting period (net of any waivers or reimbursements) as a percentage of net assets.527 Unlike open-end funds, which provide management fee and net expense information to the Commission in a structured format,528 such information is not reported to or updated with the Commission in a structured format by closed-end funds or SBICs. This information would allow the Commission to track industry trends relating to fees. Like Form N–SAR, proposed Form N–CEN also would

529 Item 53 of proposed Form N–CEN; see Items 76 and 101 of Form N–SAR. 530 Item 54 of proposed Form N–CEN; see Items 74.V.1 and 99.V of Form N–SAR. 531 Item 55–Item 57 of proposed Form N–CEN. 532For purposes of Form N–CEN, ‘‘creation unit’’ is defined as ‘‘a specified number of ExchangeTraded Fund or Exchange-Traded Managed Fund shares that the fund will issue to (or redeem from) an authorized participant in exchange for the deposit (or delivery) of specified securities, cash, and other assets.’’ Instruction 8 to Item 60 of proposed Form N–CEN. For purposes of Form N–CEN, ‘‘authorized participant’’ is defined as ‘‘a broker-dealer that is also a member of a clearing agency registered with the Commission, and which has a written agreement with the Exchange-Traded Fund or Exchange-Traded Managed Fund or one of its designated service providers that allows it to place orders to purchase or redeem creation units of the Exchange-Traded Fund or Exchange-Traded Managed Fund.’’ Instruction to Item 59 of proposed Form N–CEN. 533See generally Actively Managed ExchangeTraded Funds, Investment Company Act Release No. 25258 (Nov. 8, 2001) [66 FR 57614 (Nov. 15, 2001)]; ETF Proposing Release, supra note 446. 534See General Instruction A to Form N–1A (defining ‘‘exchange-traded fund’’). 535See Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Securities Act Release No. 8998 (Jan. 13, 2009) [74 FR 4546, 4558 (Jan. 26, 2009)]. 536 General Instruction A to proposed Form N–CEN; see also supra note 446. 537See ETF Proposing Release, supra note 446, at 14620–21. require, for the end of the reporting period, the market price per share 529 and NAV per share 530 of the fund’s common stock. Finally, like Form N–SAR, proposed Form N–CEN would require information regarding an SBIC’s investment advisers, transfer agents, and custodians.531 This information is the same as what would be reported by open-end and closed-end funds in Part C of proposed Form N–CEN, but SBICs would not be required to fill out Part C of the proposed form. As noted above, proposed Form N–CEN, like Form N–SAR, would recognize that SBICs have particular characteristics that warrant questions targeted specifically to them. The majority of questions in
Part C of proposed Form N–CEN would
be inapplicable to SBICs or otherwise request information that would not be helpful to us in carrying out our regulatory functions with respect to SBICs. Accordingly, we propose to except SBICs from filling out Part C of the form and instead would include certain service provider questions from
Part C in Part D of the form as response
items for SBICs.
We request comment on the following information requirements relating to closed-end funds and SBICs:

Are the proposed Form N–CEN
items relating to closed-end funds and SBICs appropriate? Are there other information items relating to closed-end funds and SBICs that we should require? If so, what information and why? Are there any items relating to closed-end funds and SBICs in proposed Form N–CEN that should be excluded from the form?
Is there additional information
regarding trading in closed-end fund or SBIC securities that should be requested?
Is there additional information
regarding repurchases that should be requested?
Should the form provide specific
instructions on the calculation of management fees?
Should net annual operating
expenses be defined? Should they include amortization and depreciation expenses?
Should the management fee for
closed-end funds be requested as proposed or should other information such as the absolute amount of fees be requested? Should we request this information for SBICs? Should the form request information on what the fee is based upon, such as a percentage of income or performance? Should breakpoints used in calculating the management fee be reported at each breakpoint level or should an average management fee be provided? Should the management fee information requested be forwardlooking or should it be backward looking, as proposed, providing a management fee based on fees charged during the reporting period and, if so, which NAV (e.g., year-end or average) should be used?
If a closed-end fund or SBIC pays a
performance fee, should the form provide instructions regarding how they should calculate the fees to be disclosed?
In connection with defaults, is
reference to a $1,000 face amount appropriate? Would this requirement appropriately provide meaningful information not only on the amount of principal default but default on interest payments? Should the form also require information on the amount of debt outstanding to provide additional context and information related to the default?
Regarding dividends in arrears,
should the form request per share amounts as proposed or should it request the aggregate amount in arrears? e. Part E—Exchange-Traded Funds and Exchange-Traded Managed Funds We are proposing to include a section in Form N–CEN related specifically to ETFs—Part E—which ETFs would complete in addition to Parts A, B, and G, and either Part C (for open-end funds) or Part F (for UITs). For purposes of Form N–CEN, an ETF is a special type of investment company that is registered under the Investment Company Act as either an open-end fund or a UIT. Unlike other open-end funds and UITs, an ETF does not sell or redeem its shares except in large blocks (or ‘‘creation units’’) and with brokerdealers that have contractual arrangements with the ETF (called ‘‘authorized participants’’).532 However, national securities exchanges list ETF shares for trading, which allows investors to purchase and sell individual shares throughout the day in the secondary market. Thus, ETFs possess characteristics of traditional open-end funds and UITs, which issue redeemable shares, and of closed-end funds, which generally issue shares that trade at negotiated prices on national securities exchanges and that are not redeemable.533 Currently, ETFs are subject to the same comprehensive information reporting requirements on Form N–SAR as are other open-end funds or UITs, and they are not required to report additional, more specialized information because Form N–SAR predates the introduction of ETFs to the market and has not been amended to address ETFs’ distinct characteristics. In 2009, the Commission amended its registration statement disclosure requirements for ETFs 534 that are openend funds to better meet the needs of investors who purchase those ETF shares in secondary market transactions.535 We believe that it is appropriate—and accordingly propose— to similarly tailor some of the comprehensive information reporting requirements in proposed new Form N–CEN to the special characteristics of ETFs. Funds and UITs meeting the definition of ‘‘exchange-traded fund’’ in Form N–CEN would be required to disclose information pursuant to the items in Part E of the form, as would certain similar investment products known as ‘‘exchange-traded managed funds.’’ 536 Some of the new reporting requirements for ETFs that we are proposing today as part of Form N–CEN relate to an ETF’s (or its service provider’s) interaction with authorized participants. These entities have an important role to play in the orderly distribution and trading of ETF shares and are significant to the ETF marketplace.537 Because of the importance of authorized participants, we are proposing new reporting requirements

538 Item 59.a–Item 59.d of proposed Form N–CEN. 539 Item 59.e–Item 59.f of proposed Form N–CEN. 540 Item 59.a of proposed Form N–CEN. 541 Item 59.b–Item 59.d of proposed Form N–CEN. 542 Item 59.e of proposed Form N–CEN. 543 Item 59.f of proposed Form N–CEN. 544 Item 60.a of proposed Form N–CEN. 545 Item 60.c of proposed Form N–CEN. 546 Item 60.b of proposed Form N–CEN. 547 Item 60.d of proposed Form N–CEN. 548 Instruction 9 to Item 60 of proposed Form N– CEN. 549 Item 60.e–Item 60.h of proposed Form N–CEN. 550 Item 60 of proposed Form N–CEN. 551 Item 58 of proposed Form N–CEN. 552 Item 61 of proposed Form N–CEN. concerning these entities. Currently, the information we have regarding reliance by ETFs on particular authorized participants is limited, and we believe that collecting information concerning these entities on an annual basis would allow us to understand and better assess the size, capacity, and concentration of the authorized participant framework and also inform the public about certain characteristics of the ETF primary markets. Accordingly, we propose to require each ETF to report identifying information about its authorized participants 538 and the dollar value of the ETF shares the authorized participant purchased and redeemed from the ETF during the reporting period.539 More specifically, proposed Form N–CEN would require an ETF to report the name of each of its authorized participants (even if the authorized participant did not purchase or redeem any ETF shares during the reporting period),540 certain other identifying information,541 the dollar value of the ETF’s shares that the authorized participant purchased from the ETF during the reporting period,542 and the dollar value of the ETF’s shares that the authorized participant redeemed during the reporting period.543 Collection of this additional information may allow the Commission staff to monitor how ETF purchase and redemption activity is distributed across authorized participants and, for example, the extent to which a particular ETF—or ETFs as a group—may be reliant on one or more particular authorized participants. Other proposed new reporting requirements relate to certain characteristics of ETF creation units— the large blocks of shares that authorized participants may purchase from or redeem to the ETF. In the primary market, ETF shares, bundled in creation units, are sold or redeemed either primarily ‘‘in kind’’—i.e., in the form of the ETF’s constituent portfolio securities—or primarily in cash. When transacting in kind or in cash, the particular authorized participant wishing to purchase (or redeem) shares typically bears, in the form of a fixed fee, the transactional costs associated with assembling (or disassembling) creation units. Those costs, therefore, are not mutualized to non-transacting shareholders. When an authorized participant purchases (or redeems) ETF shares all or partly in cash, absent a countervailing effect, the ETF would experience additional
costs (e.g., brokerage, taxes) involved with buying the securities with cash or selling portfolio securities to satisfy a cash redemption. Therefore, in order to ensure that the purchasing or redeeming party bears these costs rather than the non-transacting shareholders, the ETF may charge a ‘‘variable’’ fee, so called because it is often computed as a percentage of the value of the creation unit. We understand that such variable fees also can take the form of a dollar amount. In order to better understand the capital markets implications of different creation unit requirements, primary market transaction methods, and transaction fees, we are proposing to require that ETFs annually report summary information about these characteristics of creation units and primary market transactions. ETFs are not currently required to report the information discussed below in a structured format, and public availability of many of the proposed data items is limited and indeterminable. To better understand the commonality of different transaction methods and the degree to which it varies across ETFs and over time, we propose to require that ETFs report the total value (i) of creation units that were purchased by authorized participants primarily in exchange for portfolio securities on an in-kind basis; 544 (ii) of those that were redeemed primarily on an in-kind basis; 545 (iii) of those purchased by authorized participants primarily in exchange for cash; 546 and (iv) of those that were redeemed primarily on a cash basis.547 For purposes of these proposed reporting requirements concerning transaction methods and transaction fees, ‘‘primarily’’ would mean greater than 50% of the value of the creation unit.548 To better understand the effects of primary market transaction fees on ETF pricing and trading and to better inform the public about such fees, we also propose to require that ETFs report applicable transactional fees—including each of ‘‘fixed’’ and ‘‘variable’’ fees— applicable to the last creation unit purchased and the last creation unit redeemed during the reporting period of which some or all of the creation unit was transacted on a cash basis, as well as the same figures for the last creation unit purchased and the last creation unit redeemed during the reporting period of which some or all of the creation unit was transacted on an inkind basis.549 We also propose to require ETFs to report the number of ETF shares required to form a creation unit as of the last business day of the reporting period,550 which we believe would also allow the Commission and other data users to better analyze any effects that ETFs’ creation unit size requirements may have on ETF pricing and trading. We are proposing that this information be as of the last business day of the reporting period because we understand that these fees sometimes vary over the course of the reporting period, and the fee level information is likely to be most current if provided as of the last
business day of the period. In addition to information about authorized participants and creation units, we propose to require that ETFs, like closed-end funds, disclose the exchange on which the ETF is listed so that Commission staff may be better able to quickly gather information as to which ETFs may be effected should an idiosyncratic risk or market event arise in connection with a particular exchange.551 Finally, with respect to ETFs that are UITs, we ask for information regarding tracking difference and tracking error.552 This information is requested of openend index funds in Item 27(b) and, for the same reasons discussed in Part II.E.4.c.i of this release, the proposed form would request this information of ETFs that are UITs. Taken together, we believe that, in addition to informing the Commission’s risk analysis and, potentially, future policymaking concerning ETFs, the information these proposed requirements would yield could also help inform the interested public about the operation of, and possible risks associated with, these funds. We request comment on the proposed reporting requirements for ETFs and ETMFs:

Should ETFs be required to report
the proposed additional information in
Part E of proposed Form N–CEN that
other funds would not be required to report?
Should ETFs that are UITs and
ETFs that are open-end funds be subject to the same special reporting requirements, or should the requirements be different from one

553See Items 111–133 of Form N–SAR (relating specifically to UITs). 554See Items 111 (depositor information), 112 (sponsor information), 113 (trustee information), and 114 (principal underwriter information) of Form N–SAR. 555 Item 62 of proposed Form N–CEN. 556 Item 65 of proposed Form N–CEN (only applies to UITs that are not insurance company separate accounts). 557 Item 66 of proposed Form N–CEN (only applies to UITs that are not insurance company separate accounts). 558 Item 63 of proposed Form N–CEN. Form N– SAR does not request information about a UIT’s third-party administrator. 559 Item 64 of proposed Form N–CEN; see Item 117.A of Form N–SAR. 560 If a UIT answers ‘‘yes’’ to this item, it would proceed to answer Items 73 through 78 of the form. However, if a UIT answers ‘‘no’’ to this item, it would proceed to Items 65 through 72, and 78. Id. 561See Items 118–120 of Form N–SAR (all UITs are required to complete these items). 562 Item 67 of proposed Form N–CEN. 563 Item 68.a of proposed Form N–CEN. 564 Item 68.b of proposed Form N–CEN. 565See Items 121–124 of Form N–SAR (all UITs are required to complete these items). 566 Item 69 of proposed Form N–CEN. 567 Item 70 of proposed Form N–CEN. 568 Item 71 of proposed Form N–CEN. 569 Item 72 of proposed Form N–CEN. 570See Item 127.L of Form N–SAR (all UITs are required to complete this item). Proposed Form N– CEN would not require UITs to report certain assets held by a UIT as required by Item 127 of Form N– SAR. See Items 127.A–K of Form N–SAR. 571 Item 73 of proposed Form N–CEN. 572 Item 74 of proposed Form N–CEN. another? If so, how? Should ETFs and ETMFs be subject to the same special reporting requirements, or should the requirements be different from one another? If so, how and why?

