The Securities and Exchange Commission (SEC) adopted new rules and forms to modernize the reporting of information by registered investment companies (funds) in October 2016. The final rule included four key components: 

1. Adoption of Form N-PORT — For reporting portfolio-wide and position-level information, and the rescission of Form N-Q
2. Adoption of Form N-CEN — For reporting census-type information, and the rescission of Form N-SAR
3. Amendments to Regulation S-X — To require, among other changes, standardized reporting of derivatives holdings in a fund’s financial statements
4. Amendments to Forms N-1A, N-3 and N-CSR — To require certain disclosures regarding a fund’s securities lending activities 

As a result of certain ambiguities and complexities in the final rule, the SEC Division of Investment Management released frequently asked questions (FAQs) in July 2017, providing clarification around a number of important matters. The FAQs, which have undergone several rounds of updates and additions, are divided into four categories: 

1. Compliance dates and general filing obligations
2. Form N-PORT
3. Regulation S-X
4. Form N-CEN

The most recent amendment was released on November 14, 2018, providing the following additional clarification points. 

Compliance Dates and General Filing Obligations

• Form N-CEN currently includes new items C.20 and E.5, for which the compliance date to provide this data impacts registrants with fiscal year ends after December 1, 2018.  SEC staff clarified that funds with fiscal year ends prior to December 1, 2018, are not required to respond to those items. 

Form N-PORT 

• With regard to the impact of sales loads and redemptions fees on the required monthly total returns for each of the preceding three months, the referenced N-1A instructions provide that the returns include the impact of these items. SEC staff noted that deducting sales loads and redemptions fees for each month over an indefinite number of reports would overstate the impact they actually have on those returns. 
• A liquidating, merged or terminated fund with no remaining investors or investments but has not yet completed deregistration is not required to file a Form N-PORT.
• A new fund whose registration statement under the 1933 Act has been declared or has automatically become effective, but whose shares have not yet been publicly offered, are not required to file reports on Form N-PORT. SEC staff believes that not requiring N-PORT filings during this period provides cost savings to funds without the loss of information needed to protect investors. Additional clarification was provided stating the first Form N-PORT is required no later than 30 days after the end of the month in which a fund’s shares were initially offered to the public.   

Regulation S-X

• Guidance was provided regarding Article 12 of Regulation S-X’s requirement to provide the notional amount of a derivative contract that exceeds one percent of the net asset value of the registrant as of the close of the period. The requirement extends to disclosing the 50 largest components of an index or custom basket of investments or contacts and any other components where the notional value for that component exceeds one percent of the notional value of the index or custom basket. This has proven quite challenging as transparency of the custom basket is not maintained by the registrant, but rather the swap provider. While an example of what is expected has been provided, as an alternative SEC staff indicated it would not object if the fund disclosed the value of the component relative to the fund’s (as opposed to the custom basket’s) net assets, provided that the heading to the column clearly discloses what the information represents. 

Form N-CEN

• As an alternative to submitting an XML file for a fund’s Form N-CEN, the SEC is providing an online web-based form available on the EDGAR filer website. Registrants may select the “File N-CEN” link on the EDGAR filer website and manually input responses to each of the filing questions and items in the form.
• Clarification was provided that a registrant is still required to file reports on Form N-CEN even if it has filed, or intends to file, an application on Form N-8F to deregister but has not yet deregistered. A registrant that does not yet have shareholders (other than shares issued in connection with an initial investment to satisfy section 14 of the Investment Company Act) is not required to file reports on Form N-CEN. 
• A series that has been terminated should be listed as terminated in Item B.6.a.ii, including the series name, Series ID and date of termination, as this will be the last filing the series makes as part of this registrant and with this Series ID. 

Read the full set of FAQs at: https://www.sec.gov/investment/investment-company-reporting-modernization-faq.  

Please contact a member of your service team, or contact Lori Novak at lnovak@cohencpa.com for further discussion.
 
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.