[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Rules and Regulations]
[Pages 81870-82081]
[FR Doc No: 2016-25349]

Vol. 81

Friday,

No. 223

November 18, 2016

Part II

Securities and Exchange Commission

-----------------------------------------------------------------------

17 CFR Parts 200, 210, 232, et al.

 Investment Company Reporting Modernization; Final Rule

Federal Register / Vol. 81 , No. 223 / Friday, November 18, 2016 /
Rules and Regulations

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 210, 232, 239, 240, 249, 270, 274

[Release Nos. 33-10231; 34-79095; IC-32314; File No. S7-08-15]
RIN 3235-AL42

Investment Company Reporting Modernization

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission is adopting 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 adopting new Form N-PORT, which will
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 adopting
amendments to Regulation S-X, which will require standardized, enhanced
disclosure about derivatives in investment company financial
statements, as well as other amendments. The Commission is adopting new
Form N-CEN, which will 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.
The Commission is adopting amendments to Forms N-1A, N-3, and N-CSR to
require certain disclosures regarding securities lending activities.
Finally, the Commission is rescinding current Forms N-Q and N-SAR and
amending certain other rules and forms. Collectively, these amendments
will, 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 can also utilize this information to help
investors make more informed investment decisions.

DATES: Effective Dates: This rule is effective January 17, 2017, except
for the following:
     The amendments to 17 CFR 200.800, 232.105, 232.301,
240.10A-1, 240.12b-25, 240.13a-10, 240.13a-11, 240.13a-13, 240.13a-16,
240.15d-10, 240.15d-11, 240.15d-13, 240.15d-16, 249.322, 249.330,
270.8b-16, 270.10f-3, 270.30a-1, 270.30a-4, 270.30b1-1, 270.30b1-2,
270.30b1-3, 274.101, and 274.218, and in Instruction 55 amending Sec.
270.30d-1 are effective June 1, 2018; and
     The amendments to 17 CFR 232.401, 249.332, 270.8b-33,
270.30a-2, 270.30a-3, 270.30b1-5, and 274.130, and in Instruction 54
amending Sec.  270.30d-1, Instruction 57 amending Form N-1A (referenced
in Sec. Sec.  239.15A and 274.11A), Instruction 59 amending Form N-2
(referenced in Sec. Sec.  239.14 and 274.11a-1), and Instruction 61
amending Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) are
effective August 1, 2019.
    Compliance Dates: The applicable compliance dates are discussed in
section II.H. of this final rule.

FOR FURTHER INFORMATION CONTACT: Daniel K. Chang, Senior Counsel, J.
Matthew DeLesDernier, Senior Counsel, Jacob D. Krawitz, Senior Counsel,
Andrea Ottomanelli Magovern, Senior Counsel, Naseem Nixon, Senior
Counsel, Michael C. Pawluk, Senior Special Counsel, or Sara Cortes,
Assistant Director, at<PHONE_NUMBER>, Investment Company Rulemaking
Office, Matt Giordano, Chief Accountant, or Kristy Von Ohlen, Assistant
Chief Accountant, Chief Accountant's Office, at<PHONE_NUMBER>,
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 adopting new Form N-PORT [referenced in 17 CFR
274.150] and 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] and 30b1-9 [17 CFR
270.30b1-9] under the Investment Company Act; rescinding 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; adopting 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], and Form N-8F [referenced in 17 CFR 274.218] under the
Investment Company Act; adopting 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''); adopting amendments
to Form N-14 [referenced in 17 CFR 239.23] under the Securities Act;
rescinding Form N-SAR [referenced in 17 CFR 274.101 and Form N-Q
[referenced in 17 CFR 274.130] and adopting 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''); adopting 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],
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;
rescinding section 332 [17 CFR 249.332] and adopting amendments to
sections 322 [17 CFR 249.322] and 330 [17 CFR 249.330] of 17 CFR part
249; adopting 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];
adopting amendments to section 800 of 17 CFR part 200 [17 CFR 200.800];
and adopting 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].

Table of Contents

I. Background
    A. Changes in the Industry and Technology
    B. Summary of Changes to Current Reporting Regime
    1. Form N-PORT and Amendments to Regulation S-X
    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. 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
    C. Amendments to Regulation S-X
    1. Overview
    2. Enhanced Derivatives Disclosures
    3. Amendments to Current Rules 12-12 through 12-12C
    4. Instructions Common to Rules 12-12 through 12-12B and 12-13
through 12-13D
    5. Investments In and Advances to Affiliates--Rule 12-14

    6. Form and Content of Financial Statements
    D. 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 Will be Eliminated by Form
N-CEN
    E. Option for Web site Transmission of Shareholder Reports
    F. Amendments to Forms Regarding Securities Lending Activities
    1. Determination to Adopt Requirements as Amendments to
Registration Statement and Annual Report Forms
    2. Requirement to Disclose Securities Lending Income, Expenses,
and Services
    3. Required Disclosures of Monthly Average Value on Loan
    G. Technical and Conforming Amendments
    H. 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, Rescission of Form N-SAR, and Amendments to the
Exhibit Requirements of Form N-CSR
    3. Regulation S-X, Statement of Additional Information, and
Related Amendments
III. Economic Analysis
    A. Introduction
    B. Form N-PORT, Rescission of Form N-Q, and Amendments to Form
N-CSR
    1. Introduction and Economic Baseline
    2. Benefits
    3. Costs
    4. Alternatives
    C. Amendments to Regulation S-X
    1. Introduction and Economic Baseline
    2. Benefits
    3. Costs
    4. Alternatives
    D. Form N-CEN and Rescission of Form N-SAR
    1. Introduction and Economic Baseline
    2. Benefits
    3. Costs
    4. Alternatives
    E. Amendments to Forms Regarding Securities Lending Activities
    1. Introduction and Economic Baseline
    2. Benefits
    3. Costs
    4. Alternatives
    F. Other Alternatives to the Reporting Requirements
IV. 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. Amendments to Registration Statement Forms
    E. Amendments to Form N-CSR
V. Final Regulatory Flexibility Analysis
    A. Need for and Objectives of the Forms and Form Amendments and
Rules and Rule Amendments
    B. Significant Issues Raised by Public Comments
    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. Amendments to Registration Statement Forms
    7. Amendments to Form N-CSR
    E. Agency Action To Minimize Effect on Small Entities
VI. Statutory Authority

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.
---------------------------------------------------------------------------

    \1\ For 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 new or amended
forms or rules.
---------------------------------------------------------------------------

    Commission staff estimates that there were approximately 17,052
funds registered with the Commission, as of December 2015.\2\
Commission staff further estimates that there were nearly 12,000
investment advisers registered with the Commission, along with another
3,138 advisers that file reports with the Commission as exempt
reporting advisers, as of January 2016.\3\ At year-end 2015, assets of
registered investment companies exceeded $18 trillion, having grown
from about $5.8 trillion at the end of 1998.\4\ At the same time, the
industry has developed new product structures, such as ETFs,\5\ new
fund types, such as target date funds with asset allocation
strategies,\6\ and increased its use of derivatives and 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.
---------------------------------------------------------------------------