Should the proposed items
concerning authorized participants be required? Why or why not? Should we require additional information about authorized participants? For example, should we require funds to report the volume of shares purchased and redeemed in each month of the reporting period by each authorized participant, in order to better understand how primary market transactions are distributed across authorized participants and over the course of the reporting period? Should we require funds to report information on purchases and redemptions by each authorized participant on days when the most primary or secondary market activity is observed, which could be used to better understand how primary market activity responds to periods of unusual activity? Why or why not? If so, what specific information should be required?
Should the proposed items
concerning creation unit characteristics and primary market transactions be required? Why or why not?
Should the ETFs and ETMFs that
are subject to the proposed special reporting requirements be defined as proposed? If not, how should the group be defined? Are there certain entities that are not included in the proposed definitions that should be? Are there certain entities that are included in the proposed definitions that should not be?
Would the proposed reporting
requirements yield beneficial information? If not, what information should the Commission collect instead to conduct appropriate risk monitoring of ETFs? How should this information be collected?
Would any of the proposed
reporting requirements conflict with agreements between private parties, such as ETFs and authorized participants, to keep information confidential? If so, should the information nonetheless be required to be disclosed?
How might the proposed reporting
requirements concerning ETF primary market transaction fees be used by others outside the Commission, if at all? Are the proposed fee categories (viz., fixed fees and variable fees) appropriate, or would alternative categories be more suitable? If so, what should those categories be?
How costly would the proposed
reporting requirements for ETFs be? In addition to reporting and recordkeeping costs, are there competitive or other costs that should be considered in connection with these proposed requirements?
Are there other reporting
requirements that the Commission should adopt for ETFs? If so, would these additional reporting requirements assist with Commission risk monitoring, inform the public, or both? f. Part F—Unit Investment Trusts
Part F of Form N–CEN would require
information specific to UITs. Like Form N–SAR, proposed Form N–CEN would recognize that UITs have particular characteristics that warrant questions targeted specifically to them.553 The information requested in Part F would inform us further about the scope and composition of the UIT industry and, thus, would assist us in monitoring the activities of UITs and our examiners in their preparation for exams of UITs. Accordingly, similar to Form N–SAR,554 proposed Form N–CEN would require certain identifying information relating to a UIT’s service providers and entities involved in the formation and governance of UITs, including its depositor,555 sponsor,556 trustee,557 and third party administrator.558 Proposed Form N–CEN would also ask whether a UIT is a separate account of an insurance company.559 Depending on a UIT’s response to this item, it would proceed to answer certain additional questions in Part F.560 While Form N–SAR generally does not differentiate between UITs that are and are not separate accounts of insurance companies, proposed Form N–CEN would make this distinction. We believe that by distinguishing between these different types of UITs, the form will allow us to better target the information requests in the form appropriate to the type of UIT. We also believe this new approach will allow filers to better understand the information being requested of them because it will be more reflective of their operations and should thus improve the consistency of the information reported. Accordingly, similar to Form N– SAR,561 a UIT that is not a separate account of an insurance company would provide the number of series existing at the end of the reporting period that had securities registered under the Securities Act 562 and, for new series, the number of series for which registration statements under the Securities Act became effective during the reporting period 563 and the total value of the portfolio securities on the date of deposit.564 Proposed Form N– CEN would also carry over from Form N–SAR565 requirements relating to the number of series with a current prospectus,566 the number of existing series (and total value) for which additional units were registered under the Securities Act,567 and the value of units placed in portfolios of subsequent series.568 Our proposal would also require that a UIT that is not a separate account of an insurance company provide the total assets of all series combined as of the reporting period,569 which is also currently required by Form N–SAR.570 As proposed, Form N–CEN would also require certain new information to be reported by separate accounts offering variable annuity and variable life insurance contracts. Specifically, if the UIT is a separate account of an insurance company, proposed Form N– CEN would require disclosure of its series identification number 571 and, for each security that has a contract identification number assigned pursuant to rule 313 of Regulation S–T, the number of individual
contracts that are in force at the end of the reporting period.572 With respect to insurance company separate accounts, our proposal would also require new identifying and census information for each security issued

573 Item 75 of proposed Form N–CEN.
574 Item 75.a of proposed Form N–CEN. 575 Item 75.b of proposed Form N–CEN. 576 Item 75.c of proposed Form N–CEN. 577 Item 75.d of proposed Form N–CEN. 578 Item 75.e of proposed Form N–CEN. 579 Item 75.h of proposed Form N–CEN. 580 Item 75.f of proposed Form N–CEN. 581 Item 75.g of proposed Form N–CEN. 582 Item 75.i of proposed Form N–CEN. 583 Item 75.j of proposed Form N–CEN. 584 Item 76 of proposed Form N–CEN. Rule 6c– 7 under the Investment Company Act provides exemptions from certain provisions of sections 22(e) and 27 of the Act for registered separate accounts offering variable annuity contracts to participants in the Texas Optional Retirement Program. See 17 CFR 270.6c–7. 585 Item 77 of proposed Form N–CEN. Rule 11a– 2 under the Investment Company Act relates to offers of exchange by certain registered separate accounts or others, the terms of which do not require prior Commission approval. See 17 CFR 270.11a–2. 586 Item 133 of Form N–SAR. Section 13(c) of the Investment Company Act provides a safe harbor for registered investment companies and its employees, officers, directors and investment advisers, based solely upon the investment company divesting from, or avoiding investing in, securities issued by persons that the investment company determines, using credible information that is available to the public, engage in certain investment activities in Iran or Sudan. The safe harbor, however, provides that this limitation on actions does not apply unless the investment company makes disclosures about the divestments in accordance with regulations prescribe by the Commission. See 15 U.S.C. 80a– 13(c)(2)(B). Management investment companies are required to provide the disclosure on Form N–CSR, pursuant to Item 6(b) of the form, and UITs are required to provide the disclosure on Form N–SAR, pursuant to Item 133 of the form. See Technical Amendments to Forms N–CSR and N–SAR in Connection With the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Exchange Act Release No. 34–63087 (Oct. 13,
2010) [75 FR 64120 (Oct. 19, 2010)].
587 Item 78 of proposed Form N–CEN.
588 Item 78.a of proposed Form N–CEN. 589 Item 78.b of proposed Form N–CEN. An instruction to Item 78 would address when the UIT should report divestments pursuant to this item. 590See Items 77.E, 77.I, 77.K, 77.L, 77.N, 77.P, 77.Q.1, 77.Q.2, 102.D, 102.H, 102.J, 102.K, 102.M, 102.O, 102.P.1, 102.P.2, and 102.P.3 of Form N– SAR. 591Form N–SAR requires only management companies to file attachments to reports on the form, whereas proposed Form N–CEN would require certain attachments for all Registrants. 592With respect to certain attachments currently in Form N–SAR, we propose to integrate the data requirements into the form itself, rather than keep the attachment requirements. See, e.g., Items 77.G and 102.F of Form N–SAR; Item 48 and Item 49 of proposed Form N–CEN. However, not all of the attachments currently required by Form N–SAR lend themselves to integration into the form, either because of the amount of information reported in the attachment or because the attachment is a standalone document (e.g., the accountant’s report on internal control). 593But see supra note 591. 594 Item 79.a.i of proposed Form N–CEN. 595 Item 79.a.ii of proposed Form N–CEN. 596 Item 79.a.iii of proposed Form N–CEN. 597 Item 79.a.iv of proposed Form N–CEN. As noted in Item 79.a.iv, this item would only apply to management companies, other than SBICs. 598 Item 79.a.v of proposed Form N–CEN. through the separate account.573 This requirement would include the name of the security,574 contract identification number,575 total assets attributable to the security,576 number of contracts sold,577 gross premiums received,578 and amount of contract value redeemed.579 This item would also require additional information relating to section 1035 exchanges, including gross premiums received pursuant to
section 1035 exchanges,580 number of
contracts affected in connection with such premiums,581 amount of contract value redeemed pursuant to section 1035 redemptions 582 and the number of contracts affected by such redemptions.583 In addition, insurance company separate accounts would be required to provide information on whether they relied on rules 6c–7 584 and 11a–2 585 under the Investment Company Act. This information, which is specific to UITs that are separate accounts of insurance companies and is either not otherwise filed with the Commission or is not filed in a structured format, will further assist the Commission in its oversight of UITs, including monitoring trends in the variable annuity and variable life insurance markets. Finally, Form N–CEN would carry over the Form N–SAR586 requirement that a UIT provide certain information relating to divestments under section 13(c) of the Investment Company Act.587 Thus, if a UIT intends to avail itself of the safe harbor provided by section 13(c) with respect to its divestment of certain securities, it will continue to make the following disclosures on Form N–CEN: Identifying information for the issuer, total number of shares or principal amount divested, date that the securities were divested, and the name of the statute that added the provisions of section 13(c) in accordance with which the securities were divested.588 If the UIT holds any securities of the issuer on the date of the filing, it would also provide the ticker symbol, CUSIP number, and total number of shares or, for debt securities, the principal amount held on the date of the filing.589 We request comment on the following information requirements relating to UITs:

Is there any additional information
regarding series of UITs that should be requested? For example, are there other special UIT account types that should also be included in the form? Is there any information regarding UITs that is included in proposed Form N–CEN that should be excluded from the form?
Is there any additional information
regarding those involved in the formation and governance of the UIT and service providers to the UIT that should be requested? Should the form provide instructions or a definition regarding depositor or sponsor?
Is there any additional information
regarding the number of series that should be requested?
We request comment on the
requirement to provide asset information for the UIT. Is there any other information regarding the series’ assets that should be provided? Form N–SAR item 127 contains a detailed list of asset types held by the UIT. The requirement in Form N–CEN is limited to total assets. Should we require more granular asset information in Form N– CEN, as we did in Form N–SAR item 127? If so which items should we include?
We request comment on our items
relating specifically to insurance company separate accounts. Should we include items relating solely to insurance company separate accounts? Are there any UIT items that insurance company separate accounts should be subject to that they would not be subject to under our proposal? Is there any other information that we should require for insurance company separate accounts? g. Part G—Attachments Like Form N–SAR,590 we are proposing that Part G of Form N–CEN require some descriptive attachments to the filing in order to provide the staff with more granular information regarding certain key issues.591 Where possible, we sought to eliminate the need to file attachments with the census reporting form in order to simplify the filing process and maximize the amount of information we receive in a data tagged format.592 Accordingly, we have attempted to limit the number of attachments to the form to those that are most useful to the staff, either because of investor protection issues or because the information is not available elsewhere. Moreover, all except one of the proposed attachments to Form N– CEN are current requirements in Form N–SAR.593 Thus, all funds that would be required to file Form N–CEN would, where applicable, be required to file attachments regarding legal proceedings,594 provision of financial support,595 changes in the fund’s independent public accountant,596 independent public accountant’s report on internal control,597 and changes in accounting principles and practices.598 In addition, all funds would be

599 Item 79.a.vi of proposed Form N–CEN. 600 Item 79.a.vii of proposed Form N–CEN. 601 Item 79.b.i of proposed Form N–CEN. Unlike open-end funds, closed-end funds and SBICs do not otherwise update or file the information requested by this item with the Commission and, thus, we believe the information should continue to be filed as an attachment to the census reporting form. 602 Item 79.b.ii of proposed Form N–CEN. 603 Item 79.b.iii of proposed Form N–CEN. Unlike open-end funds, closed-end funds and SBICs do not otherwise update or file the information requested by this item with the Commission and, thus, we believe the information should continue to be filed as an attachment to the census reporting form. 604 Item 79.b.iv of proposed Form N–CEN. 605 Item 79.b.v of proposed Form N–CEN. 606For example, the instructions to Item 79.b.v require SBICs to attach detailed information regarding the senior officer code of ethics and certain information regarding the audit committee. The instructions also require SBICs to meet certain requirements regarding the availability of their senior office code of ethics. 607See supra note 593 and accompanying text. 608 Item 26 of Form N–SAR. Proposed Form N–CEN does, however, contain information relating to funds that paid commissions to brokers and dealers for research services. See Item 43 of proposed Form N–CEN. 609See generally Items 29–44, 47–52 of Form N–SAR. Proposed Form N–CEN does, however, contain items relating to information regarding expense limitations, reductions, and waivers. See Item 32 of proposed Form N–CEN. As discussed above, proposed Form N–CEN would also require information on management fees and net operating expenses for closed-end funds, as that information is not available elsewhere in a structured format. See Item 51 and Item 52 of proposed Form N–CEN; see also supra Part II.E.4.d. 610See General Instruction C.3.G of Form N–1A; see generally Form N–1A, Form N–2, Form N–4, Form N–5, Form N–6. 611We acknowledge that some of the information reported in reports on Form N–SAR related to loads paid to captive or unaffiliated broker-dealers has been used by interested third-parties, including researchers. See, e.g., Susan E. K. Christoffersen, Richard Evans, and David K. Musto, 2013. What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives. The Journal of Finance, Vol. 68(1), 201–235 (2013). While this is evidence of a discrete instance where such information has been useful to a third party, based on staff experience with this information and Form N–SAR information generally, we believe that no longer requiring funds to gather and report this information appropriately balances the burden on funds of providing this information and the overall utility of the information to the Commission, investors and third parties. As noted below, we request comment generally on whether any information items not currently being proposed to be carried over from Form N–SAR should be included
on Form N–CEN. 612See generally Items 57, 61, and 70–75 of Form N–SAR. required, where applicable, to provide attachments relating to information required to be filed pursuant to exemptive orders,599 and other information required to be included as an attachment pursuant to Commission rules and regulations.600 Moreover, closed-end funds and SBICs would also be required, where applicable, to provide attachments relating to material amendments to organizational documents,601 instruments defining the rights of the holders of any new or amended class of securities,602 new or amended investment advisory contracts,603 information called for by Item 405 of Regulation S–K,604 and, for SBICs only, senior officer codes of ethics.605 Each attachment proposed to be required by Form N–CEN includes instructions describing the information that should be provided in the attachment.606 As noted earlier, all of the attachments, except one, are currently required by Form N–SAR.607 The new attachment relates to the provision of financial support and would be filed by a fund if an affiliate, promoter or principal underwriter of the fund, or affiliate of such person, provided financial support to the fund during the reporting period. As discussed in Part II.E.4.b, we are proposing to include this requirement in Form N–CEN because we believe that it is important that the Commission understand the nature and extent that a fund’s sponsor provides financial support to a fund. We request comment on the following information requirements relating to attachments to the Form:

Should any additional attachments
be required to be attached to Form N– CEN? Are any proposed attachments unnecessary and, if so, why? Should any of the attachments requested for all Registrants be limited to only certain Registrants?
Should we require that the
information be reported as attachments to the form or in narrative text-boxes embedded in the form?
Should attachment requirements
concerning copies of all constituent instruments defining the rights of the holders of any new class of securities and of any amendments to constituent instruments be limited to closed-end funds and SBICs as proposed? Should such requirements apply to all funds?
Should the attachments regarding
material amendments to organizational documents and new or amended advisory contracts apply only to closedend funds and SBICs as proposed? Should these requirements apply to all funds? Should the advisory contract requirement apply only to advisory contracts to which the fund is a party or should it include all advisory contracts, including subadvisory contracts?
Should any of the attachment filing
requirements without materiality qualifiers be limited by materiality qualifiers?
With Form N–CEN, we are
proposing to eliminate a number of attachments currently required by items 77 and 102 of Form N–SAR. Are there any attachments to Form N–SAR, that are proposed to be eliminated, that should be included in Form N–CEN? Which attachments and why? Are there any costs associated with eliminating these attachments?

Items Required by Form N–SAR That
Would Be Eliminated by Form N–CEN As we discussed above, with proposed Form N–CEN, we seek to improve the information that we collect in order to reflect changes in the fund industry since Form N–SAR’s adoption in 1985. With that in mind, we are proposing to eliminate certain items from Form N–SAR that we believe are no longer needed by Commission staff or are outdated in their current form. For example, we are proposing not to include Form N–SAR’s requirement relating to considerations which affected the participation of brokers or dealers or other entities in commissions or other compensation paid on portfolio transactions.608 Form N–CEN would similarly eliminate a number of Form N–SAR items where the information is (or would be, under our proposed reforms) reported elsewhere—for example, items relating to fees and expenses, including front-end and deferred/contingent sales loads, redemption and account maintenance fees, rule 12b-1 fees, and advisory fees.609 Many of the fee and expense items required by Form N–SAR are already disclosed, in a structured format, in the risk-return summary required by Form N–1A for open-end funds, as well as in an unstructured format in other places in fund registration statements.610 For other fee and expense items, the information is either not frequently used by Commission staff or we believe that the benefit of having such information is minimal while the burden to funds of reporting such information is costly.611 For similar reasons as above, we are also proposing not to require other information in proposed Form N–CEN, including information relating to adjustments to shares outstanding by stock split or stock dividend, minimum initial investments, investment practices, portfolio turnover, number of shares outstanding, number of shareholder accounts, average net assets, and certain other condensed balance sheet data items.612 We are also proposing to eliminate certain information requirements specifically relating to SBICs and UITs that we no longer believe are necessary to collect on a census form because, much like the items discussed above, the benefit of having such information

613See Items 86, 93, 95, 97–100, 103–104, 109, 125–132 of Form N–SAR. 614See Item 86 (closed-end funds) of Form N– SAR; see also Item 28 (management investment companies generally) of Form N–SAR. 615See Item B.6 of proposed Form N–PORT. is minimal to the Commission’s oversight and examination functions while the burdens to these funds of reporting such information is costly.613 Additionally, with respect to the Form N–SAR614 item relating to closed-end fund monthly sales and repurchases of shares, this information would be reported on proposed Form N–PORT,615 rather than proposed Form N–CEN. The full list of items from Form N– SAR that would be included in Form N– CEN, as proposed, or would be eliminated is listed in Figure 2 below. INCLUSION OF FORM N–SAR DATA ITEMS IN PROPOSED FORM N–CEN Form N–SAR Item No. Description Included without change Included but modified Similar data would be available through other sources * No longer required to be reported by all funds
1 .................. Registrant information ............................................................ ✓ ........................ ........................ ........................
2 .................. Registrant address ................................................................. ✓ ........................ ........................ ........................
3 .................. First filing ................................................................................ ✓ ........................ ........................ ........................
4 .................. Final filing ............................................................................... ✓ ........................ ........................ ........................
5 .................. SBIC identification .................................................................. ✓ ........................ ........................ ........................
6 .................. UIT information ...................................................................... ✓ ........................ ........................ ........................
7 .................. Series or multiple portfolio company ..................................... ........................ ✓ ........................ ........................
All Management Investment Companies Except SBICS
8 .................. Investment adviser ................................................................. ✓ ........................ ........................ ........................
10 ............. Administrator .......................................................................... ✓ ........................ ........................ ........................
11 ................ Principal underwriter .............................................................. ✓ ........................ ........................ ........................
12 ................ Shareholder servicing agent .................................................. ✓ ........................ ........................ ........................
13 ................ Independent public accountant .............................................. ✓ ........................ ........................ ........................
14 ................ Broker or dealer which is an affiliated person ....................... ✓ ........................ ........................ ........................
15 ................ Custodian arrangements ........................................................ ✓ ........................ ........................ ........................
18 ............. Central depository or book-entry system ............................... ........................ ✓ ........................ ........................
19 ................ Family of investment companies ........................................... ........................ ✓ ........................ ........................
20 ................ Brokerage commissions paid on portfolio transactions ......... ........................ ✓ ........................ ........................
21 ................ Aggregate brokerage commissions ....................................... ✓ ........................ ........................ ........................
22 ................ Portfolio transactions with entities acting as principal ........... ........................ ✓ ........................ ........................
23 ................ Aggregate principal purchase/sale transactions .................... ........................ ✓ ........................ ........................
24 ................ Holding of securities of registrant’s regular brokers or dealers.
........................ ........................ ✓ ........................
25 ................ Holding of securities of registrant’s regular brokers or dealers.
........................ ........................ ✓ ........................
26 ................ Considerations affecting participation of brokers or dealers ........................ ........................ ........................ ✓
27 ................ Open-end investment company ............................................. ✓ ........................ ........................ ........................
28 ................ Monthly sales and repurchases of registrant’s/series’ shares ........................ ........................ ✓ ........................
29 ................ Registrant/series imposing a front-end sales load ................ ........................ ........................ ✓ ........................
30 ................ Total front-end sales load collected by underwriters and sales load rates. ........................ ........................ ........................ ✓ 31 ................ Net sales loads retained and paid out by underwriters ......... ........................ ........................ ........................ ✓ 32 ................ Net amount paid to unaffiliated dealers ................................. ........................ ........................ ........................ ✓ 33 ................ Net amount paid to retail sales force .................................... ........................ ........................ ........................ ✓
34 ................ Deferred or contingent deferred sales loads ......................... ........................ ........................ ✓ ........................
35 ................ Deferred or contingent deferred sales loads collected .......... ........................ ........................ ........................ ✓ 36 ................ Deferred or contingent deferred sales loads retained ........... ........................ ........................ ........................ ✓
37 ................ Redemption fees .................................................................... ........................ ........................ ✓ ........................
38 ................ Redemption fees collected .................................................... ........................ ........................ ........................ ✓
39 ................ Account maintenance fees .................................................... ........................ ........................ ✓ ........................
40 ................ Registrant/series using its assets directly to make payments under a 12b–1 plan.
........................ ........................ ✓ ........................
41 ................ Direct use of assets under 12b–1 plan ................................. ........................ ........................ ✓ ........................
42 ................ Percentage of payments under the 12b–1 plan .................... ........................ ........................ ✓ ........................
43 ................ Payments under the 12b–1 plan ........................................... ........................ ........................ ✓ ........................
44 ................ Unreimbursed payments under the 12b–1 plan .................... ........................ ........................ ........................ ✓
45 ................ Advisory contract ................................................................... ........................ ✓ ........................ ........................
46 ................ More than one investment adviser ........................................ ........................ ✓ ........................ ........................
47 ................ Advisory fee based on percentage of assets ........................ ........................ ........................ ✓ ........................
48 ................ Contractual advisory fee rate ................................................. ........................ ........................ ✓ ........................
49 ................ Advisory fee based on percentage of income ....................... ........................ ........................ ✓ ........................
50 ................ Advisory fee based on percentage of income and assets .... ........................ ........................ ✓ ........................
51 ................ Performance based advisory fee ........................................... ........................ ........................ ✓ ........................
52 ................ Advisory fee based on assets, income or performance ........ ........................ ........................ ✓ ........................
53 ................ Expense limitations or reductions .......................................... ........................ ✓ ........................ ........................
54 ................ Services supplied by investment advisers or administrators ........................ ........................ ........................ ✓

INCLUSION OF FORM N–SAR DATA ITEMS IN PROPOSED FORM N–CEN—Continued Form N–SAR Item No. Description Included without change Included but modified Similar data would be available through other sources * No longer required to be reported by all funds 55 ................ Overdrafts and bank loans .................................................... ........................ ........................ ........................ ✓
56 ................ Advisory clients ...................................................................... ........................ ........................ ✓ ........................
57 ................ Stock splits or stock dividends .............................................. ........................ ........................ ........................ ✓
58 ................ Fund classifications ................................................................ ........................ ✓ ........................ ........................
59 ................ Management investment company ........................................ ........................ ✓ ........................ ........................
60 ................ Diversified investment company ............................................ ........................ ✓ ........................ ........................
61 ................ Minimum required investment ................................................ ........................ ........................ ✓ ........................
62 ................ Percentage of portfolio in various debt securities ................. ........................ ........................ ✓ ........................
63 ................ Dollar weighted average maturity .......................................... ........................ ........................ ✓ ........................
64 ................ Insured or guaranteed securities ........................................... ........................ ........................ ........................ ✓ 65 ................ Insured or guaranteed securities attributed to value used in computing NAV. ........................ ........................ ........................ ✓
66 ................ Classification of funds investing in equity securities ............. ........................ ........................ ✓ ........................
67 ................ Registrant/series investing primarily and regularly in a balanced portfolio of debt and equity securities.
........................ ........................ ✓ ........................
68 ................ Investments in issuers engaged in production or distribution of precious metals or located outside the United States.
........................ ........................ ✓ ........................
69 ................ Registrant/series as an index fund ........................................ ✓ ........................ ........................ ........................
70 ................ Investment policies and practices .......................................... ........................ ........................ ✓ ........................
71 ................ Portfolio purchases, sales, monthly average value, and turnover rate.
........................ ........................ ✓ ........................
72 ................ Income and expenses ............................................................ ........................ ........................ ✓ ........................
73 ................ Dividends and distributions .................................................... ........................ ........................ ✓ ........................
74 ................ Assets, liabilities, net assets .................................................. ........................ ........................ ✓ ........................
75 ................ Computation of average net assets ....................................... ........................ ........................ ✓ ........................
76 ................ Market price per share for closed-end investment companies.
✓ ........................ ........................ ........................
77 ................ Attachments ........................................................................... ........................ ✓ ........................ ........................
78 ................ Wholly-owned subsidiaries consolidated in report ................ ........................ ........................ ✓ ........................
79 ................ ‘‘811’’ numbers for wholly-owned investment company subsidiaries consolidated in report. ........................ ........................ ........................ ✓
80 ................ Fidelity bonds in effect ........................................................... ........................ ........................ ✓ ........................
81 ................ Joint fidelity bond ................................................................... ........................ ........................ ✓ ........................
82 ................ Fidelity bond deductible ......................................................... ........................ ........................ ✓ ........................
83 ................ Fidelity bond claims ............................................................... ✓ ........................ ........................ ........................
84 ................ Losses that could have been filed as a claim under the fidelity bond. ........................ ........................ ........................ ✓
85 ................ Errors and omissions insurance policy .................................. ✓ ........................ ........................ ........................
Closed-End Management Investment Companies Except SBICs
86 ................ Sales, repurchases, and redemptions of securities .............. ........................ ✓ ........................ ........................
87 ................ Securities of registrant registered on a national securities exchange or listed on NASDAQ.
........................ ✓ ........................ ........................
88 ................ Senior securities .................................................................... ........................ ✓ ........................ ........................
SBICs
89 ................ Investment adviser ................................................................. ........................ ✓ ........................ ........................
90 ................ Transfer agent ........................................................................ ✓ ........................ ........................ ........................
91 ................ Independent public accountant .............................................. ✓ ........................ ........................ ........................
92 ................ Custodian arrangements ........................................................ ........................ ✓ ........................ ........................
93 ................ Advisory clients other than investment companies ............... ........................ ........................ ✓ ........................
94 ................ Family of investment companies ........................................... ........................ ✓ ........................ ........................
95 ................ Sales, repurchases, and redemptions of securities .............. ........................ ✓ ........................ ........................
96 ................ Securities of registrant registered on a national securities exchange or listed on NASDAQ.
........................ ✓ ........................ ........................
97 ................ Income and expenses ............................................................ ........................ ........................ ........................ ✓ 98 ................ Dividends and distributions .................................................... ........................ ........................ ........................ ✓ 99 ................ Assets, liabilities and shareholders’ equity ............................ ........................ ........................ ........................ ✓ 100 .............. Computation of average net assets ....................................... ........................ ........................ ........................ ✓
101 .............. Market price per share ........................................................... ✓ ........................ ........................ ........................
102 .............. Attachments ........................................................................... ........................ ✓ ........................ ........................
103 .............. Wholly-owned subsidiaries consolidated in report ................ ........................ ........................ ........................ ✓ 104 .............. ‘‘811’’ numbers for wholly-owned investment company subsidiaries consolidated in report. ........................ ........................ ........................ ✓
105 .............. Fidelity bonds in effect ........................................................... ........................ ........................ ✓ ........................
106 .............. Joint fidelity bond ................................................................... ........................ ........................ ✓ ........................
107 .............. Fidelity bond deductible ......................................................... ........................ ........................ ✓ ........................

