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News July 31, 2017 Issue

SEC Issues FAQs to Guide Investment Companies Through Reporting Changes

We’re halfway through 2017 and some eyes are already on changes that 2018 will bring. An example in point is the SEC’s Division of Investment Management, which this month issued guidance in the form of FAQs to help investment companies and their managers meet the new reporting requirements that begin next year.

These investment company reporting FAQs, which might be seen as companion guidance to a set of FAQs on adviser reporting modernization that the Division issued in June (ACA Insight, 6/26/17), relate to investment company rule amendments and forms that the SEC adopted in October 2016. The new requirements include:

  • Form N-PORT, which replaces Form N-Q, requires registered funds other than money market funds to provide portfolio-wide and position-level holdings data to the agency each month;
  • Form N-CEN, which requires registered funds to annually report to the SEC on census-type information; and
  • Amendments to Regulation S-X, which prescribes information and how it must be presented in regard to derivatives and other contracts, other investments and investments in affiliates.

The compliance date for most funds filing Forms N-PORT and N-CEN is June 1, 2018. Smaller funds, with less than $1 billion in net assets, have until June 1, 2019 to file Form N-PORT. The compliance date for the Regulation S-X amendments, however, is August 1, 2017 – but whether that date applies to any individual fund will depend on its reporting period end date (see below for more information on how to determine specific deadlines.)

While most of the deadlines may appear to be far off, "the SEC is anticipating issues that people haven’t considered yet, but are likely to find after they turn their attention to the new requirements," said Mayer Brown attorney Adam Kanter. As the deadlines draw closer, he said, these "technical clarifications" will be needed.

"It’s on people’s radar because for certain steps, like building reports, you have to know what to collect in terms of data, and that may take some time," said ACA Compliance Group senior principal consultant Christopher Kemp. "The FAQs do clear up a lot of questions, especially in terms of compliance data for N-PORT or N-CEN."

The guidance includes 30 FAQs in all, some of which are discussed below. (Funds and fund managers would be wise to review the actual full set of FAQs themselves.)

Compliance dates and general filings

Among the answers the SEC provided to questions about filing dates are the following:

  • Form N-PORT. "Funds must file reports on Form N-PORT no later than 30 days after the end of each month," FAQ 2 under "Compliance Dates and General Filing Obligations" states, referring to the June 1, 2018 and June 1, 2019 compliance dates (see above). "Compliance should be based on reporting period-end date." To make its point, the Division staff provides the following example: "Funds that are part of larger entities would file their first reports on Form N-PORT, reflecting data as of June 30, 2018, no later than July 30, 2018."
  • Form N-CEN. Unlike Form N-PORT, which allows smaller funds to file these annual forms by June 1, 2019, a year later than most funds, Form N-CEN requires compliance by June 1, 2018 for all funds. "Funds must report on Form N-CEN within 75 days of the fund’s fiscal year end (75 days after the calendar year end for unit investment trusts). Compliance should be based on reporting period-end date," FAQ 2 states. As an example, the SEC staff provides the following: "A fund with a June 30 fiscal year end should make its first filing for the year ended June 30, 2018 on Form N-CEN by September 12, 2018. A fund with a May 31 fiscal year end would not need to make its first filing on Form N-CEN until the fiscal year ending May 31, 2019 (with such filing being made within 75 days of that date) because May 31, 2018 is prior to Form N-CEN’s compliance date."
  • Amendments to Regulation S-X. Even though the compliance date is August 1, 2017, compliance is based on the reporting period-end date – meaning that, "for example, financial statements contained in a report on Form N-CSR for the period ended June 30, 2017 need not comply with the amendments to Regulation S-X, even though that report is required to be filed by September 8, 2017 (i.e., 70 days after the period-end date)," the staff says in FAQ 2. That’s because September 8 of that year is after the Regulation S-X compliance date of August 2, 2017. This would be the case with financial statements in reports on Forms N-CSR, N-Q, 10-K or 10-Q, whether quarterly, semi-annual or annual, for the period ended August 31, 2017, according to the FAQ.
  • "What are funds’ filing obligations with respect to Form N-Q and Form N-CSR once they are required to comply with Form N-Port?" This question, FAQ 4, "is helpful," said Kanter, as it helps funds and fund managers understand when and how they make the switch from the old forms to the new forms." Here’s what the Division staff says in answering this question: "Once a fund begins filing reports on Form N-PORT, it will no longer be required to file reports on Form N-Q. . . . For example, the staff believes that a fund which is part of a larger entity, for which the Form N-PORT compliance date is June 1, 2018, would file the Regulations S-X compliant portfolio schedule as Exhibit F to Form N-POR relating to the third and ninth fiscal months beginning June 1, 2018, in lieu of Form N-Q, even though Form N-Q will not be rescinded until August 1, 2019." In addition, the staff said, when a fund ceases filing reports on Form N-Q, its certification on Form N-CSR must cover 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."
  • "If a fund’s fiscal year ends on April 30 or May 31, then the fund’s final filing on Form N-SAR (due 60 days after its fiscal year end) would be after Form N-SAR is scheduled to be rescinded on June 1, 2018. May the fund file its final report for FY 2017-2018 on either Forms N-SAR or N-CEN?" The Division staff indicates that it is open here to either solution. "The staff believes that funds with a fiscal year end on April 30 or May 31, 2018 may file their final reports for fiscal year 2017-2018 on either Form N-SAR (due 60 days after the reporting period end) or Form N-CEN (due 75 days after the reporting period end," FAQ 6 states. The staff also notes that even though reports on Form N-SAR will no longer be required after June 1, 2018, "EDGAR will accept Form N-SAR filings, including amendments to previously filed reports on Form N-SAR, until June 30, 2019."

Specific forms

  • "Will reports filed for the month ended December 31, 2018 be the first Form N-PORT filings made public?" asks Form N-PORT FAQ 4. The Division staff’s answer is yes. "The SEC states in the adopting release that it has ‘determined to maintain as nonpublic all reports filed on Form N-PORT for the first six months following June 1, 2018,’" the FAQ states. Kanter applauded this statement. "A lot of people were concerned about the pubic reporting of forms. They will be happy to see that the first few months will not be a problem," he said.
  • "Form N-PORT requires funds to file reports within 30 days of month end. How should funds report values for holdings where no market value is available at that point for month end?" The SEC’s answer in N-PORT FAQ 5 is that "while most closed-end funds do strike their NAV on at least a monthly basis, those funds that do not do so may report information on Form N-PORT by using their internal methodologies consistent with how they report internally and to current and prospective investors, as allowed by General Instruction G to Form N-PORT." Funds that opt to report this way may also provide additional information in Part E, explaining their internal methodologies, the agency says.
  • "How should information be reported for Item C.2.a of Form N-CEN (number of authorized classes of shares of the fund) for funds that have not adopted a plan pursuant to Rule 18f-3?" The SEC’s reply to this question, FAQ 1 under Form N-CEN, is that, "We understand that some open-end funds and exchange-traded funds consist of a series without an ‘authorized’ class (i.e., funds that have not adopted a plan pursuant to Rule 18f-3). In this case, the fund would have a class ID only because EDGAR issues every series a corresponding class ID. The staff believes that a fund without an ‘authorized’ class should report ‘0’ to Item C.2.a. However, as per the requirements of Form N-CEN, the fund must report its ticker and class ID if applicable in response to Item C.2.d (which requires the name, class ID and ticker of each class with shares outstanding,)" the FAQ concludes.