    \2\ Based on data obtained from the Investment Company Institute
(``ICI'') and reports filed by registrants on Form N-SAR. The 17,052
funds include mutual funds (including funds of funds and money
market funds), closed-end funds, exchange-traded funds (``ETFs''),
and unit investment trusts (``UITs''). See ICI, 2016 Investment
Company Fact Book (56th ed., 2016) (``2016 ICI Fact Book'') at 22,
available at https://www.ici.org/pdf/2016_factbook.pdf; see also
infra footnote 1259 and accompanying and following text.
    \3\ Based on Investment Adviser Registration Depository
(``IARD'') 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 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. 111-203, 124 Stat. 1376, 1570-80 (2010).
     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. The Commission recently
adopted amendments to Form ADV. See Form ADV and Investment Adviser
Act Rules, Investment Advisers Act Release No. 4509 (August 25,
2016) [81 FR 60417 (September 1, 2016)] (``Form ADV Release'').
    \4\ See 2016 ICI Fact Book, supra footnote 2, at 9.
    \5\ See generally Exchange-Traded Funds, Securities Act Release
No. 8901 (Mar. 11, 2008) [73 FR 14618 (Mar. 18, 2008)] (``ETF
Proposing Release'') at 14619; Request for Comment on Exchange-
Traded Products, Securities Exchange Act Rel. No. 34-75165 (June 12,
2015); see also ICI, Exchange-Traded Funds April 2016 (May 27,
2016), available at https://www.ici.org/research/stats/etf/etfs_04_16 (discussing April 2016 statistics on ETFs). As of April
2016, there were 1,630 ETFs with over $2 trillion in assets. Over
the twelve-month period ending April 2016, assets of ETFs increased
$89.63 billion. See id.
    \6\ See 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'').
    \7\ See Use of Derivatives by Registered Investment Companies
and Business Development Companies, Investment Company Act Release
No. 31933 (Dec. 11, 2015) [80 FR 80884 (Dec. 28, 2015)]
(``Derivatives Proposing Release'') (noting ``dramatic growth in the
volume and complexity of the derivatives markets over the past two
decades, and the increased use of derivatives by certain funds'');
see also Investment Company Reporting Modernization, Investment
Company Act Release No. 31610 (May 20, 2015) [80 FR 33590 (June 12,
2015)] (``Proposing Release'') at n. 7.
---------------------------------------------------------------------------

    While these changes have been taking place in the fund industry,
there have also been significant advances in the technology that can be
used to report and analyze information. We have started to use
structured data formats to collect, aggregate, and analyze data
reported by registrants and other filers.\8\

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.
---------------------------------------------------------------------------

    \8\ See Proposing Release, supra footnote 7, at nn. 12-16 and
accompanying text (discussing the use of eXtensible Business
Reporting Language (``XBRL'') with open-end fund risk/return
summaries and the use of Extensible Markup Language (``XML'') with
Forms N-MFP, PF and 13F, as well as in other contexts).
---------------------------------------------------------------------------

    As we noted in the Proposing Release, 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.\9\ In May 2015, we again acted
to modernize our forms and the manner in which information is filed and
disclosed by proposing a number of reforms for investment company
reporting.\10\ Our proposal included four sets of reforms: (1) The
creation of a new portfolio holdings reporting form, Form N-PORT, and
the rescission of Form N-Q; (2) the creation of a new census reporting
form, Form N-CEN, and the rescission of Form N-SAR; (3) amendments to
Regulation S-X, largely designed to improve derivatives disclosure; and
(4) a proposed new rule, rule 30e-3, which would provide funds with an
optional method to satisfy shareholder report transmission requirements
by posting their reports online if they met certain conditions.
---------------------------------------------------------------------------

    \9\ See supra footnote 8 and accompanying text; see also
Proposing Release, supra footnote 7, at nn. 8-9 and accompanying
text (discussing the adoption of Form N-SAR and the adoption of
rules requiring the use of the IARD for investment adviser filings);
see also Derivatives Proposing Release, supra footnote 7 (proposing,
among other things, reporting requirements in Forms N-PORT and N-CEN
related to derivatives); Investment Company Liquidity Risk
Management Programs; Investment Company Act Release No [x] (October
13, 2016) (``Liquidity Adopting Release''); Investment Company Swing
Pricing; Investment Company Release No. [x] (October 13, 2016)
(``Swing Pricing Adopting Release'').
    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, including on additional
data or information that would be helpful to regulators and market
participants. See FSOC, Notice Seeking Comment on Asset Management
Products and Activities, Docket No. FSOC-2014-0001 (Dec. 24, 2014)
(``FSOC Notice''), available at http://www.treasury.gov/initiatives/fsoc/rulemaking/Documents/Notice%20Seeking%20Comment%20on%20Asset%20Management%20Products%20and%20Activities.pdf. Although our proposal was independent of FSOC,
several commenters responding to the notice discussed issues
concerning data that were relevant to our proposal and those
comments were discussed in the Proposing Release, as relevant. See
Proposing Release, supra footnote 7, at nn. 17-18 and accompanying
text.
    \10\ See Proposing Release, supra footnote 7.
---------------------------------------------------------------------------

    The proposed reforms were designed 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. These reforms also sought 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.

B. Summary of Changes to Current Reporting Regime

    We received 1,003 comments \11\ on our proposed reforms from a
variety of interested parties, including investment companies, industry
groups, investors, academics and others. As discussed in greater detail
below in the relevant sections of this release, commenters generally
supported our efforts to modernize the investment company reporting
regime, but had varying comments on a number of specific items in each
of the respective sets of reforms. Commenters were generally supportive
of proposed new Form N-PORT; \12\ however, we received many comments
relating to the data to be collected by the form, the frequency of
filing reports on the form, and whether reports on the form or certain
information in the reports should be made public. Commenters were also
generally supportive of proposed new Form N-CEN,\13\ agreeing that Form
N-CEN will provide both the Commission and the public with enhanced and
updated census-type information. Similar to Form N-PORT, however,
commenters also provided many comments on the data to be collected by
the form and whether certain information in reports on the form should
be made public. In addition, commenters were largely supportive of our
efforts to improve the information that funds report to shareholders
and the Commission through the proposed amendments to Regulation S-
X,\14\ but had specific comments on certain disclosures. Comments on
proposed rule 30e-3, which would allow funds to transmit reports to
shareholders via the internet subject to a number of conditions, were
mixed, with some commenters supporting the rule and others opposing
it.\15\
---------------------------------------------------------------------------

    \11\ Of these, about 574 were individualized letters, and the
rest were one of a number of types of form letters. See Comments on
Investment Company Reporting Modernization, File No. S7-08-15,
available at http://www.sec.gov/comments/s7-08-15/s70815.shtml. The
comment period for the proposal closed on August 11, 2015, but was
re-opened until January 13, 2016 when the Commission proposed
liquidity risk management programs for open-end funds. See Open-End
Fund Liquidity Risk Management Programs; Swing Pricing; Re-Opening
of Comment Period for Investment Company Reporting Modernization
Release, Investment Company Act Release No. 31835 (Sept. 22, 2015)
[80 FR 62274 (Oct. 15, 2015)] (``Liquidity Proposing Release'').
    \12\ See infra footnotes 46, 64, 100, 115, 123, 145, 193, 197,
198, 245, 275, 283, 293, 330, 350, 379, 423, 432, 443, 455 and 475.
    \13\ See infra footnotes 745, 759, 769, 779, 819, 832, 857, 870,
883, 907, 940, 989, 1008, 1045, 1061, 1070, 1080, 1101 and 1107.
    \14\ See infra footnotes 527, 537, 556, 558, 566, 648, 665, 701
and 711.
    \15\ See infra footnotes 1178-1179.
---------------------------------------------------------------------------