616See Form N–1A, Item 16(f), Instruction 3(b) (we would remove references to Form N–Q) and Item 27(d), Instruction 4 (we would replace references to portfolio schedules reported on Form N–Q with references to portfolio schedules attached to reports on Form N–PORT or posted on fund Web sites); Form N–2, Item 24, Instruction 6.b (same); Form N–3, Instruction 6(ii) to Item 28(a) (same). 617Although we are proposing to delete references to Form N–SAR in 17 CFR 232.301, we are not proposing to replace them with references to Form N–CEN because the references in that
section relate to specific portions of the EDGAR
INCLUSION OF FORM N–SAR DATA ITEMS IN PROPOSED FORM N–CEN—Continued Form N–SAR Item No. Description Included without change Included but modified Similar data would be available through other sources * No longer required to be reported by all funds
108 .............. Fidelity bond claims ............................................................... ........................ ✓ ........................ ........................
109 .............. Losses that could have been filed as a claim under the fidelity bond. ........................ ........................ ........................ ✓
110 .............. Errors and omissions insurance policy .................................. ✓ ........................ ........................ ........................
UITs
111 .............. Depositor ................................................................................ ✓ ........................ ........................ ........................
112 .............. Sponsor .................................................................................. ........................ ✓ ........................ ........................
113 .............. Trustee ................................................................................... ........................ ✓ ........................ ........................
114 .............. Principal underwriter .............................................................. ✓ ........................ ........................ ........................
115 .............. Independent public accountant .............................................. ✓ ........................ ........................ ........................
116 .............. Family of investment companies ........................................... ........................ ✓ ........................ ........................
117 .............. Separate account of an insurance company ......................... ........................ ✓ ........................ ........................
118 .............. Series having effective registration statements ..................... ✓ ........................ ........................ ........................
119 .............. New series having effective registration statements ............. ✓ ........................ ........................ ........................
120 .............. Value of new series that became effective ........................... ✓ ........................ ........................ ........................
121 .............. Series for which a current prospectus existed at the end of the period.
✓ ........................ ........................ ........................
122 .............. New units of existing series ................................................... ✓ ........................ ........................ ........................
123 .............. Value of new securities deposited in existing series ............. ✓ ........................ ........................ ........................
124 .............. Value of units of prior series placed in portfolio of subsequent series.
✓ ........................ ........................ ........................
125 .............. Amount of sales loads collected ............................................ ........................ ........................ ........................ ✓ 126 .............. Amount of sales loads collected from secondary market operations. ........................ ........................ ........................ ✓
127 .............. Classification of series and assets ........................................ ........................ ........................ ✓ ........................
128 .............. Insured or guaranteed securities ........................................... ........................ ........................ ........................ ✓ 129 .............. Insured or guaranteed securities ........................................... ........................ ........................ ........................ ✓ 130 .............. Insured or guaranteed securities ........................................... ........................ ........................ ........................ ✓
131 .............. Total expenses ....................................................................... ........................ ........................ ✓ ........................
132 .............. 811 number of series included in filing .................................. ........................ ........................ ✓ ........................
133 .............. Divestment of securities ......................................................... ✓ ........................ ........................ ........................

While not available in proposed Form N–CEN, similar data is or would be available through other sources, such as proposed Form N–PORT
or a fund’s prospectus, statement of additional information, or financial statements. Items 9, 16, and 17 are reserved in Form N–SAR. We request comment on the information requirements relating to items required in Form N–SAR, but not required in proposed Form N–CEN, including the following:

Should proposed Form N–CEN
require more detailed information relating to the fund’s 12b–1 plan, as required by items 40 through 44 of Form N–SAR, considering detailed information regarding the fund’s 12b–1 plan is otherwise disclosed in response to other reporting requirements?
Should proposed Form N–CEN
include financial information or balance sheet items, such as those required by item 72 of Form N–SAR?
Despite the fact that certain items
relating to fee information are required by other forms, should we include fee information in proposed Form N–CEN? If so, what specific information and why?
Should proposed Form N–CEN
include information relating to number of shares outstanding, total number of shareholder accounts, or average net assets during the reporting period as required by Items 74.U.1, 74.X, and 75 of Form N–SAR?
Are there any other items currently
in Form N–SAR that are proposed to be eliminated, which should be included in Form N–CEN? Which items and why? Are there any costs associated with eliminating these items? F. Technical and Conforming Amendments We are also proposing technical and conforming amendments to various rules and forms. As discussed above, our proposal would rescind Form N–Q and create new Form N–PORT. In order to implement this proposed change, we propose to revise Forms N–1A, N–2, and N–3 to refer to the availability of portfolio holdings schedules attached to reports on Form N–PORT and posted on fund Web sites rather than on reports on Form N–Q.616 In addition, we propose to rescind 17 CFR 249.332 and revise the following rules to remove references to Form N–Q: 17 CFR 232.401, 17 CFR 270.8b–33, 17 CFR 270.30a–2, 17 CFR 270.30a–3, and 17 CFR 270.30d–1. Our proposal would also rescind Form N–SAR and replace it with new Form N–CEN. In order to implement this proposed change, we propose to revise the following rules and sections to remove references to Form N–SAR and replace them with references to Form N–CEN: 17 CFR 232.301, 17 CFR 240.10A–1, 17 CFR 240.12b–25, 17 CFR 249.322, 17 CFR 249.330, 17 CFR 270.8b–16, 270.30d–1, and 17 CFR 274.101.617

Filer Manual that would not be relevant to Form N– CEN. 618See infra Part V. 619Our proposal would require new schedules to be filed to report open futures contracts, open forward foreign currency contracts, and open swap contracts. See proposed new rules 12–13A, B, and C of Regulation S–X. 620Among other things, our proposed amendments would renumber the CFR for open option contracts and the summary schedule of investments in unaffiliated issuers from 17 CFR 210.12–12B and 17 CFR 210.12–12C to 17 CFR 210.12–13 and 17 CFR 210.12–B, respectively. These amendments would group the schedule for open option contracts written together with the new schedules for open futures contracts, open forward foreign currency contracts, and open swap contracts, and would list the summary schedule sequentially after the investments in securities of unaffiliated issuers. We would also amend 17 CFR 210.6–10 to, among other things, add new schedules V, VI, and VII for open futures contracts, open forward foreign currency contracts, and open swap contracts, respectively, and renumber
schedule II for investments other than securities
and schedule VI for summary of investments in securities of unaffiliated issuers as schedules VIII and IX, respectively. See proposed rule 6–10 of Regulation S–X (listing the schedules required to be filed by management investment companies, UITs, and face-amount certificate companies). 621See Form N–1A, Item 27(b)(1) (reference to
Schedule VI would be changed to Schedule IX and
reference to schedule I would be corrected to cite to the appropriate CFR section); Form N–2, Instruction 7 to Item 24 (we would update references to schedule VI); Form N–3, Instruction 7(i) and (ii) to Item 28(a) (we would update references to schedule VI). 622Form N–CSR, Item 12 (the instruction to paragraph (a)(2) of that item would be removed). 623See Notice to EDGAR Form13 Filers, available at http://www.sec.gov/divisions/investment/ imannouncements/notice-form-13f-im.htm (requiring funds to file Form 13F according to EDGAR XML Technical Specifications beginning on April 29, 2013). 624For these purposes, we expect that the threshold would be based on the definition of ‘‘group of related investment companies,’’ as such term is defined in rule 0–10 under the Investment Company Act. Rule 0–10 defines the term as ‘‘two or more management companies (including series thereof) that: (i) Hold themselves out to investors as related companies for purposes of investment and investor services; and (ii) Either: (A) Have a common investment adviser or have investment advisers that are affiliated persons of each other; or (B) Have a common administrator; and (2) In the case of a unit investment trust, the term group of related investment companies shall mean two or more unit investment trusts (including series thereof) that have a common sponsor.’’ We believe that this broad definition would encompass most types of fund complexes and therefore is an appropriate definition for compliance date purposes. 625We believe that an eighteen month compliance period for larger groups of investment companies is an adequate amount of time for funds to implement proposed new Form N–PORT and make the necessary system and operational changes. We adopted a nine month compliance periods when we first required money market funds to report their portfolio holdings to the Commission on a monthly basis on Form N–MFP. Based upon our Form N–MFP compliance experience, and the larger number of non-money market fund filers, we believe that doubling the Form N–MFP compliance period to eighteen months for filing reports on Forms N–PORT is appropriate. See Money Market Fund Reform 2010 Release, supra note 13, at 10087. 626Based on staff analysis of data obtained from Morningstar Direct, as of March 31, 2015, we estimate that a $1 billion assets threshold would provide an extended compliance period to more than 66% of the fund groups, but only 0.6% of all Continued Currently, reports on Form N–SAR are filed semi-annually by management investment companies as required by 17 CFR 270.30b1–1, and annually by UITs as required by 17 CFR 270.30a–1. Because our proposal would require reports on Form N–CEN to be filed annually by all registered investment companies, we propose to rescind 17 CFR 270.30b1–1 and revise 17 CFR 270.30a–1 to require all registered investment companies to file reports on Form N–CEN. We also propose to revise the following rules to remove references to 17 CFR 270.30b1–1
and add references to proposed rule 17 CFR 270.30a–1: 17 CFR 240.13a–10, 17 CFR 240.13a–11, 17 CFR 240.13a–13, 17 CFR 240.13a–16, 17 CFR 240.15d–10, 17 CFR 240.15d–11, 17 CFR 240.15d–13, and 17 CFR 240.15d–16. In addition, as a result of the proposed new annual reporting requirement that would apply to all registered investment companies, we propose to rescind 17 CFR 270.30b1–2— which currently permits wholly-owned management investment company subsidiaries of management investment companies to not file Form N–SAR under certain circumstances—and propose new rule 17 CFR 270.30a–4— which would permit wholly-owned management investment company subsidiaries of management investment companies to not file Form N–CEN under those same circumstances. We also propose to amend 17 CFR 200.800 to display control numbers assigned to information collection requirements for Forms N–PORT and N–CEN by the Office of Management and Budget pursuant to the Paperwork Reduction Act. As discussed further below, an agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.618 Our proposed amendments to Regulation S–X would, among other things, require management investment companies to report new schedules for certain derivatives holdings.619 To implement these changes, we propose to renumber the sections for schedules required to be reported by management investment companies and renumber the list of schedules provided in 17 CFR 210.6–10, which outlines the schedules to be reported by investment companies.620 We propose conforming changes to references to Regulation S– X in the following forms: Form N–1A, Form N–2, Form N–3, and Form N– 14.621 We also propose to amend Form N– CSR to delete instructions addressing how certifications as to changes in the registrant’s internal control over financial reporting should be handled during the transition period when certifications were being implemented on Form N–Q, because those instructions are no longer applicable.622 We also propose to remove paragraph (a) of 17 CFR 232.105, which currently requires electronic filers to submit Forms N–SAR and 13F in ASCII, and redesignate paragraphs (b) and (c) as (a) and (b), respectively. Our proposal would rescind Form N–SAR, and Form 13F has been submitted by electronic filers in XML, rather than ASCII, since 2013.623 We request comment on these technical and conforming amendments. G. Compliance Dates Currently, we anticipate the following compliance dates for our proposed amendments, as set forth below.

