Rules to Modernize and Enhance Information Reported by Investment Companies and Investment Advisers

Washington D.C., May 20, 2015 —The Securities and Exchange Commission today proposed rules, forms and amendments to modernize and enhance the reporting and disclosure of information by investment companies and investment advisers.  The new rules would enhance the quality of information available to investors and would allow the Commission to more effectively collect and use data provided by investment companies and investment advisers.

“These recommendations will vastly improve the type and format of the information that funds provide to the Commission and to investors,” said SEC Chair Mary Jo White.  “Investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”

The investment company proposals would enhance data reporting for mutual funds, ETFs and other registered investment companies.  The proposals would require a new monthly portfolio reporting form (Form N-PORT) and a new annual reporting form (Form N-CEN) that would require census-type information.  The information would be reported in a structured data format, which would allow the Commission and the public to better analyze the information.  The proposals would also require enhanced and standardized disclosures in financial statements, and would permit mutual funds and other investment companies to provide shareholder reports by making them accessible on a website.

The proposed amendments to the investment adviser registration and reporting form (Form ADV) would require investment advisers to provide additional information for the Commission and investors to better understand the risk profile of individual advisers and the industry. The proposed amendments to Investment Advisers Act Rule 204-2 would require advisers to maintain records of performance calculations and communications related to performance.

The proposals will be published on the Commission’s website and in the Federal Register.  The comment period for the proposed rules will be 60 days after publication in the Federal Register.

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FACT SHEET

SEC Open Meeting

May 20, 2015

Highlights of the Investment Company Proposals

The new investment company proposals would enhance data reporting for mutual funds, ETFs and other registered investment companies.

Portfolio Reporting

A new monthly portfolio reporting form, Form N-PORT, would require registered funds other than money market funds to provide portfolio-wide and position-level holdings data to the Commission on a monthly basis.  The form would require monthly reporting of the fund’s investments, including:

• Data related to the pricing of portfolio securities.
• Information regarding repurchase agreements, securities lending activities, and counterparty exposures.
• Terms of derivatives contracts.
• Discrete portfolio level and position level risk measures to better understand fund exposure to changes in market conditions.

Information contained on reports for the last month of each fund’s fiscal quarter would be available to the public.  In light of the proposed Form N-Port, the Commission also will consider rescinding Form N-Q, on which funds currently report certain portfolio holdings for the first and third fiscal quarters.

Census Reporting

A new annual reporting form, Form N-CEN, would require registered funds to annually report certain census-type information to the Commission and would replace the form currently used to report fund census information (Form N-SAR).  The form would streamline and update information reported to the Commission to reflect current information needs, such as requiring more information on exchange-traded funds and securities lending.  Reports would be filed annually within 60 days of the end of the fund’s fiscal year, rather than semi-annually as is currently required by Form N-SAR for most funds.

Structured Data Format

Funds would report portfolio and census information in a structured data format, which would improve the ability of the Commission and the public to aggregate and analyze information across all funds and to link the reported information with information from other sources.  The Commission currently receives this type of reporting for both money market funds, through Form N-MFP, and certain private funds, through Form PF.

Reporting on Fund Financial Statements

The proposed amendments that would require enhanced and standardized disclosures in financial statements that are required in fund registration statements and shareholder reports.  The proposed amendments will include requirements to provide, for example:

• Specific information related to derivatives, similar to the information about derivatives that would be required in the proposed monthly portfolio holdings reports.  Current requirements do not require specific information for many types of derivatives, including swaps, futures, and forwards.
• Information in the notes to the financial statements relating to a fund’s securities lending activities.

In addition, in order to make fund derivatives holdings easier to review, the proposal would require derivative disclosures to be displayed prominently in the financial statements, rather than in the notes.

Shareholder Reports Provided on Websites

The proposal would permit mutual funds and other registered investment companies to provide shareholder reports by making them accessible on their website, as well as the funds’ quarterly portfolio holdings for the past year.  Funds currently satisfy delivery requirements by printing and mailing shareholder reports, unless investors have affirmatively requested electronic delivery.

A number of specific provisions would ensure that investors who want paper copies can continue to receive them by mail.  Funds would be required to send notices to investors regarding the change to electronic delivery and online availability of shareholder reports on a regular basis.  The notices would inform investors using plain-English principles how to receive paper copies of the shareholder report in the future, free of charge.

Highlights of the Investment Adviser Proposals

The new investment adviser proposals would provide additional information regarding investment advisers.

Registration and Reporting Form

The proposed amendments to the investment adviser registration and reporting form (Form ADV) would require investment advisers to provide additional information for the Commission and investors to better understand the risk profile of individual advisers and the industry as a whole.  New information requirements would address issues that staff has identified since the Commission made significant changes to the form in 2011.  For example, the proposals would:

• Require aggregate information related to assets held and use of borrowings and derivatives in separately managed accounts. Approximately 73 percent of SEC-registered investment advisers manage a wide variety of client assets in separately managed accounts, which generally provide advisory clients with individualized investment advice and direct ownership of the securities and other assets in the account.
• Permit by rule certain “umbrella registration” filing arrangements that are currently outlined in staff guidance.
• Provide additional information about an adviser’s advisory business and including branch office operations and the use of social media.

Investment Advisers Act Rules

Proposed amendments to Investment Advisers Act Rule 204-2 would require advisers to maintain records of the calculation of performance information that is distributed to any person.  Currently, advisers are required to maintain performance information that is distributed to 10 or more persons.  The proposed amendments also would require advisers to maintain communications related to performance or rate of return of accounts and securities recommendations.

What’s Next?

The comment period for the proposed rules will be 60 days after publication in the Federal Register.