    Today, after consideration of the comments we received, we are
adopting new Forms N-PORT and N-CEN, as well as amendments to
Regulation S-X. We continue to believe that with the industry changes
and technological advances that have occurred over the years, we need
to improve the type and format of the information that funds provide to
us and to investors, and 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. We are not adopting proposed rule 30e-3 at this time as we
believe, in light of the comments received, that additional
consideration regarding the rule is appropriate. We are adopting
amendments to Forms N-1A, N-3, and N-CSR to require certain disclosures
regarding securities lending activities.\16\
---------------------------------------------------------------------------

    \16\ If any provision of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such
invalidity shall not affect other provisions or application of such
provisions to other persons or circumstances that can be given
effect without the invalid provision or application.
---------------------------------------------------------------------------

1. Form N-PORT and Amendments to Regulation S-X
    We are adopting Form N-PORT, largely as proposed, with certain
modifications in response to commenters. We are also rescinding, as
proposed, Form N-Q. Form N-PORT is a new portfolio holdings reporting
form that will be filed by all registered management investment
companies, other than money market funds and small business investment
companies (``SBICs''),\17\ and by UITs that operate as

ETFs.\18\ Currently, management investment companies (other than SBICs)
are required to report their complete portfolio holdings to the
Commission on a quarterly basis on Forms N-Q \19\ and N-CSR.\20\
---------------------------------------------------------------------------

    \17\ See infra footnote 49 (discussing why money market funds
and SBICs will not be required to file reports on Form N-PORT).
    \18\ ETFs will 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.
    \19\ Rule 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.
    \20\ See rule 30b2-1 under the Investment Company Act [17 CFR
270.30b2-1].
---------------------------------------------------------------------------

    Form N-PORT requires reporting of a fund's complete portfolio
holdings. The form also requires additional information concerning fund
portfolio holdings that is not currently required by Forms N-Q and N-
CSR, and that will facilitate risk analyses and other Commission
oversight. For example, Form N-PORT requires reporting of additional
information relating to derivative investments. The form also includes
certain risk metric calculations that measure a fund's exposure and
sensitivity to changing market conditions, such as changes in asset
prices, interest rates, or credit spreads. As was proposed, reports on
Form N-PORT will be filed in a structured data format 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.
    We continue to believe that more timely and frequent reporting of
portfolio holdings information to the Commission, as well as the
additional information Form N-PORT requires, will enable us to further
our mission to protect investors by assisting the Commission and its
staff in carrying out its regulatory responsibilities related to the
asset management industry. These responsibilities include its
examination, enforcement, and monitoring of funds, its 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 its staff, we also continue to believe that information in Form N-
PORT will 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 required on Form N-PORT useful. For example, Form N-PORT's
structured format will allow the Commission, investors, and other
potential users to better collect and analyze portfolio holdings
information.\21\ While we do not anticipate that many individual
investors will analyze data using Form N-PORT, although some may, we
believe that individual investors will 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 and other parties,
such as industry observers and academics.
---------------------------------------------------------------------------

    \21\ As we noted in the Proposing Release, portfolio holdings
information currently filed on Form N-Q 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. See Proposing Release,
supra footnote 7.
---------------------------------------------------------------------------

    In addition, we are adopting, largely as proposed, amendments to
Regulation S-X with certain modifications in response to comments.
These amendments in large part require standardized enhanced
derivatives disclosures in fund financial statements. Currently,
Regulation S-X does not prescribe specific information for most types
of derivatives, including swaps, futures, and forwards. While many fund
groups provide disclosures regarding the terms of their derivatives
contracts, the lack of standard disclosure requirements has resulted in
inconsistent disclosures in fund financial statements.
    We continue to believe that the amendments to Regulation S-X to
enhance and standardize derivatives disclosures in financial statements
will allow comparability among funds and help all investors better
assess funds' use of derivatives. Reports on Form N-PORT will contain
similar derivatives disclosures to facilitate analysis of derivatives
investments across funds. Because Form N-PORT is not primarily designed
for individual investors, the amendments to Regulation S-X require
disclosures concerning the fund's investments in derivatives in the
financial statements that are provided to investors. We also have
endeavored to mitigate burdens on the industry by conforming the
derivatives disclosures that are required by both Regulation S-X and
Form N-PORT.
2. Form N-CEN
    We are adopting, substantially as proposed and with certain
modifications in response to comments, Form N-CEN, a new form on which
funds will report census-type information to the Commission. We are
also rescinding, as proposed, Form N-SAR, the current form on which the
Commission collects census-type information on management investment
companies and UITs.\22\ As we discussed in the Proposing Release, Form
N-SAR was adopted in 1985 and, 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 plus years since Form N-SAR's adoption,
changes in the industry have reduced the utility of some of the
currently required data elements.\23\ Commission staff believes that
obtaining certain additional census-type information not currently
collected by Form N-SAR will improve the staff's ability to carry out
regulatory functions, including risk monitoring and analysis of the
industry.
---------------------------------------------------------------------------

    \22\ See rules 30a-1 and 30b1-1 under the Investment Company Act
[17 CFR 270.30a-1 and 17 CFR 270.30b1-1].
    \23\ See Proposing Release, supra footnote 7 (noting that when
adopted, Form N-SAR was intended to reduce reporting burdens and
better align the information that was required to be reported with
the characteristics of the fund industry). Also as noted in the
Proposing Release, the filing format that is required for reports on
Form N-SAR limits our ability to use the reported information for
analysis.
---------------------------------------------------------------------------

    Form N-CEN includes many of the same data elements as Form N-SAR,
but, in order to improve the quality and utility of information
reported, replaces 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 eliminating items that are reported on
other Commission forms, or are available elsewhere. In addition,
reports on Form N-CEN will be filed in a structured XML format, which,
we believe, will 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.\24\ Finally, reports on new Form N-CEN will be
filed annually, rather than semi-annually as is required for reports on
Form N-SAR by management companies, which will further reduce current
burdens on funds.
---------------------------------------------------------------------------

    \24\ See infra footnotes 750-752 and accompanying text.
---------------------------------------------------------------------------

II. Discussion

A. Form N-PORT

    As discussed above, we are adopting a new monthly portfolio
reporting form, Form N-PORT. Form N-PORT requires 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 reports in an
XML format no later than 30 days after the close of each month.\25\
Except as discussed below in section II.A.4, only information reported
for the third month of each fund's fiscal quarter on Form N-PORT will
be publicly available, and that information will not be made public
until 60 days after the end of the fiscal quarter.\26\
---------------------------------------------------------------------------

    \25\ See new rule 30b1-9.
    \26\ As used throughout this section, the term ``fund''
generally refers to investment companies that will file reports on
Form N-PORT.
    As discussed further in section II.A.4, the Commission does not
intend to make public the information reported on Form N-PORT for
the first and second months of each fund's fiscal quarter that is
identifiable to any particular fund or adviser or any information
reported with regard to country of risk and economic exposure,
delta, or miscellaneous securities, or explanatory notes related to
any of those topics that is identifiable to any particular fund or
adviser. However, the Commission may use such information in its
regulatory programs, including examinations, investigations, and
enforcement actions. See infra footnote 500; see also General
Instruction F of Form N-PORT.
---------------------------------------------------------------------------

    As the primary regulator of the asset management 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-CSR. 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, and commenters generally agreed, that
more frequent and timely information concerning fund portfolios than we
currently receive, will assist the Commission in its role as the
primary regulator of funds, as discussed further below.\28\
---------------------------------------------------------------------------