Form N–PORT, Rescission of Form
N–Q, and Amendments to the Certification Requirements of Form N–CSR Given the nature and frequency of filings on proposed Form N–PORT, if Form N–PORT is adopted, the Commission expects to provide for a tiered set of compliance dates based on asset size. Specifically, for larger entities—namely, funds that together with other investment companies in the same ‘‘group of related investment companies’’ 624 have net assets of $1 billion or more as of the end of the most recent fiscal year—we are proposing a compliance date of 18 months after the effective date to comply with the new reporting requirements. For these larger entities, we expect that eighteen months would provide an adequate period of time for funds, intermediaries, and other service providers to conduct the requisite operational changes to their systems and to establish internal processes to prepare, validate, and file reports on proposed new Form N–PORT with the Commission.625 For smaller entities (i.e., funds that together with other investment companies in the same ‘‘group of related investment companies’’ have net assets of less than $1 billion as of the end of the most recent fiscal year),626 we are

fund assets. We therefore believe that the $1 billion threshold would appropriately balance the need to provide smaller groups of investment companies with more time to prepare for the initial filing of reports on Form N–PORT, while still including the vast majority of fund assets in the initial compliance period. 627We likewise intend to rescind Form N–Q (referenced in 17 CFR 274.130) and the amendments to the certification requirements of Form N–CSR (referenced in 17 CFR 274.128) with a timing that is consistent with this proposal. 628We similarly intend to rescind Form N–SAR (referenced in 17 CFR 274.101) with a timing that is consistent with this proposal. 629Based on staff analysis of data obtained from Morningstar Direct, as of March 31, 2015, we estimate that a threshold of $100 million would include 38% of fund firms and 0.1% of all fund assets. A threshold of less than $3 billion would include 76.9% of fund firms and 1.5% of fund assets. proposing to provide for an extra 12 months (or 30 months after the effective date) to comply with the new reporting requirements. We believe that smaller groups would benefit from this extra time to comply with the filing requirements for Form N–PORT and would potentially benefit from the lessons learned by larger investment companies and groups of investment companies during the adoption period for Form N–PORT.627
2. Form N–CEN and Rescission of Form
N–SAR
If Form N–CEN and the related proposals are adopted, we are proposing a compliance date of 18 months after the effective date to comply with the new reporting requirements. We expect that eighteen months would provide an adequate period of time for funds, intermediaries, and other service providers to conduct the requisite operational changes to their systems and to establish internal processes to prepare, validate, and file reports on proposed Form N–CEN with the Commission. We are proposing the same compliance date for the related amendments to other rules and forms we are proposing today.628 Unlike Form N–PORT, we do not expect to provide for a tiered compliance date based on asset size. We believe that it is less likely that smaller fund complexes would need additional time to comply with the requirements to file Form N–CEN because the requirements are similar to the current requirements to file Form N–SAR, and we expect that filers will prefer the updated, more efficient filing format of Form N–CEN. We are therefore proposing to require all funds, regardless of size, to file reports on Form N–CEN with the same compliance period.
3. Option for Web Site Transmission of
Shareholder Reports
Proposed rule 30e–3, if adopted, would permit (but not require) a fund to satisfy requirements under the Act and rules thereunder to transmit reports to shareholders if the fund makes the reports and certain other materials accessible on its Web site. As reliance on the rule would be optional, we believe a compliance period would not be necessary. Therefore, we expect that funds would be able to rely on the rule immediately after the effective date.
4. Regulation S–X and Related
Amendments
As discussed above, our proposed amendments to Regulation S–X are largely consistent with existing fund disclosure practices. As such, we do not expect that fund, intermediaries, or service providers would require significant amounts of time to modify systems or establish internal processes to prepare financial statements in accordance with our proposed amendments to Regulation S–X. Accordingly, we are proposing a compliance date for our proposed amendments to Regulation S–X of eight months after the effective date. We expect the same compliance date would apply to conforming amendments related to our proposed amendments to Regulation S–X, including the related amendment we are proposing today.
5. Request for Comment
We request comment on the compliance dates discussed above.

How, if at all, should the proposed
compliance dates be modified? What factors should we consider when setting the compliance dates for the proposed rules and forms?
We request comment on our
proposed tiered compliance dates for filings on Form N–PORT. Is a threshold of $1 billion based on the net assets of funds together with other investment companies in the same ‘‘group of related investment companies’’ as of the end of the most recent fiscal year appropriate? Should the threshold be higher or lower? 629 Should the threshold include aggregation of net assets with other investment companies in the same ‘‘group of related investment companies?’’ Why or why not? In lieu of ‘‘group of related investment companies,’’ should aggregation be based on a different set of related companies? For example, should aggregate assets be based on ‘‘family of investment companies,’’ as such term defined in instruction 1(a) to Item 17 of Form N–1A or ‘‘fund complex’’ as defined in instruction 1(b) to Item 17 of Form N–1A? Should we require administrator-sponsored funds to aggregate assets for purposes of this threshold regardless of whether the individual funds (or series thereof) do not hold themselves out to investors as related companies for purposes of investment and investor services? Why or why not?
With respect to Form N–PORT, is
our compliance date of eighteen months for larger filers appropriate? If not, what length of time would be appropriate for compliance with Form N–PORT? Would a shorter or longer compliance date be appropriate? For example, would a compliance date of 15 months be sufficient? Conversely, would funds need more time to comply, such as 20 months? Is our 12 month extension of the compliance period for smaller entities appropriate? If not, what length of time would be appropriate for compliance with Form N–PORT? Would a shorter or longer extension, such as 9 months or 15 months, be appropriate? How do we appropriately consider the benefits and costs to receiving the information more quickly and the potential costs and benefits associated with a shorter or longer compliance period?
Should the Commission consider
the implementation of reporting on Form N–PORT initially through a voluntary pilot program? If so, what length of time would be needed for funds and their service providers to appropriately test their reporting procedures?
Is our eighteen-month compliance
period for Form N–CEN appropriate? If not, what length of time would be appropriate? Would a shorter or longer compliance date be appropriate? For example, would a compliance date of 15 months be sufficient? Conversely, would funds need more time to comply, such as 20 months? Should the compliance period for Form N–CEN mirror that for Form N–PORT, or should we consider different compliance periods? Should we adopt a tiered compliance period for Form N–CEN? Why or why not?
We are proposing to not have a
compliance period for the option for Web site transmission of shareholder reports under proposed rule 30e-3. Is this appropriate?
Is our eight-month compliance
period for our proposed amendments to Regulation S–X adequate? If not, what length of time would be adequate and why?
III. General Request for Comment
We request and encourage any interested person to submit comments

630See supra note 4.
631See id.
632Based on data obtained from registrants’ filings with the Commission on Form N–SAR. 633Based on data obtained from the Investment Company Institute. See http://www.ici.org/research/ stats. regarding the proposed rules and forms, specific issues discussed in this release, and other matters that may have an effect on the proposed rules and forms. With regard to any comments, we note that such comments are of particular assistance to our rulemaking initiative if accompanied by supporting data and analysis of the issues addressed in those comments.
IV. Economic Analysis
A. Introduction
The Commission is sensitive to the economic effects, including the benefits and costs and the effects on efficiency, competition, and capital formation that will result from the proposed changes to the current reporting regime. Changes to the current reporting regime include proposed Form N–PORT, the rescission of Form N–Q, amendments to the certification requirements for Form N– CSR, amendments to Regulation S–X, the proposed rule governing electronic transmission of shareholder reports, proposed Form N–CEN, and the rescission of Form N–SAR. The economic effects of the proposed changes are discussed below. The Commission is proposing to modernize the content and format requirements of reports and disclosures by funds, and the manner in which information is filed with the Commission and disclosed to the public. The intent of the proposal is to enhance the Commission’s ability to effectively oversee and monitor the activities of investment companies in order to better carry out its regulatory functions and to aid investors and other market participants to better assess the benefits, costs, and risks of investing in different fund products. In summary, and as discussed in greater detail in Part II above, the Commission is proposing the following changes to its rules and forms:

We propose to require registered
management investment companies and ETFs organized as UITs, other than money market funds or SBICs, to report monthly portfolio information in a structured data format on a proposed new form, Form N–PORT.
Because we believe that monthly
portfolio reports on Form N–PORT would render quarterly portfolio reports on current Form N–Q unnecessarily duplicative, we are proposing to rescind Form N–Q. We also propose to lengthen the look-back for Sarbanes-Oxley certifications on Form N–CSR to six months to cover the gap in certification coverage that would otherwise occur once Form N–Q is rescinded.
We propose to revise Regulation S–
X to require new, standardized enhanced disclosures regarding fund holdings in certain derivatives instruments; update the disclosures for other investments; and amend the rules regarding the general form and content of fund financial statements.
We propose new rule 30e–3 under
the Investment Company Act, which would allow funds to satisfy shareholder report transmission requirements by posting such reports on their own Web sites if they meet certain conditions, including posting quarterly portfolio holdings on their Web sites and notifying investors of its availability.
We propose to rescind Form N–
SAR, the form on which funds currently report census-type information on a semi-annual basis, and replace it with Form N–CEN, which would require the annual reporting of similar and additional information in an updated, structured format. The current disclosure of information by funds serves as the baseline against which the costs and benefits as well as the impact on efficiency, competition, and capital formation of this proposal are discussed. The baseline includes the current set of requirements for funds to file reports on Forms N–CSR, N–Q, and N–SAR with the Commission and the content of such reports, including Regulation S–X, and in particular, its
schedule of investments. The baseline
also includes guidance from Commission staff and other industry groups that has established industry practices for the disclosure of a fund’s
schedule of investments and financial
statements, and includes Commission guidance that permits funds to transmit these materials electronically today provided that certain other conditions are met. Lastly, the baseline includes the current practice of some funds to voluntarily disclose additional information. For example, some funds disclose monthly or quarterly portfolio investment information on their Web sites or to third-party information providers, and disclose additional information (e.g., particular information on derivative positions) in fund financial statements that is not currently required under Regulation S–X. The parties that would be affected by the proposed amendments are funds that have registered or will register with the Commission; the Commission; and other current and future users of fund information including investors, thirdparty information providers, and other potential users; and other market participants that could be affected by the change in fund disclosures. We discuss separately below the economic effects of each part of the proposal: the introduction of Form N– PORT, rescission of Form N–Q, amendments to the certification requirements for Form N–CSR, amendments to Regulation S–X, the electronic transmission of shareholder reports, and the introduction of Form N–CEN and the rescission of Form N– SAR. We identify for each part of the proposal the baseline from which the economic effects will be discussed and the parties most likely to be affected. As noted above, the assets of registered investment companies exceeded $18 trillion at year-end 2014, having grown from about $4.7 trillion at the end of 1997.630 In addition, approximately 90 million individuals own mutual funds, representing 53.2 million or 43.3% of U.S. households.631 Among investment companies, we estimate that, as of December 2014, there were 3,146 investment companies registered with the Commission, of which 1,636 were open-end funds, 780 were closed-end funds (including one SBIC), and 727 were UITs.632 We further estimate that those registered funds included 16,619 series thereof, of which 1,411 were exchange-traded funds, 528 were money market funds, 5,381 were UITs, and 9,299 were other funds.633 The following table summarizes the entities likely to be affected by the proposed forms, rescissions, and amendments.

634Proposed Item 11(b) of Form N–CSR; proposed paragraph 5(b) of certification exhibit of Item 11(a)(2) of Form N–CSR. 635Form N–PORT would also require information that is currently being reported on Form N–SAR such as information on fund flows, assets, and liabilities. The current requirement to report this information as part of Form N–SAR is also part of this baseline. The baseline also includes the current obligation of Form N–Q filers to make certifications regarding (1) the accuracy of the portfolio holdings information reported on that form, and (2) the fund’s disclosure controls and procedures and internal control over financial reporting. 636Additionally, many funds currently provide additional information concerning derivatives investments, based on industry guidance and practices. See discussion supra Part II.C.2.
FIGURE 3—AFFECTED PARTIES
Funds UITS
Money market funds SBICs Other funds ETFs Current:
Form N–SAR ............................. ✓ ....................................................... ✓ ✓ ✓ ✓ Form N–CSR ............................. ✓ ....................................................... ✓ ✓
Form N–Q .................................. ✓ ....................................................... ........................ ✓ ........................ ........................
As proposed:
Form N–PORT ........................... ........................................................... ........................ ✓ ✓ ........................
Form N–CEN ............................. ✓ ....................................................... ✓ ✓ ✓ ✓
Form N–CSR ............................. ✓ ....................................................... ✓ ✓ ........................ ........................
Form N–SAR ............................. Rescinded Form N–Q ......................................... Rescinded
Figure 3
The Commission relies on information included in reports filed by funds to monitor trends, identify risks, inform policy and rulemaking, and assist Commission staff in examination and enforcement efforts of the asset management industry. An essential factor to the Commission’s ability to carry out its regulatory functions is regular, timely information about portfolio holdings and general, census information about funds. In general, this proposal would modernize the fund reporting regime and, among other effects, would result in an increased transparency of fund portfolios and investment practices. The increased transparency would improve the ability of the Commission to fulfill its regulatory functions. These functions include the development of policy and guidance, the staff’s review of fund registration statements and disclosures, and the Commission’s examination and enforcement programs. The increased transparency would also improve the ability of investors to select funds for investment, and therefore improve their ability to allocate capital across funds and other investments to more closely reflect their investment risk preferences. Increased transparency would also enhance competition among funds to attract investors. At the outset, the Commission notes that, where possible, it has sought to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from each
part of the proposal and its reasonable
alternatives. As discussed in further detail below, in many cases the Commission is unable to quantify the economic effects because it lacks the information necessary to provide a reasonable estimate. The economic effects of the proposal depend upon a number of factors that we cannot estimate or quantify, such as the extent to which investor protection would increase along with the ability of the Commission to oversee the fund industry; the amount of new information that would become available as a result of requiring such information in regulatory filings (as opposed to information that is provided voluntarily); the increase in the availability of the information to all investors, institutional and individual, as a result of the improved structured format of the information; and the extent to which investors are able to use the information to make more informed investment decisions either through direct use or through third-party service providers. Therefore, much of the discussion below is qualitative in nature although we try to describe where possible the direction of these effects. B. Form N–PORT, Rescission of Form N– Q, and Amendments to Form N–CSR a. Introduction and Economic Baseline Form N–PORT, as proposed, would require registered management investment companies and ETFs organized as UITs, other than money market funds or SBICs, to report portfolio investment information to the Commission on a monthly basis. As discussed, only information reported for the last month of each fiscal quarter would be made available to the public in order to minimize potential costs associated with making the information public, including front-running or reverse engineering of a fund’s investment strategies. Reports would be filed in a structured format using XML to allow for easier aggregation and manipulation of the data. As discussed above, we are also proposing to rescind Form N–Q but require that funds attach their complete portfolio holdings to Form N–PORT for the first and third fiscal quarters in accordance to Regulation S–X. We are also proposing to amend 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 to fill the gap in certification coverage that would otherwise occur once Form N–Q is rescinded.634 The current set of requirements under which registered management investment companies (other than money market funds and SBICs) and ETFs organized as UITs publicly report their complete portfolio investments to the Commission on a quarterly basis and certain other information on a semiannual basis,635 as well as the current practice of some investment companies to voluntarily disclose portfolio investment information either on their Web sites or to third-party information providers on a more frequent basis, is the baseline from which we will
discuss the economic effects of new Form N– PORT.636 The parties that could be affected by the introduction of Form N– PORT are registered management investment companies (other than money market funds and SBICs) and ETFs organized as UITs, that have registered or will register with the