    \27\ Funds 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 semi-annual 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.
    \28\ See, e.g., Comment Letter of Morningstar, Inc. (Aug. 21,
2015) (``Morningstar Comment Letter'') (expressing belief that
timelier information to investors through monthly public disclosures
of portfolios would assist the Commission in monitoring the
financial system, while also providing suggested revisions to
enhance the proposal.); Comment Letter of Vanguard (Aug. 11, 2015)
(``Vanguard Comment Letter'') (stating that the proposal strikes the
appropriate balance between disclosures to the Commission and
protecting funds and their investors from front-running, and
providing suggested modifications to the proposal).
---------------------------------------------------------------------------

    The information we will collect on Form N-PORT will be important to
the Commission and its staff 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,
as we discuss in the Liquidity Adopting Release that we are adopting
concurrently Form N-PORT will help the Commission better understand
liquidity risks through additional Form N-PORT disclosure requirements
discussed in that release.\29\ The information collected on Form N-PORT
will also assist with understanding whether and to what extent a fund's
exposure to price movements is leveraged, either through borrowings or
the use of derivatives.
---------------------------------------------------------------------------

    \29\ See generally Liquidity Adopting Release, supra footnote 9.
---------------------------------------------------------------------------

    Many commenters generally agreed with us that the information
required on Form N-PORT will assist the Commission in better
understanding each of these risks in the fund industry.\30\ These
commenters also generally agreed with us that the ability to understand
the risks that funds face will help Commission staff better understand
and monitor risks and trends in the fund industry as a whole,
facilitating the Commission's informed regulation of the fund
industry.\31\ We also believe, and some commenters agreed, that
information obtained from Form N-PORT filings will facilitate the
Commission's 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.\32\ In this regard, we expect that Commission staff will
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.\33\
---------------------------------------------------------------------------

    \30\ See, e.g., Comment Letter of BlackRock (Aug. 11, 2015)
(``BlackRock Comment Letter'') (``Importantly, the greater depth and
frequency of information requested by the Commission will help the
Commission better identify and monitor emerging risks associated
with specific RICs or categories of RICs as well as asset management
activities.''); Comment Letter of Wells Fargo Funds Management, LLC
(Aug. 11, 2015) (``Wells Fargo Comment Letter'') (``we believe that
the enhanced disclosure requirements of the Proposals represent
appropriate valuable information for the Commission to have in order
to assess trends in risks, for example, across the mutual fund
industry.''); but see, e.g., Comment Letter of Federated Investors,
Inc. (January 13, 2016) (``Federated Comment Letter) (``A majority
of the Commission's proposed amendments to Form N-1A, N-PORT, and N-
CEN would require a large effort from funds while offering data that
is, at best, of little utility, and, at worst, misleading. Many of
these deficiencies relate to flaws inherent in a security-level
disclosure scheme.''). We disagree with the commenter that a
security-level disclosure scheme is of little utility. See infra
footnote 1283 and accompanying and following text (discussing the
utility of the security-level information that will be reported on
Form N-PORT).
    \31\ Id.
    \32\ Id.
    \33\ See, 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; Amendments to Form PF,
Investment Company Act Release No. 31166 (July, 23 2014) [79 FR
44076 (July 29, 2014)] (``Money Market Fund Reform 2014 Release'')
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).
---------------------------------------------------------------------------

    In addition to assisting the Commission in its regulatory
functions, we believe, and some commenters agreed, that investors and
other potential users will benefit from the

periodic public disclosure of the information reported on Form N-
PORT.\34\ Form N-PORT is primarily designed for use by the Commission
and its staff, and not for disclosing information directly to
individual investors. The information we are requiring on Form N-PORT
is more voluminous than on a schedule of investments. We believe, and
some commenters agreed, however, that some investors, particularly
institutional investors, could directly use the data from the
information on 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.\35\
Additionally, we believe, and some commenters agreed, that entities
providing services to investors, such as investment advisers, broker-
dealers, and entities that provide information and analysis for fund
investors, will also utilize and analyze the information that will be
required by Form N-PORT to help all investors make more informed
investment decisions.\36\ Accordingly, whether directly or through
third parties, we believe, and some commenters agree, that the periodic
public disclosure of the information on Form N-PORT will benefit all
fund investors.\37\ As discussed further below, in order to mitigate
the risk that the information on Form N-PORT will be used in ways that
might ultimately result in investor harm, we are limiting the public
availability of Form N-PORT to reports filed as of quarter-end, as well
as delaying public availability of those reports by 60 days and keep
certain discrete information items nonpublic.
---------------------------------------------------------------------------

    \34\ See, e.g., Comment Letter of Joseph A. Franco (Aug. 11,
2015) (``Franco Comment Letter''); Morningstar Comment Letter; but
see, e.g., Comment Letter of the Investment Company Institute (Aug.
11, 2015) (``ICI Comment Letter'').
    \35\ Id.
    \36\ See id.
    \37\ See id.
---------------------------------------------------------------------------

    We intend to increase transparency of fund investments through Form
N-PORT in several ways. First, Form N-PORT will improve reporting of
fund derivative usage. As the Commission has previously noted, we have
observed a dramatic growth in the volume and complexity of the
derivatives markets over the past two decades.\38\ Additionally, funds
that are considered ``alternative'' funds, which often use derivatives
for implementing their investment strategy, are becoming increasingly
popular among investors.\39\ Although Regulation S-X establishes
general disclosure requirements for financial statements in fund
registration statements and shareholder reports, 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 better
understand the investment.\40\ This hinders both an analysis of a
particular fund's investments, as well as comparability among
funds.\41\
---------------------------------------------------------------------------

    \38\ See Derivatives Proposing Release, supra footnote 7, at n.
6 and accompanying text; see also 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'') at n. 7 and accompanying
text.
    \39\ While 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) non-traditional strategies (such as
long/short equity positions); and/or (3) less liquid assets (such as
private debt).
     At the end of December 2015, alternative mutual funds and
exchange-traded funds had more than $200 billion in assets. Although
alternative mutual funds only accounted for 1.23% of the mutual fund
market as of December 2015, the almost $17.3 billion of inflows into
these funds in 2015 represented 7% 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.
    \40\ For example, we understand that some funds provide a
description of all of the holdings in an index or custom basket
underlying a swap contract, while others only provide a short
description. See also Proposing Release, supra footnote 7, at n. 31
and accompanying text.
    \41\ See, e.g., current rule 12-13 of Regulation S-X [17 CFR
210.12-13] (requiring funds to disclose ``other'' investments, which
includes derivatives); 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); FASB ASC 815, Disclosures about Derivative Instruments and
Hedging Activities (``ASC 815'') (discussing general derivative
disclosure); FASB ASC 820, Fair Value Measurements (``ASC 820'')
(requiring disclosure of valuation information for major categories
of investments). See also infra section II.C.
---------------------------------------------------------------------------

    The information and reporting format required by Form N-PORT will
create a more detailed, uniform, and structured reporting regime. We
believe and several commenters agreed that this will allow the
Commission and investors to better analyze and compare 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.\42\
---------------------------------------------------------------------------

    \42\ See, e.g., Comment Letter of Fidelity Investments (Aug. 10,
2015) (``Fidelity Comment Letter'') (generally supporting
Commission's focus on modernizing the way data is collected from
funds and reported to shareholders and providing suggestions for
modifications to the final rule); Comment Letter of Capital Research
and Management Company (Aug. 11, 2015) (``CRMC Comment Letter'')
(supporting Commission's efforts to take advantage of technology in
order to assist the staff, investors, and other market participants
to better assess different fund products and assist the Commission
in carrying out its mission; and providing suggestions for
modifications to the final rule).
---------------------------------------------------------------------------

    Furthermore, as discussed further below, Form N-PORT requires 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 (prior to the Commission issuing
the Proposing Release), discussed further below, we believe that fund
portfolio managers and risk managers commonly calculate risk metrics to
analyze the exposures in their portfolios.\43\ 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.
---------------------------------------------------------------------------

    \43\ See generally John C. Hull, Options, Futures, and Other
Derivatives (9th ed., 2015) (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
of changes in underlying asset prices or interest rates); Sheldon
Natenberg, Option Volatility and Pricing (1994) (same).
---------------------------------------------------------------------------

    Form N-PORT will also require information about certain fund
transactions and 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-the-counter derivatives transactions.
We believe and several commenters agreed that such information will
increase transparency concerning these transactions and activities and
will

provide better information regarding counterparties, which will be
useful in assessing both individual and multiple fund exposures to a
single counterparty.\44\ This will allow the Commission to better
assess and monitor counterparty risk for individual funds, as well as
across the industry.
---------------------------------------------------------------------------

    \44\ See, e.g., Morningstar Comment Letter (``By collecting and
making available additional information about counterparty risk and
other important factors, the SEC will make it easier for investors
and financial advisors to monitor portfolio risks.'').
---------------------------------------------------------------------------

    As discussed further below, Form N-PORT will be filed
electronically in a structured, XML format. This format will enhance
the ability of the Commission, as well as investors and other potential
users, to analyze portfolio data both on a fund-by-fund basis and also
across funds.\45\ As a result, although we will 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.
---------------------------------------------------------------------------

    \45\ See, e.g., Fidelity Comment Letter (``Collecting data in a
structured format should allow the Commission to use information
from market participants in rigorous empirical examinations of the
industry in furtherance of the SEC's goals.''); ICI Comment Letter
(``Obtaining that information in a structured data format will help
the SEC to better analyze information and improve its ability to
carry out its regulatory mission.'').
---------------------------------------------------------------------------

    Many commenters were generally supportive of our proposal.\46\
However, we received many comments relating to the structure of the
proposed form, data to be collected, frequency of filings, and whether
reports on the form should be made public. We address these comments
below and discuss modifications we made from the proposal in response
to comments.
---------------------------------------------------------------------------

    \46\ See, e.g., Comment Letter of Charles Schwab Investment
Management, Inc. (Aug. 11, 2015) (``Schwab Comment Letter'') (``Form
N-Port [sic] will provide substantial additional information to the
Commission and strengthen its ability to oversee and carry out its
regulatory responsibilities for the asset management industry.'');
Vanguard Comment Letter (``Vanguard generally supports the proposed
reporting initiatives because we believe these reporting obligations
will provide the Commission with the tools necessary to monitor
portfolio composition and risk exposure among funds, without
exposing fund investors to potentially harmful front-running
activities.''); Comment Letter of Pioneer Investments (Aug. 11,
2015) (``Pioneer Comment Letter'') (``Pioneer supports the
Commission's effort to modernize the regime whereby funds report
information about their portfolio holdings to the Commission.'');
Comment Letter of the Securities Industry and Financial Markets
Association Asset Management Group (Aug. 11, 2015) (``SIFMA Comment
Letter I'') (``We support the Commission's initiative in proposing
monthly reports on Form N-PORT in order to strengthen its regulatory
oversight of the asset management industry and protect investors by
obtaining more frequent and substantially expanded information about
funds, in a structured format.''); ICI Comment Letter (``ICI broadly
supports the Commission's efforts to update fund reporting.'').
---------------------------------------------------------------------------

1. Who Must File Reports on Form N-PORT
    We are adopting, as proposed, the requirement that each registered
management investment company and each ETF organized as a UIT file a
report on Form N-PORT.\47\ Registrants offering multiple series will be
required to file a report for each series separately, even if some
information is the same for two or more series.\48\ Money market funds
and SBICs will not be required to file reports on Form N-PORT.\49\
---------------------------------------------------------------------------

    \47\ See new rule 30b1-9.
    \48\ As further discussed below, in part to harmonize
definitions between Forms N-PORT and N-CEN, and in part to parallel
identical changes to the definition of ``exchange-traded fund'' in
Form N-CEN, we have revised Form N-PORT's proposed definition of
``exchange-traded product'' to refer instead to ``exchange-traded
fund,'' which as revised includes each series of a UIT that meets
that definition. See General Instruction E of Form N-PORT; infra
footnote 896 (discussing changes to definitions in Form N-CEN).
    \49\ Money market funds already file their monthly portfolio
investments with the Commission. See Form N-MFP. SBICs are unique
investment companies that operate differently and are subject to a
different regulatory regime 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 SBA, SBIC Program Overview, available at
https://www.sba.gov/content/sbic-program-overview. As a result of
these differences, SBICs are not required to file reports on Form N-
Q. As of December 31, 2015, only one SBIC had publicly offered
securities outstanding.
---------------------------------------------------------------------------

    We are adopting, as proposed, the requirement that all ETFs 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.\50\ ETFs organized as UITs have significant numbers of investors
who we believe can benefit from the disclosures required in Form N-
PORT.\51\ We received no comments on this aspect of the proposal.
---------------------------------------------------------------------------

    \50\ There are currently eight ETFs organized as UITs that have
registered with the Commission.
    \51\ Commission staff estimates that as of December 2015, ETFs
organized as UITs represented 12% of all assets invested in
registered ETFs. This analysis is based on data from Morningstar
Direct.
---------------------------------------------------------------------------

    One commenter suggested that reports on Form N-PORT should be filed
by all registered investment companies, including UITs, in order to
have comparable filing information across registered investment
products, although the commenter did suggest that less frequent filing
requirements might be appropriate based on the structure of the
investment company.\52\ We note that UITs have fixed portfolios that do
not change over time, and thus, unlike most other investment companies
which are required to file quarterly reports with their current
portfolio holdings, UITs are not currently required to file periodic
reports other than on an annual basis.\53\ Based on these differences,
as reflected in the current reporting regime, we have determined not to
extend Form N-PORT filing requirements to UITs that are not ETFs at
this time.
---------------------------------------------------------------------------

    \52\ See Morningstar Comment Letter.
    \53\ UITs currently file annual reports on Form N-SAR. In
contrast, management investment companies currently file reports for
their first and third fiscal quarters on Forms N-Q and reports for
their second and fourth fiscal quarters on Form N-CSR, as well as
semi-annual reports on Form N-SAR. See supra footnotes 19-20 and
accompanying text.
---------------------------------------------------------------------------

    The same commenter also recommended that reports on Form N-PORT be
filed by business development companies (``BDCs'').\54\ BDCs are a
category of closed-end funds that are operated for the purpose of
investing in, and providing managerial assistance to, small and
developing businesses, and financially troubled businesses. BDCs are
not required to register as investment companies under the Investment
Company Act although they do elect to be subject to certain specialized
provisions, and they are subject to a different reporting regime than
registered investment companies.\55\ Based on these differences, and as
reflected in the current reporting and registration regime, we have
determined not to extend Form N-PORT filing requirements to BDCs at
this time.\56\
---------------------------------------------------------------------------

    \54\ See Morningstar Comment Letter (recommending that
``business development companies . . . and other [registered
investment companies]'' should be required to file reports on Form
N-PORT).
    \55\ See Adoption of Permanent Notification Forms for Business
Development Companies; Statement of Staff Position, Investment
Company Act Release No. 12274 (Mar. 5, 1982) [47 FR 10518-02 (Mar.
11, 1982)]; and Interim Notification Forms for Business Development
Companies, Investment Company Act Release No. 11703 (Mar. 26, 1981)
[46 FR 19459 (Mar. 31, 1981)] for a discussion of the regulatory
system applicable to BDCs.
    \56\ Although BDCs will not be subject to Form N-PORT filing
requirements, the amendments being adopted to Regulation S-X will
apply to both registered investment companies and BDCs. See infra
footnote 700.
---------------------------------------------------------------------------