637See General Instruction A to Form N–CSR; Item 6 of Form N–CSR; General Instruction A to Form N–Q; Quarterly Portfolio Holdings Adopting Release, supra note 19. 638 Item 1 of Form N–Q. 639 Item 6 of Form N–CSR. 640 Instruction to Item 6(a) of Form N–CSR; Item 1 of Form N–Q. 641See rule 101(a)(i) of Regulation S–T [17 CFR 232.101(a)(i)]. 642Form N–CSR must be filed within 10 days after the shareholder report is sent to shareholders, and the shareholder report must be sent within 60 days after the end of the reporting period. Rule 30b2–1(a); rule 30e–1(c). 643See rule 301 of Regulation S–T; EDGAR Filer Manual (Volume II) version 27 (June 2014), at 5– 1. 644 In so doing, reporting persons typically strip out incompatible metadata (i.e., syntax that is not
part of the HTML or ASCII/SGML specification)
that their business systems use to ascribe meaning to the stored data items and to represent the relationships among different data items. 645See Item 70 of Form N–SAR for a list of permitted investment policies, and if permitted, the investment policies engaged in during the reporting period. The percentages are calculated from the percentage of funds that report affirmatively to either of the two parts for Items 70.B though 70.I. There is little difference in the proportion of investment companies that reported as permitted the investment practices relating to Items 70.B through 70.I. The greatest proportion of funds reported engaging in writing or investing in stock index futures (13.1%) and engaging in writing or investing in interest rate futures (12.0%), and the smallest proportion of funds reported engaging in writing or investing in other commodity futures (1.7%) and engaging in writing or investing in options on stock index futures (0.9%). Aggregate condensed balance sheet information reported on Form N–SAR indicates that funds held $2.6 billion in options on equities and options on all futures (Items 74.G and 74.H) or 0.013% of net assets from the second half of 2014. Aggregate condensed balance sheet information reported on Form N–SAR from the second half of 2014 also indicates that funds had $55.9 billion in short sales (Item 74.R.(2)) and $4.2 billion in written options (Item 74.R.(3)), or 0.285% and 0.021% of net assets, respectively. The estimates are approximate. 646See supra note 30. These statistics were obtained from staff analysis of Morningstar Direct data, and are based on fund categories as defined by Morningstar. 647See id. Commission; the Commission; and other current and future users of investment company portfolio investment information including investors, thirdparty information providers, other interested potential users; and other market participants that could be affected by the change in fund disclosure of portfolio investment information. Currently, the Commission requires registered management investment companies (other than money market funds and SBICs) to report their complete portfolio investments to the Commission on a quarterly basis.637 These funds are required to provide this information in reports on Form N–Q as of the end of the first and third fiscal quarters of each year 638 and in reports on Form N–CSR as of the end of the second and fourth fiscal quarters of each year.639 Both forms require that the reported schedule of portfolio investments conform to the requirements of Regulation S–X, and the
schedule for the close of the fiscal year
must be audited (but those schedules for the other three fiscal quarters need not be).640 These reports are generally required to be filed on the EDGAR system and are made publicly available upon receipt.641 Reports on Form N– CSR may be filed up to 70 days after the end of the reporting period,642 and reports on Form N–Q may be filed up to 60 days after the end of the reporting period. Forms N–CSR and N–Q are required to be filed in HTML or ASCII/SGML format.643 In order to prepare reports in HTML and ASCII/SGML, reporting persons generally need to reformat information from the way the information is stored for normal business use.644 The resulting format, when rendered in an end user’s web browser, is comprehensible to a human reader, but it is not suitable for automated processing. These formats do not allow the Commission or other interested data users to combine information from more than one report in an automated way to, for example, construct a database of fund portfolio positions without additional formatting. The economic effects from the introduction of new Form N–PORT would largely result from the disclosure of portfolio investment information in a structured format, as well as the additional information that investment companies would report. The economic effects would depend on the extent to which the portfolios and investment practices of investment companies become more transparent as a result of the increase in the amount and availability of portfolio investment information, and the ability of Commission staff and all investors to utilize the structured data. The current reporting requirements for investment companies, however, reduce the ability of Commission staff to evaluate the potential economic effects. For example, the non-structured format of reported portfolio investment information, the absence of information to identify securities, and reporting inconsistencies between investment companies all reduce the ability of Commission staff to aggregate information across the fund industry and to evaluate the economic effects of the proposal. The proposal would increase the amount of portfolio investment information available for some investment companies more so than others. For example, investment companies that utilize derivatives as
part of their investment strategy, or that
otherwise engage in alternative strategies, would have more information become available describing their businesses than other investment companies. Information from Form N– SAR provides some indication as to the current use of derivatives by investment companies. Form N–SAR requires investment companies to identify permitted investment policies, and if permitted, investment policies engaged in during the reporting period. As of the second half of 2014, on average 75.4% of investment companies reported as permitted investment policies involving the writing or investing in options or futures, and on average 5.2% of investment companies reported engaging in each one of these policies during the report period.645 In addition, the total net assets of alternative funds from which more information would become available were as of year-end 2014 approximately $200 billion or 1.2% of the total net assets of the mutual fund market.646 Although the percentage of net assets of alternative funds relative to the mutual fund market is currently small, the percentage of flows to alternative funds was 10.2% in 2013 and 4.3% in 2014.647 b. Benefits As discussed, Form N–PORT would improve the information that registered management investment companies and ETFs organized as UITs (other than money market funds and SBICs) disclose to the Commission. The increase in the reporting frequency, the update to the structure of the information that reporting funds would disclose, and the additional information not currently disclosed, discussed in further detail below, would improve the ability of the Commission to understand, analyze, and monitor the fund industry. We believe that the information we receive on these reports would facilitate the oversight of funds and would assist the Commission, as the primary regulator of such funds, to better effectuate its mission to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation, through better informed policy decisions, more specific guidance and comments in the disclosure review process, and more targeted examination and enforcement efforts. To the extent that monthly portfolio investment information is not currently available, the requirement that all investment companies make available

648See, e.g., supra text following note 169. Although likely not a significant effect, the increase in the frequency of portfolio investment disclosure to the Commission could also reduce the ability of investment companies to alter or ‘‘window-dress’’ portfolio investments in an attempt to disguise investment strategies and risk profiles that are not consistent with the disclosures in registration statements and shareholder reports. The incentives for managers to window-dress in an attempt to mislead investors would not change because the frequency of public disclosure of portfolio investment information would remain the same. See, e.g., Vikas Agarwal, Gerald D. Gay, and Leng Ling, Window Dressing in Mutual Funds, The Review of Financial Studies, Vol. 27(11), 3133– 3170 (2014). portfolio investment information on a monthly basis to the Commission would improve the ability of the Commission to oversee investment companies by increasing the timeliness of the information available, and by providing a larger number of data points, would increase the ability of Commission staff to identify trends in investment strategies and fund products as well as industry outliers.648 As discussed above, the quarterly portfolio reports that the Commission currently receives on Forms N–Q and N–CSR could become stale due to the turnover of portfolio securities and fluctuations in the values of the portfolio’s investments. Requiring monthly reports on Form N– PORT would decrease the delay between fund reports, so that the Commission would have more timely information than it has currently; portfolio investment information that is more timely would improve the ability of Commission staff to identify risks a fund is facing, particularly during times of market stress. The ability of Commission staff to effectively use the information reported in Form N–PORT is dependent on the ability of staff to compile and aggregate information into a single database that can then be utilized to conduct industry-wide analyses. Otherwise, the information would only improve the ability of staff to analyze a single or a small number of funds at any one time. The structuring of the information in an XML format would improve the ability of the Commission to compile and aggregate information across all funds, and to analyze individual funds, a subset of funds, or the fund industry as a whole, and would increase the overall efficiency of staff to analyze the information. For example, the ability to compare portfolio investment information across reporting funds or for a single fund across report dates would improve the ability of the Commission to identify funds for examination and to identify trends in the fund industry. The structuring of portfolio investment information may also improve the quality of the information disclosed by imposing constraints on how the information would be provided. A feature of XML is a builtin validation framework that can provide precise constraints as to how
the information could be provided. These data checks, which are not available in the current formats for Form N–CSR and Form N–Q, are important to ensure that the reports contain information that is accurate and consistent across filings, and therefore usable by Commission staff. An improved, structured format may also promote additional efficiency among investment companies to the extent that the new reporting requirements encourage an update and integration of systems, and standardized formats for the disclosure and transmission of filings. Form N–PORT would require information that is not currently required to be reported to the Commission, including portfolio and position level risk-sensitivity measures and additional information describing derivatives, securities lending activities, repurchase and reverse repurchase agreements, the pricing and liquidity of securities, and information regarding fund returns and flows. The information would increase the ability of Commission staff to understand the use of these products and activities as part of a fund’s investment strategy, as well as the risks of a particular fund, a group of funds, and the fund industry. The proposed requirement to report portfolio- and position-level risk sensitivity measures would provide Commission staff with a set of estimates that summarizes the risk exposures of a fund. The risk sensitivity measures improve the ability of Commission staff to efficiently analyze information for all funds and identify those funds not only with specific risk exposures but also risk exposures that appear to be outliers among peer funds. An ability to efficiently identify funds based on exposure to certain risks would improve the Commission’s ability to analyze fund industry trends, monitor funds, and, as appropriate, engage in further inquiry or timely outreach in case of a market or other event. Commission staff could also use these measures to determine whether additional guidance or policy measures are appropriate to improve disclosures. The calculation of portfolio- or position-level measures of risk for some derivatives, including derivatives with unique or complicated payoff structures, sometimes requires time-intensive computational methods or additional information that Form N–PORT would not require. As discussed above, based on staff experience and outreach, we understand that most funds calculate risk measures for such securities. Accordingly, we believe that requiring funds to provide these measures is more efficient than requiring funds to provide all of the information that might be necessary for the Commission, investors, or other potential users to calculate these measures. The requirement for investment companies to provide risk measures for derivatives, at the position-level and at the portfoliolevel, would therefore improve the ability of staff to efficiently identify the risk exposures of funds regardless of the types of derivatives held or that could be introduced to
the marketplace. In addition, the requirement for investment companies to provide portfolio-level measures of risk would also improve the ability of staff to efficiently identify interest rate and credit spread exposures at the fund level and conduct analyses without first aggregating position-level measures. Form N–PORT would require funds to provide the contractual terms for debt securities and many of the more common derivatives including options, futures, forwards, and swaps; the reference instrument for all convertible debt securities and derivatives, and information describing the size of the position. The information would provide Commission staff an ability to identify funds with interest rate risk exposure or exposure to other risks such as those pertaining to a company, industry, or region. As discussed, for securities lending activities and reverse repurchase agreements, Form N–PORT would require counterparty identification information, contractual terms, and information describing the collateral and reinvestment of the collateral. The additional information could improve the ability of Commission staff to assess fund compliance with the conditions that they must meet to engage in securities lending, as well as better analyze the extent to which funds are exposed to the creditworthiness of counterparties, the loss of principal of the reinvested collateral, and leverage creation through the reinvestment of collateral. Form N–PORT would also require additional identification information regarding the reporting fund, the issuers of fund investments, and the investments themselves, including the reference instruments for convertible debt securities and derivatives investments. The additional