    Another commenter suggested that the Commission and the CFTC should
agree on and implement a substituted

compliance regime.\57\ Although we recognize that there are various
alternative reporting requirements imposed in other contexts and by
other regulators, the reporting requirements imposed by Form N-PORT
have been designed specifically to meet the Commission's regulatory
needs with regards to monitoring and oversight of registered funds.
---------------------------------------------------------------------------

    \57\ See SIFMA Comment Letter I (``Under our suggested approach,
funds required to report on new Form N-PORT would be excused from
reporting on Form CPO-PQR.'').
---------------------------------------------------------------------------

    Finally, one commenter stated that we should not require funds to
directly report information on their own behalf, but instead require
other entities such as transfer agents and custodians to report
information on behalf of funds.\58\ Given our expertise and experience
in regulating, examining, and overseeing funds, including fund
reporting, recordkeeping, and compliance, we continue to believe that
obtaining such information directly from funds is appropriate.
---------------------------------------------------------------------------

    \58\ See Federated Comment Letter (``It would also reduce the
reporting burden on funds for the Commission to acquire information
directly from custodians and transfer agents, which are proficient
in maintaining and reporting portfolio holdings and other
information.'').
---------------------------------------------------------------------------

2. Information Required on Form N-PORT
    We are adopting, substantially as proposed, the requirements in
Form N-PORT 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. We are adopting these information
requirements substantially as proposed, although we are making some
modifications from the proposal in response to comments. Each of these
is discussed in more detail below.
a. General Information and Instructions
    Part A of Form N-PORT requires, as proposed, general identifying
information about the fund. This information includes the name of the
registrant, name of the series, and relevant file numbers.\59\ Funds
will also report the date of their fiscal year end, the date as of
which information is reported on the form, and indicate if they
anticipate that this will be their final filing on Form N-PORT.\60\
This information will be used to identify the registrant and series
filing the report, track the reporting period, and identify final
filings. No comments were received on this aspect of our proposal. We
are adopting these elements as proposed.
---------------------------------------------------------------------------

    \59\ See Item A.1 and Item A.2 of Form N-PORT. Funds will
provide the name of the registrant, the Investment Company Act and
CIK file numbers for the registrant, and the address and telephone
number of the registrant. Funds will also provide the name of and
EDGAR identifier (if any) for the series.
    \60\ See Item A.3 and Item A.4 of Form N-PORT.
---------------------------------------------------------------------------

    As proposed, funds will also provide the Legal Entity Identifier
(``LEI'') number of the registrant and series.\61\ The LEI is a unique
identifier generally associated with a single corporate entity and is
intended to provide a uniform international standard for identifying
counterparties to a transaction.\62\ 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 is widely and freely
available and not subject to any usage restrictions. Funds or
registrants that have not yet obtained an LEI will be required to
obtain one, which currently entails a one-time fee of $219 plus $119
per year in annual maintenance costs and fees.\63\
---------------------------------------------------------------------------

    \61\ See Item A.1.d and Item A.2.c of Form N-PORT. The
Commission has begun to require disclosure of the LEI in other
contexts. See, e.g., Form PF, Reporting Form for Investment Advisers
to Private Funds and Certain Commodity Pool Operators and Commodity
Trading Advisors, available at http://www.sec.gov/rules/final/2011/ia-3308-formpf.pdf; Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, Securities Exchange Act Release No.
74244 (Feb. 11, 2015) [80 FR 14564 (Mar. 19, 2015)] (``Regulation
SBSR Adopting Release'').
    \62\ The 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 requirement
to report LEIs if the operation of the LEI system were to change
significantly.
    \63\ As of June 30, 2016, the cost of obtaining an LEI from the
Global Markets Entity Identifier (``GMEI'') Utility in the United
States was $200, plus a $19 surcharge for the LEI Central Operating
Unit. The annual cost of maintaining an LEI from the GMEI Utility
was $100, plus a $19 surcharge for the LEI Central Operating Unit.
See GMEI Utility, Frequently Asked Questions, available at https://www.gmeiutility.org/frequentlyAskedQuestions.jsp.
---------------------------------------------------------------------------

    Commenters were generally supportive of this aspect of our
proposal, with most endorsing the use of LEI for identification of
funds, as well as for fund counterparties.\64\ However, one commenter
suggested that certain funds should be permanently exempted from such
requirements as such funds would not need an LEI for any other
purpose.\65\ Lastly, another commenter suggested that, to better assist
academic researchers with identification of entities, every filing by a
mutual fund should require an exhaustive list of the tickers and CUSIPs
associated with that mutual fund.\66\
---------------------------------------------------------------------------

    \64\ See, e.g., Comment Letter of State Street Corporation (Aug.
11, 2015) (``State Street Comment Letter''); Comment Letter of
Depository Trust & Clearing Corporation (Aug. 11, 2015); Comment
Letter of Interactive Data Pricing and Reference Data LLC (Aug. 10,
2015) (``Interactive Data Comment Letter''); Comment Letter of
Global Legal Entity Identifier Foundation (Aug. 5, 2015).
    \65\ See Comment Letter of Carol Singer (June 24, 2015) (``Carol
Singer Comment Letter'') (suggesting that a small closed-end fund
that is not listed on an exchange should not be required to obtain
an LEI identifier).
    \66\ See Comment Letter of Russ Wermers (Aug. 4, 2015) (``Russ
Wermers Comment Letter'') (arguing that this information could help
with the identification of entities. The commenter did not discuss
the utility of the LEI specifically).
---------------------------------------------------------------------------

    We are adopting the requirement that funds report LEI information
for the registrant and for each series, as proposed. We acknowledge
that funds will incur some costs to obtain and maintain an LEI,
although we believe the cost to obtain and maintain an LEI identifier
is modest.\67\ Uniform reporting of LEIs by funds, however, will help
provide a consistent means of identification that will facilitate the
linkage of data reported on Form N-PORT with data from other filings
and sources that is or will be reported elsewhere as LEIs become more
widely used by regulators and the financial industry.\68\ Using
alternate means of identification or providing exemptions to this
requirement could hinder the ability of Commission staff as well as
investors and other potential users of this information to use the data
on Form N-PORT as discussed above. For these

reasons, we anticipate that the benefits of requiring funds to report
the LEI number of the registrant and series on Form N-PORT will justify
the costs of obtaining and reporting this information, and thus we are
adopting this requirement as proposed.
---------------------------------------------------------------------------

    \67\ See supra footnote 63.
    \68\ See, e.g., Commodities Futures Trading Commission
(``CFTC''), CFTC Announces Mutual Acceptance of Approved Legal
Entity Identifiers, Press Release: PR6758-13 (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 (Apr.
11, 2014), available at http://www.sifma.org/comment-letters/2014/sifma-submits-comments-to-fsoc-encouraging-us-regulators-to-adopt-and-use-the-legal-entity-identifiers; Regulation SBSR Adopting
Release, supra footnote 61.
    Commenters to the FSOC Notice expressed support for regulatory
acceptance of LEI identifiers. See, e.g., Joint Comment Letter of
SIFMA/Investment Adviser Association to FSOC Notice (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).
---------------------------------------------------------------------------

    Furthermore, in response to the request that an exhaustive list of
the tickers and CUSIPs associated with the fund be reported to help
with the identification of entities, we note that Form N-PORT requires
funds to report various identifying information, including name of the
registrant, Investment Company Act file number of the registrant, CIK
number of the registrant, LEI of the registrant, name of each series,
EDGAR identifier (if any) for each series, and LEI for each series.\69\
We believe this information is sufficient for Commission staff, as the
primary user of the form, to identify funds filing reports on Form N-
PORT, and could also be useful for investors and other potential users.
As discussed further below, funds will also be reporting additional
identifying information on Form N-CEN in a structured format that can
be used to identify those funds and link information reported by them
on Forms N-PORT and N-CEN with information available in other
Commission filings and sources that is similarly structured.\70\
---------------------------------------------------------------------------

    \69\ See Item A.1 and Item A.2 of Form N-PORT.
    \70\ Form N-CEN requires funds to report additional information
for each share class outstanding, including name of the class, class
identification number, and ticker symbol. See Item C.2.d of Form N-
CEN.
---------------------------------------------------------------------------

    Form N-PORT also includes general filing and reporting
instructions, as well as definitions of specific terms referenced in
the form.\71\ These instructions and definitions are intended to
provide clarity to funds and to assist them in filing reports on Form
N-PORT.\72\
---------------------------------------------------------------------------

    \71\ See General Instruction 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) and G (Responses to Questions) of Form N-
PORT.
    \72\ See id. For example, General Instructions A, B, C and G
provide specific filing and reporting instructions (including how to
report entity names, percentages, 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.
---------------------------------------------------------------------------

    Proposed Form N-PORT would have required funds to report
information about their portfolios as of the last business day, or
calendar day, of the month, but did not provide specific instructions
on the appropriate basis for reporting such information, such as
whether the information should be reported as of the trade date
(``T+0''), which is required for financial reporting purposes, or the
trade date plus one day (``T+1''), which is currently permitted under
rule 2a-4 for the calculation of funds' net asset values (``NAV'').
Several commenters requested clarification on this issue and
specifically requested that Form N-PORT allow reporting on a T+1
basis.\73\
---------------------------------------------------------------------------

    \73\ See, e.g., ICI Comment Letter; Fidelity Comment Letter;
Schwab Comment Letter; Comment Letter of OppenheimerFunds (Aug. 10,
2015) (``Oppenheimer Comment Letter'').
---------------------------------------------------------------------------

    Many commenters noted that most funds use T+1 accounting to record
their day-to-day transactions, and only convert their records to T+0
for quarterly portfolio holdings reporting purposes on Forms N-CSR and
N-Q.\74\ These commenters further noted that our proposal would require
funds to file monthly reports 30 days after each reporting period,
whereas funds currently have at least 60 days after the end of each
fiscal quarter to report similar information on a T+0 basis on Forms N-
CSR and N-Q. Accordingly, commenters suggested that allowing funds to
file on a T+1 basis would reduce filing burdens relative to requiring
reporting on a T+0 basis, while not meaningfully changing the substance
of the information reported. One commenter explicitly recommended that
funds be allowed to choose whether to file on a T+0 or T+1 basis, so
that funds that prefer to align their Form N-PORT reporting with their
reporting on Forms N-Q and/or N-CSR could do so, while other commenters
that suggested this modification did not specify whether all funds
should be required to report on a T+1 basis uniformly.\75\
---------------------------------------------------------------------------

    \74\ See, e.g., Pioneer Comment Letter; Comment Letter of
Invesco Advisers (Aug. 11, 2015) (``Invesco Comment Letter'');
Schwab Comment Letter; ICI Comment Letter; Comment Letter of the
Securities Industry and Financial Markets Association Asset
Management Group (Jan. 13, 2016) (``SIFMA Comment Letter II'').
    \75\ See SIFMA Comment Letter I.
---------------------------------------------------------------------------

    As discussed above, the Commission did not specify the appropriate
basis for reporting, and we agree with commenters that an explicit
instruction on the basis on which to report is appropriate. We are
persuaded by commenters that explicitly instructing funds file on the
same basis for which they calculate their NAV (generally a T+1 basis)
would not be as burdensome as instructing all funds to file on a T+0
basis, and would still maintain the utility of the information
reported. As noted by commenters, we acknowledge that reporting monthly
information on Form N-PORT on a T+1 basis may result in differences
between quarterly portfolio holdings information currently reported on
a T+0 basis on Forms N-CSR and N-Q. However, any such differences are
unlikely to affect the utility of the information for the Commission
and other potential users, because our primary purpose for using the
information is to analyze and assess the various risks in a particular
fund and monitoring risks and trends in the fund industry as a whole,
rather than to align the information reported with the fund's financial
statements.
    Nonetheless, we do not agree that funds should be permitted to file
either on the basis of calculating its NAV (generally T+1) or on the
basis of how they prepare financial reports (T+0) at the fund's option,
as having funds report their portfolio holdings on different bases
would reduce the comparability of the data reported on Form N-PORT
among funds and across the industry. Accordingly, we have modified the
proposal to add an instruction to Form N-PORT instructing funds that
they must report portfolio information on Form N-PORT on the same basis
they use to calculate their NAV, which we understand is generally
T+1.\76\
---------------------------------------------------------------------------

    \76\ See General Instruction A of Form N-PORT (``Reports on Form
N-PORT must disclose portfolio information as calculated by the fund
for the reporting period's ending net asset value (commonly, and as
permitted by rule 2a-4, the first business day following the trade
date).''). We understand that funds generally calculate their NAV on
a T+1 basis pursuant to rule 2a-4, although under certain
circumstances funds might record particular transactions on a T+0
basis, such as when correcting a pricing error. The instructions in
Form N-PORT are intended to be flexible enough to allow funds to
report information on Form N-PORT on the same basis used in
calculating NAV.
---------------------------------------------------------------------------

    Commenters also requested confirmation that different internal
methodologies could be applied in responding to certain items on Form
N-PORT, such as those that may require subjective judgments on the part
of funds.\77\ Furthermore, two commenters urged the Commission to
explicitly state that funds may make and rely on reasonable assumptions
in providing responses to information items on Form N-PORT.\78\ In
response to these comments, we have modified the proposal by adding an
instruction clarifying that in reporting information on Form N-PORT,
the fund may

respond using its own methodology and the conventions of its service
provider, so long as the methodology and conventions are consistent
with the way the fund reports internally and to current and prospective
investors.\79\ This approach, which we have modeled after a similar
instruction in Form PF, is intended to strike an appropriate balance
between easing the reporting burden on funds by allowing them to rely
on their existing practices, while still providing useful information
to the Commission, investors, and other potential users.\80\ The new
instruction also explains that funds may explain any of their
methodologies, including related assumptions, in Part E of Form N-
PORT.\81\
---------------------------------------------------------------------------

    \77\ See, e.g., SIFMA Comment Letter I (requesting confirmation
that funds may use classifications generated by existing
methodologies or available service providers in reporting country of
risk for portfolio holdings); ICI Comment Letter (asserting that
funds should have the flexibility to make country of risk
determinations using their own good faith judgment).
    \78\ See ICI Comment Letter; Oppenheimer Comment Letter.
    \79\ See General Instruction G of Form N-PORT (``Funds may
respond to this Form using their own internal methodologies and the
conventions of their service providers, provided the information is
consistent with information that they report internally and to
current and prospective investors. However, the methodologies and
conventions must be consistently applied and the Fund's responses
must be consistent with any instructions or other guidance relating
to this Form.'').
    \80\ See General Instruction 15 of Form PF. Periodic reports on
Form PF must be filed by registered investment advisers with at
least $150 million in private fund assets under management. Form PF
is designed, among other things, to assist the Financial Stability
Oversight Council in its assessment of systemic risk in the U.S.
financial system. See generally 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'').
    \81\ See General Instruction G of Form N-PORT (``A Fund may
explain any of its methodologies, including related assumptions, in
Part E.'').
---------------------------------------------------------------------------