649Form N–PORT would also eliminate the reporting gap between money market funds, which report portfolio investment information in an XML format on Form N–MFP, and funds engaging in similar investment strategies such as ultra-short bond funds, which would be required to file reports on Form N–PORT. 650See discussion supra Part II.A.2.j. 651Academic research indicates that the portfolio investment information funds provide to the Commission, such as on Form N–CSR and Form N– Q, has value even though the information is publicly available only after a time-lag. See infra notes 664–667. Just as investors can use the information to front-run or copycat/reverse engineer the investment strategy of a reporting fund, investors of funds can also use the information to identify funds for investment. 652Empirical research shows that fund flows are sensitive to many factors including past fund performance and investor search costs. See, e.g., Erik R. Sirri and Peter Tufano, Costly Search and Mutual Fund Flows, The Journal of Finance, Vol. 53(5), 1589–1622 (1998); Zoran Ivkovic´ and Scott Weisbenner, Individual Investor Mutual Fund Flows, Journal of Financial Economics, Vol. 92, 223–237 (2009); George D Cashman, Convenience in the Mutual Fund Industry, Journal of Corporate Finance, Vol. 18, 1326–1336 (2012). 653Monthly portfolio investment information is available for approximately 45% of funds covered by The CRSP Survivor-Bias-Free US Mutual Fund Database as of the third quarter of 2014. The database covers more than 9,000 open-ended mutual funds during this time period. This estimate suggests that a large proportion of funds already report monthly portfolio investment information, although it is unclear whether monthly information is reported following each month or if information relating to several months is periodically reported at a later date. Calculated based on data from The CRSP Survivor-Bias-Free US Mutual Fund Database © 2015 Center for Research in Security Prices (CRSP®), The University of Chicago Booth School of Business. 654Costs related to such processes are included in the estimate below of the paperwork costs related to Form N–PORT, discussed below. identification information would benefit the Commission by improving the ability of staff to link the information from Form N–PORT with information from other sources, such as Form N– CEN, that also identify market participants and investments with these identifiers. The additional identification information would be especially important to identify the issuers of fund investments and the investments themselves. The information would improve the ability of Commission staff, from the current requirement to provide just the issuer name, to identify and compare funds that have exposures to particular investments or issuers regardless of the whether the exposure is direct or indirect such as through a derivative security. Investors, third-party information providers, and other potential users would
also experience benefits from the introduction of Form N–PORT. While the frequency of public disclosure of portfolio information would not change, we believe that the structured format of this information would allow investors and other potential users to more efficiently analyze portfolio information. Investors and other potential users would also have quarterly disclosure of additional information that is currently not included in the schedule of investments reported on Form N–Q and Form N– CSR. The additional information as well as the structure of the information would increase the transparency of funds’ investment strategies and improve the ability of investors and other potential users to more efficiently identify the risk exposures of the fund. Form N–PORT would benefit investors, to the extent that they use the information, to better differentiate investment companies based on their investment strategies and other activities. For example, investors would be able to more efficiently identify funds that use derivatives and the extent to which they use derivatives as part of their investment strategies.649 In general, we expect that institutional investors and other market participants would directly use the information from Form N–PORT more so than individual investors. As discussed, the format of Form N–PORT is not designed to be human readable and the amount of information could result in reports that are voluminous. The Commission therefore has endeavored to mitigate the potential loss of information to individual investors from the rescission of From N–Q through the additional disclosure requirements for investment companies as part of this proposal, including the requirement for investment companies to attach to Form N–PORT complete portfolio holdings in accordance with Regulation S–X for the first and third fiscal quarters.650 Individual investors, however, could indirectly benefit from the information in Form N–PORT to the extent that third-party information providers and other interested parties are able to obtain, aggregate, provide, and report on the information. Individual investors could also indirectly benefit from the information in Form N–PORT to the extent that other entities, including investment advisers and broker-dealers, utilize the information to help investors make more informed investment decisions. Portfolio investment information that investment companies report to the Commission is informative in describing the ongoing investment strategy of the fund,651 and investors could use the information to select funds based on security selection, industry focus, level of diversification, and the use of leverage and derivatives.652 An increase in the ability of investors to differentiate investment companies would allow investors to allocate capital across reporting funds more in line with their risk preferences and increase the competition among funds for investor capital. In addition, by improving the ability of investors
to understand the risks of investments and hence their ability to allocate capital across funds and other investments more efficiently, the introduction of Form N–PORT could promote capital formation. Rescission of Form N–Q, along with its certifications of the accuracy of the portfolio schedules reported for each fund’s first and third fiscal quarters, may result in some cost savings by funds in terms of administrative or filing costs. However, we expect any such savings, if any, to be minimal, because under our proposal each fund would still be required to file portfolio schedules prepared in accordance with §§ 210.12–12 to 12–14 of Regulation S– X for the fund’s first and third fiscal quarters, by attaching those schedules as attachments to its reports on Form N– PORT for those reporting periods.
c. Costs
Form N–PORT, as proposed, would require registered management investment companies and ETFs organized as UITs, other than money market funds or SBICs, to incur onetime and ongoing costs to comply with the new filing requirements. Funds would incur additional ongoing costs to report portfolio investment information on a monthly basis on Form N–PORT instead of a quarterly basis as currently reported on Forms N–Q and N–CSR. Funds that voluntarily provide information to third-party information providers and on its Web site, including monthly portfolio investments, and additional information in fund financial statements, including additional information regarding derivatives similar to the requirements that we are proposing today, would bear fewer costs as a result of the proposal than those that do not.653 The Commission is aware that these funds would nonetheless likely incur additional costs on reports on proposed Form N–PORT than on voluntary submissions, such as validation and signoff processes, given that reports on Form N–PORT would be a required regulatory filing and would possibly require different data than the funds are currently providing to thirdparty information providers. Over time, the filings could become highly automated and could involve fewer costs.654

655See, e.g., Form PF Adopting Release, supra note 14, at text following n.357 (discussing the costs to advisers to private funds of filing Form PF in XML format); Money Market Fund Reform 2010 Release, supra note 13, at nn.341–344 and accompanying text (discussing the costs to money market funds of filing reports on Form N–MFP in XML format). 656See supra Part II.G.1. 657See infra Part V.A.1. 658See infra notes 736–739, 749 and accompanying text. This estimate is based upon the following calculations: $55,970 = $4,805 in external costs + $51,165 in internal costs ($51,165 = 15 hours × $303/hour for a senior programmer) + (39 hours × $312/hour for a senior database administrator) + (30 hours × $266/hour for a financial reporting manager) + (30 hours × $198/ hour for a senior accountant) + (30 hours × $157/ hour for an intermediate accountant) + (30 hours × $301/hour for a senior portfolio manager) + (24 hours × $283/hour for a compliance manager)). The hourly wage figures in this and subsequent footnotes are from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified by Commission staff to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. 659See infra notes 740, 749 and accompanying text. This estimate is based upon the following calculations: $46,745 = $4,805 in external costs + $41,940 in internal costs ($41,940 = (30 hours × $266/hour for a financial reporting manager) + (30 hours × $198/hour for a senior accountant) + (30 hours × $157/hour for an intermediate accountant)

(30 hours × $301/hour for a senior portfolio
manager) + (24 hours × $283/hour for a compliance manager) + (24 hours × $312/hour for a senior database administrator)). 660See infra notes 743–745, 750 and accompanying text. This estimate is based upon the following calculations: $54,821 = $11,440 in external costs + $43,481 in internal costs ($43,481 = (30 hours × $303/hour for a senior programmer)
(46.5 hours × $312/hour for a senior database
administrator) + (16.5 hours × $266/hour for a financial reporting manager) + (16.5 hours × $198/ hour for a senior accountant) + (16.5 hours × $157/ hour for an intermediate accountant) + (16.5 hours × $301/hour for a senior portfolio manager) + (16.5 hours × $283/hour for a compliance manager)). 661See infra notes 746, 750 and accompanying text. This estimate is based upon the following calculations: $38,746 = $11,440 in external costs + $27,306 in internal costs ($27,306 = (18 hours × $266/hour for a financial reporting manager) + (18 hours × $198/hour for a senior accountant) + (18 hours × $157/hour for an intermediate accountant)
(18 hours × $301/hour for a senior portfolio
manager) + (18 hours × $283/hour for a compliance manager) + (18 hours × $312/hour for a senior database administrator)). 662These estimates are based upon the following calculations: $591,495,332 = (3,749 funds × $55,970 per fund) + (6,962 funds × $54,821 per fund). $444,996,657 = (3,749 funds × $46,745 per fund) + (6,962 funds × $38,746 per fund). Funds would also incur costs to file reports on Form N–PORT in a structured format. Based on staff experience with other XML filings, however, these costs are expected to be minimal given the technology that would be used to structure the data.655 XML is a widely used data format, and based on the Commission’s understanding of current practices, most reporting persons and third party service providers have systems already in place to report schedules of investments and other information. Systems would be able to accommodate an alternative format such as XML without significant costs, and large-scale changes would likely not be necessary to output structured data files. In an effort to reduce some of the potential burdens on smaller entities, we are proposing to extend the compliance period to begin filing reports on Form N–PORT to thirty months after the effective date for groups of funds with assets under $1 billion.656 The additional time could increase the ability of these investment companies to comply with the filing requirements by providing more time for system and operation changes and from observing larger fund groups. Form N–PORT would also require the disclosure of certain information that is not currently required by the Commission. In some instances, such as in the case of increased disclosures regarding derivatives investments and information concerning the pricing and liquidity of investments, the Commission is proposing to require parallel disclosures in the fund’s
schedule of investments; accordingly,
we expect funds would generally incur one set of costs to adhere to the reporting of new information on Form N–PORT and in its schedule of investments. For other information, such as the reporting of particular asset classifications, identification of investments and reference instruments, and risk measures, the information would be disclosed on Form N–PORT only. To the extent that our proposal would require information to be reported that is not currently contained in fund accounting or financial reporting systems, funds would bear one-time costs to update systems to adhere to the new filing requirements. The one-time costs would depend on the extent to which investment companies currently report the information required to be disclosed. The one-time costs would also depend on whether an investment company would need to implement new systems, such as to calculate and report risk-sensitivity measures, and to integrate information maintained in separate internal systems or by third parties to comply with the new requirements. Based on staff outreach to funds, we believe that, at a minimum, funds would incur systems or licensing costs to obtain a software solution or to retain a service provider in order to report data on risk metrics, as risk metrics are not required to be reported on the fund financial statements. Our experience with and outreach to funds indicates that the types of systems funds use for warehousing and aggregating data, including data on risk metrics, varies widely. To the extent possible, we have attempted to quantify these costs. As discussed below, we estimate that funds would incur certain annual paperwork costs associated with preparing, reviewing, and filing reports on Form N–PORT.657 Assuming that 35% of funds (3,749 funds) would choose to license a software solution to file reports on Form N–PORT, we estimate an upper bound on the initial annual costs to funds choosing this option of $55,970 per fund 658 with annual ongoing costs of $46,745 per fund.659 We further assume that 65% of funds (6,962 funds) would choose to retain a third-party service provider to provide data aggregation and validation services as
part of the preparation and filing of
reports on Form N–PORT, and we estimate an upper bound on the initial costs to funds choosing this option of $54,821 per fund 660 with annual ongoing costs of $38,746 per fund.661 In total, we estimate that funds would incur initial annual costs of $515,537,918 and ongoing annual costs of $444,996,657.662 Although under the proposal there would be no change to the frequency or time-lag for which investment company security position information is publicly disclosed, the increase in the amount of publicly available information and the greater ability to analyze the information as a result of its structure may facilitate activities such as ‘‘frontrunning,’’ ‘‘predatory trading,’’ and ‘‘copycatting/reverse engineering of trading strategies’’ by other investors. For example, Form N–PORT would result in the disclosure of additional information, such as pertaining to derivatives and securities lending activities, which could more clearly reveal the investment strategy of reporting funds and its risk exposures. The structured format of portfolio investments disclosure could also improve the ability of other investors to obtain and aggregate the data, and identify specific funds to front-run or predatory trade. These activities could reduce the profitability from developing new investment strategies, and therefore could reduce innovation and impact competition in the fund industry. Investors that trade ahead of funds could reduce the profitability of funds by increasing the price of fund purchases and by decreasing the price of fund sales. These activities can reduce the returns to shareholders who invest

663See, e.g.,
664See, e.g., Joshua Coval and Erik Stafford, Asset Fire Sales (and Purchases) in Equity Markets, Journal of Financial Economics, Vol. 86, 479–512 (2007). 665See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen, Predatory Trading, The Journal of Finance, Vol. 60(4), 1825–1864 (2005). 666See, e.g., Mary Margaret Frank, James M. Poterba, Douglas A. Shackelford, and John B. Shoven, Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry, The Journal of Law and Economics, Vol. 47(2), 515–541 (2004). 667See, e.g., Vikas Agarwal, Kevin Andrew Mullaly, Yuehua Tang, and Baozhong Yang, Mandatory Portfolio Disclosure, Stock Liquidity, and Mutual Fund Performance, The Journal of Finance, (‘‘Agarwal et al’’), forthcoming (available at http://onlinelibrary.wiley.com/doi/10.1111/ jofi.12245/pdf); Marno Verbeek and Yu Wang, Better than the Original? The Relative Success of Copycat Funds, Journal of Banking and Finance, Vol. 37, 3454–3471 (2013) (‘‘Verbeek and Wang’’). 668See Verbeek and Wang, supra note 667. 669See Agarwal et al., supra note 667. Low information stocks include stocks with smaller market capitalization, less liquidity, and less analyst coverage. The authors also find that the liquidity of stocks with higher fund ownership increased following the introduction of Form N–Q. Although the increase in liquidity would benefit investors by reducing trading costs, this benefit stems as a result of the costly disclosure of potential investment opportunities. 670See supra note 27 and accompanying text. 671See supra note 123 and accompanying text. 672See Antti Petajisto, The Index Premium and its Hidden Cost for Index Funds, Journal of Empirical Finance, Vol. 18, 271–288 (2011). Petajisto finds evidence that mechanically induced demand changes to demand, such as index fund rebalancing, can result in price effects. If predictable, then other investors could take advantage of the changes to the proprietary indexes by front-running future trades. 673The Commission does not have information available to provide a reliable estimate of the increased costs of such licensing agreements because funds are currently not required to disclose the agreements or the components of the index. in actively managed funds, making actively managed funds less attractive investment options.663 Portfolio investment information, along with flow information, can also create opportunities for other market participants to front-run the sales of funds that experience large outflows and the purchases of funds that experience large inflows,664 or create opportunities for other market participants to engage in predatory trading that could lead to further fund distress.665 A trading strategy that follows the publicly reported holdings of actively managed funds can also earn similar if not higher after expense returns.666 An implication of this finding is that the public disclosure of portfolio investment information could induce
free-riding by investors that use the information and reduce the potential benefit from developing new investment strategies and engaging in proprietary market research. The effect of free-riding would reduce the ability of an investment companies with longer investment horizons to benefit from researching investment opportunities and developing new strategies more so than investment companies with shorter investment horizons because of the increased likelihood that the disclosed portfolio investment information would reveal their long-term investment strategies.667 A comparison can be made between the economic effects from the introduction of Form N–PORT and the economic effects from the introduction of Form N–Q in May 2004 which increased the reporting frequency of portfolio investment information to the Commission from semiannual to quarterly. The introduction of Form N– Q resulted in an increase in the amount of information that could have been acted upon by other investors. For example, evidence indicates that the ability of copycat funds to outperform actively managed funds increased after the introduction of Form N–Q,668 and additional evidence indicates that the performance of those funds with better previous performance or that invest in low-information stocks decreased following the introduction of Form N– Q.669 The increase in the frequency of portfolio investment information as a result of Form N–Q resulted in an increase in the amount of portfolio investment information available. Although Form N–PORT would not increase the frequency of public disclosure, Form N–PORT would increase the amount of portfolio investment information available. In addition, Form N–PORT, unlike Form N–Q, would also increase the accessibility of the information as a result of its structured format. We have endeavored to mitigate the potential for front-running, predatory trading, and copycatting/reverse engineering by other market participants by proposing to maintain the status quo for the frequency and timing of disclosure of publicly available portfolio information. In addition, much, though not all, of the information that Form N– PORT would require, is already disclosed by reporting funds on Form N–CSR and Form N–Q.670 The additional information and the structure of the information that would be required under Form N–PORT, however, would improve the ability of investors to obtain, aggregate, and analyze all fund investments. Thus, Form N–PORT could negatively affect actively managed funds by increasing the ability of other investors to copycat or front-run investment strategies, and in particular could negatively affect those funds that would have more additional information disclosed, such as funds that use derivatives as part of their investment strategies. The Commission has considered the needs of the Commission, investors, and other users of portfolio investment information and the potential that other investors may use the information to the
detriment of the reporting funds. Form N–PORT would require the disclosure of information that is currently nonpublic that could result in additional costs to funds and market participants. For example, Form N– PORT would require a fund to report the identities and weights of each of the individual components comprising the reference instruments underlying the fund’s derivative investments, unless the reference instrument is an index whose components are publicly available on a Web site and are updated on that Web site no less frequently than quarterly, or the notional amount of the derivative represents 1% or less of the net asset value of the fund.671 We understand that many indices used as reference instruments in derivative investments are proprietary to index providers, and are subject to licensing agreements between the index provider and the fund. Disclosing the components of a non-public index could result in costs to both the index provider, whose proprietary indexing strategy could be imitated, and the fund, whose investments could be frontrun.672 Moreover, disclosing the underlying components of such an index could subject the fund to one-time costs associated with renegotiating licensing agreements and the ongoing payment of fees in order to obtain the rights to disclose the components of the index.673 Additionally, the increased transparency in proprietary indexes could ultimately decrease the incentives of index providers to license the use of such indices to funds as well as fund demand for securities products that incorporate these indices. Likewise, Form N–PORT, as well as the proposed amendments to regulation S–X, would require funds to report certain information regarding fees and financing terms for certain derivatives contracts, particularly OTC swaps, which are not currently required to be publicly disclosed. The increased transparency could increase the competition among swap and securitybased swap dealers to offer favorable fees and financing terms, as the fees and financing terms offered to one fund

674See supra Part II.C. As discussed above, rule 12–13 of Regulation S–X requires limited generic information on the fund’s investments other than securities. To address issues of inconsistent disclosures and lack of transparency, our proposal would standardize a fund’s disclosures of open futures contacts, foreign currency forward contracts, and swaps. In addition, while many of the proposed amendments to Regulation S–X are similar to the proposed disclosures in Form N–PORT (e.g,. enhanced derivatives disclosures), the amendments to Regulation S–X would be investor-friendly, as the financial statements and schedule of investments are human-readable (as opposed to proposed Form N–PORT’s structured data). 675As we discussed supra note 180, while ‘‘funds’’ are defined in the preamble as registered investment companies other than face amount certificate companies and any separate series thereof—i.e., management companies and UITs, we note that our proposed amendments to Regulation S–X apply to both registered investment companies and BDCs. See supra notes 264 and 265. Therefore, when discussing fund reporting requirements in the context of our proposed amendments to Regulation S–X, we are also including changes to the reporting requirements for BDCs. 676See discussion supra Part II.C. 677See, e.g., proposed rule 12–13, n.7 of Regulation S–X; see also proposed rules 12–13A, would be known to other funds negotiating the terms of such contracts. As discussed above, although our proposal would rescind Form N–Q, it would also require funds to file portfolio schedules prepared in accordance with §§ 210.12–12 to 12–14 of Regulation S–X for the fund’s first and third fiscal quarters, by attaching those schedules as attachments to its reports on Form N–PORT for those reporting periods. Although the schedules attached to Form N–PORT would be largely identical to the information currently reported on Form N–Q, under our proposal funds would have 30 days to prepare and file the attachments to Form N–PORT, as opposed to the 60 days that funds currently have to prepare, certify, and file reports on Form N–Q. The faster turnaround time may result in increased costs to funds, but we expect these costs may be mitigated by removing the requirement that funds certify this information. Rescission of Form N–Q would also eliminate certifications of the accuracy of the portfolio schedules reported for the first and third fiscal quarters, and would also result in funds providing certifications regarding their disclosure controls and procedures and internal control over financial reporting semiannually rather than quarterly. To the extent that such certifications improve the accuracy of the data reported, removing such certifications could have negative effects on the quality of the data reported. Likewise, if the reduced frequency of the certifications affects the process by which controls and procedures are assessed, requiring such certifications semi-annually rather
than quarterly could reduce the effectiveness of the fund’s disclosure controls and procedures and internal control over financial reporting are assessed. However, we expect such effects, if any, to be minimal because certifying officers would continue to certify portfolio holdings for the fund’s second and fourth fiscal quarters and would further provide semi-annual certifications concerning disclosure controls and procedures and internal control over financial reporting that would cover the entire year.
C. Amendments to Regulation S–X
a. Introduction and Economic Baseline The proposed amendments to Regulation S–X would 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; update the disclosures for other investments with conforming amendments, as well as reorganize the order in which some investments are presented; and amend the rules regarding the general form and content of fund financial statements, including requiring prominent placement of investments in derivative investments in a fund’s financial statements, rather than allowing such schedules to be placed in the notes to the financial statements.674 Finally, our amendments would require a new disclosure in the notes to the financial statements relating to a fund’s securities lending activities. The current set of requirements under Regulation S–X, as well as the current practice of many funds 675 to voluntarily disclose additional portfolio investment information in fund financial statements and to follow industry guidance and other industry practices, is the baseline from which we discuss the economic effects of amendments to Regulation S– X.676 The parties that could be affected by the proposed amendments to Regulation S–X include funds that file or would file reports with the Commission and update or would update registration statements on file with the Commission, the Commission, current and future investors of investment companies, and other market participants that could be affected by the increase in the disclosure of portfolio investment information. Regulation S–X prescribes the form and content of financial statements required in shareholder reports and registration updates. Today, Regulation S–X does not prescribe specific information to be disclosed under Regulation S–X for many investments in derivatives, which could result in inconsistent reporting between funds and reduced transparency of the information reported, and in some cases could result in insufficient information concerning the terms and underlying reference assets of derivatives to allow investors to understand the investment. Many of the economic effects from the proposed amendments to Regulation S– X would largely result from an increase in investor ability to make investment decisions dependent on more transparent disclosure in shareholder reports and in the financial statements of registration statements. As discussed above, the economic effects would depend on the extent to which the portfolios and investment practices of investment companies become more transparent, and the ability of investors, and in particular individual investors, to utilize shareholder reports to make investment decisions. The economic effects would also depend on the extent to which investment companies already voluntarily provide disclosures that would be required by the
proposed amendments. As a result of these factors, some of which are difficult to quantify or unquantifiable, the discussion below is largely qualitative although certain one-time and ongoing costs associated with the proposed amendments are quantified below. b. Benefits The amendments to Regulation S–X could benefit investors by updating the information funds disclose in the financial statements of registration statements and shareholder reports. Our proposed amendments could benefit investors through increased transparency into a fund’s investments, particularly for individual investors that we would not expect to use the information in Form N–PORT because of its structured format. In particular, the additional information that Regulation S–X would require for open option contracts both written and purchased, open futures contracts, open forward foreign currency contracts, open swap contracts, and other investments would increase the transparency of the fund’s portfolio investments and risk exposures. Other amendments would also improve the transparency into the fund’s investments. For example, we are proposing to require funds to identify each investment whose fair value was determined using significant unobservable inputs.677 Likewise, we

n.5; 12–13B, n.3; 12–13C, n.6; and 12–13D, n.7 of Regulation S–X. 678See, e.g., proposed rule 12–13, n.8 of Regulation S–X; see also proposed rules 12–13A, n.6; 12–13B, n.4; 12–13C, n.7; and 12–13D, n.8 of Regulation S–X. 679See proposed rule 12–13, n.6 of Regulation S– X; see also proposed rules 12–13A, n.4; 12–13B, n.2; 12–13C, n.5; and 12–13D, n.6 of Regulation S– X. 680See Part II.C.2.a 681See proposed rule 12–13C, n.3 of Regulation S–X; see also discussion supra Part II.C.2.d. 682See proposed rule 12–13, n.3 of Regulation S– X; see also discussion supra Part II.C.2.a. 683See proposed rule 6–10(a) of Regulation S–X; see also discussion supra Part II.C.5. 684See proposed rule 6–04 of Regulation S–X; see also discussion supra Part II.C.5. 685See id. 686 In order to reduce burdens on funds, we also endeavored, where appropriate, to require consistent derivatives holdings disclosures between Form N–PORT and Regulation S–X. 687See Item C.11.c.iii and Item C.11.f.i of proposed Form N–PORT. 688See proposed rule 12–13C, n.3 of Regulation S–X; see also discussion supra Part II.C.2.d. 689See proposed rule 12–13, n.3 of Regulation S– X.; see also discussion supra Part II.C.2.a. are proposing a requirement that funds identify illiquid securities,678 as well as to separately identify investments that are restricted.679 As discussed above, we believe that the effect of these proposed amendments would be to increase transparency into the liquidity of investments and help investors better understand how fund investments are valued.680 In certain circumstances, we are also requiring funds to separately list each of the investments comprising the referenced assets underlying swap 681 and option contracts.682 We believe that increased disclosure of the investments underlying a referenced asset could benefit investors by making it easier for them to understand and evaluate the specific risk exposures of a fund from certain swap and option contracts. We also believe that our proposed changes to the form and content of financial statements in Article 6 of Regulation S–X will similarly benefit investors, particularly individual investors, through greater transparency in a fund’s financial statements. For example, we are proposing to require funds to disclose their investments in derivatives in the financial statements, as opposed to in the notes to the financial statements.683 To the extent funds do not do this already, we believe that more prominent placement of investments in derivatives in the financial statements (immediately following the schedules for investments in securities of unaffiliated investors and securities sold short), would benefit investors through increased visibility of fund investments in derivatives. Likewise, we are proposing to eliminate the financial statement disclosure of ‘‘Total investments’’ on the balance sheet under ‘‘Assets’’.684 As we discuss in more detail in Part II.C.5, recognizing that investments in derivatives could be
presented under both assets and liabilities on the balance sheet, eliminating this disclosure would benefit investors by providing a more accurate representation of the effect of these investments on a fund’s balance sheet.685 Other parties that would be affected by the amendments to Regulation S–X include the Commission and other market participants that would use shareholder reports and registration statements to obtain fund information. Although the amendments to Regulation S–X would primarily benefit investors and particularly individual investors, the Commission and other market participants could use the information reported in a fund’s shareholder report such as the proposed notes to financial statement relating to income and expenses from securities lending activities, as well as the terms governing the compensation of securities lending agents, and would benefit from an increase in transparency into a fund’s investments and financial statements during examinations. Commission staff believes that a large number of funds currently adhere to industry practices from which the amendments to Regulation S–X are derived. The proposal to amend Regulation S–X, therefore, would effectively standardize the information that all funds disclose in financial statements, and make the
schedule of investments and financial
statement disclosures consistent and thus more comparable across funds. Similar to the introduction of Form N– PORT, the amendments to Regulation S–X, to the extent that it increases the transparency of shareholder reports, could improve the ability of investors, particularly individual investors, to differentiate investment companies and make investment decisions. An increase in the ability of investors to differentiate investment companies and allocate capital across reporting funds closer to their risk preferences would increase the competition among funds for investor capital. In addition, by improving the ability of investors to understand investment risks and hence their ability to allocate capital across funds and other investments more efficiently, the introduction of Form N– PORT could also promote capital formation.
c. Costs
We believe that registrants on average will likely incur minimal costs from our proposed amendments to Regulation S– X because, as discussed above, based upon staff experience, we believe that a majority of funds are already providing the information that would be required by the proposed amendments to Regulation S–X in their financial statements.686 The costs to a fund of complying with the proposed rules would depend upon the extent to which funds are already making such disclosures voluntarily. As discussed above, the Commission is proposing to require parallel disclosures in Form N– PORT, and funds would incur one set of costs, both one-time and ongoing, to obtain the information that would be disclosed in Form N–PORT and in shareholder reports and registration statements. In addition, other costs that relate to the disclosure of portfolio investment information, including the ability of other investors to front-run or copycat the investment strategies of funds, would primarily relate to Form N–PORT because of the additional ability of other interested third-parties and market participants to efficiently obtain, aggregate, and analyze the information as a result of its structured format as compared to the nonstructured format of reported portfolio investment information in shareholder reports. For example, similar to our disclosures proposed in Form N– PORT,687 proposed rules 12–13 and 12– 13C of Regulation S–X would, under certain circumstances, require funds to list separately each of the investments comprising referenced assets underlying swap 688 and option contracts,689 such as when the referenced asset is an index whose components are not periodically publicly available on a Web site. We understand that many indexes are the proprietary property of an index provider, and may be subject to licensing agreements between the index provider and the fund. Disclosing the underlying components of an index could subject the fund to costs associated with negotiating or renegotiating licensing agreements in order to publicly disclose the components of the index. The Commission does not have information available to provide a reliable estimate of the increased costs of licensing agreements because funds currently are not required to disclose the agreements or the components of the index. In addition, disclosing the components of a non-public index may include costs to both the index provider, whose proprietary indexing strategy could be