    One commenter recommended that we include a definition of ``forward
contract,'' that references the settlement time of a contract, noting
that from their experience, there are several interpretations of what
constitutes a forward contract and without a standard definition, funds
might categorize products inconsistently.\82\ We disagree that we
should define forward contracts with regard to the settlement time, and
believe that adopting a specific definition like the one that the
commenter suggested could be overbroad or under-inclusive based on the
settlement time selected. Also, based on staff experience reviewing
fund disclosures, we note that funds have generally been able to
classify forwards in their current disclosures even though there is not
a specific definition that references the settlement date of the
contract. Finally, the approach we are adopting allows flexibility as
forward products evolve.
---------------------------------------------------------------------------

    \82\ See Comment Letter of T. Rowe Price (Aug. 21, 2015) (``T.
Rowe Price Comment Letter'').
---------------------------------------------------------------------------

    Similarly, one commenter noted that it is unclear if a credit
default swap should be reported as an option or a swap on Form N-PORT
since it has the characteristics of both types of investments.\83\ As
discussed further below, we are revising Form N-PORT to include a
clarification that specifically identifies that total return swaps,
credit default swaps, and interest rate swaps should all be categorized
under the ``swap'' instrument type.\84\
---------------------------------------------------------------------------

    \83\ See Morningstar Comment Letter.
    \84\ See infra footnote 340 and accompanying text.
---------------------------------------------------------------------------

    A few commenters also asked for guidance as to what investments
would fall within the category of ``other derivatives'' in Item
C.11.g.\85\ The commenters noted that funds already rely upon the
definition of ``derivatives'' provided in U.S. Generally Accepted
Accounting Principles (``GAAP'') for financial statement reporting
purposes and recommended that funds be allowed to rely upon the same
definition for determining what to report as ``other derivatives'' on
Form N-PORT (i.e., investments reported as derivatives for financial
statement reporting purposes, but that do not fall within the
categories of derivatives enumerated in Form N-PORT such as futures,
forwards, etc.).\86\ We agree that this approach will generally promote
consistency in how such information is reported and will provide more
certainty to funds reporting ``other derivatives'' on Form N-PORT, and
we understand that funds may choose to utilize this approach. However,
we are not requiring that funds do so since we anticipate most
derivative investments held by funds will fall within one of the
categories of derivatives previously enumerated in Form N-PORT, and
thus we expect few investments to be reported within the ``other
derivatives'' category. Moreover, this ``other derivatives'' category
is intentionally designed to be flexible enough to allow funds to
capture and categorize investments in the future that are not currently
traded by funds, and for these reasons we are not requiring funds to
adhere to any specific process in determining what should fall within
this category, provided that none of the previously enumerated
categories apply.
---------------------------------------------------------------------------

    \85\ See ICI Comment Letter; T. Rowe Price Comment Letter.
    \86\ See generally ASC 815 (Derivatives and Hedging).
     We note that definitions related to derivatives have been
proposed in other contexts, for example ``derivatives transaction''
in our recent proposal regarding the use of derivatives by
registered investment companies and BDCs. See Derivatives Proposing
Release, supra footnote 7 (defining the term ``derivatives
transaction'' to mean ``any swap, security-based swap, futures
contract, forward contract, option, any combination of the
foregoing, or any similar instrument (`derivatives instrument')
under which a fund is or may be required to make any payment or
delivery of cash or other assets during the life of the instrument
or at maturity or early termination.'' However, that proposed
definition is limited to derivatives transactions where the fund may
be required to make a payment or delivery of cash or other assets.
In contrast, for purposes of Form N-PORT, we seek to obtain
information about all of a fund's derivative investments, regardless
of whether the fund has a payment or delivery obligation. As a
result of these differences, we continue to believe that it is
preferable for Form N-PORT to not incorporate a specific definition,
but rather to retain the flexibility to encompass the changing types
of products that may evolve and emerge.
---------------------------------------------------------------------------

    Several commenters also asked that the definition of ``investment
grade'' be revised to follow standards generally used by the industry
by replacing references to liquidity with references to credit
quality.\87\ In response to these comments, we are removing the
definition of ``investment grade'' that we proposed to be included in
Form N-PORT. Consistent with our other changes discussed herein that
permit funds to rely on their existing practices and methodologies,
Form N-PORT provides funds with the flexibility, in determining what
constitutes ``investment grade,'' to generally use their own
methodology and the conventions of their service providers, as provided
in General Instruction G. Given this clarification in the adopted form,
we do not believe any definition of investment grade is necessary.\88\
---------------------------------------------------------------------------

    \87\ See ICI Comment Letter; Oppenheimer Comment Letter; Pioneer
Comment Letter; Comment Letter of MFS Investment Management (Aug.
11, 2015) (``MFS Comment Letter''); Comment Letter of the Dreyfus
Corporation (Aug. 11, 2015) (``Dreyfus Comment Letter'').
    \88\ See supra footnote 79 and accompanying text.
---------------------------------------------------------------------------

    We have also made several changes to certain definitions and
instructions related to the way in which funds will provide information
on Form N-PORT, largely relating to the formatting of the information
reported. Among other things, we have revised the instruction in the
proposal that directed funds to respond to every item of the form.\89\
As proposed, the instruction would have required funds to respond to
each sub-item and item on Form N-PORT even if the item was
inapplicable. The revised instruction indicates that funds are not
required to respond to items that are wholly inapplicable.\90\ For
example, no

response is required for Item C.11, which concerns derivatives, when
reporting information about an investment that is not a derivative. We
believe this revision will decrease burdens upon filers and reduce the
file size of Form N-PORT submissions, while still maintaining the
clarity of the data reported on Form N-PORT.
---------------------------------------------------------------------------

    \89\ See General Instruction G of proposed Form N-PORT (``A Fund
is required to respond to every item of this form. If an item
requests information that is not applicable (for example, an LEI for
a counterparty that does not have an LEI), respond N/A'').
    \90\ See General Instruction G of Form N-PORT (``A Fund is not
required to respond to an item that is wholly inapplicable (for
example, no response would be required for Item C.11 when reporting
information about an investment that is not a derivative). If a sub-
item requests information that is not applicable, for example, an
LEI for a counterparty that does not have an LEI, respond N/A'').
---------------------------------------------------------------------------

    We have also eliminated certain instructions from proposed Form N-
PORT relating to the formatting of information reported on the form
that, upon further consideration, we believe are unnecessary in Form N-
PORT. In particular, we have eliminated instructions requiring the
rounding of percentages, monetary values, and other numeric values.\91\
Elimination of the instructions regarding the rounding of such figures
should allow funds to report such information in the same way such
information is currently recorded in their books and records. We also
have eliminated instructions regarding the signature and filing of
reports, because we believe that the general rules and regulations
applicable under the Act provide sufficient guidance with regard to
those issues.\92\
---------------------------------------------------------------------------

    \91\ See General Instruction G of proposed Form N-PORT
(instructions regarding rounding of percentages, monetary values,
and other numerical values).
    \92\ See General Instruction B of Form N-PORT (``The General
Rules and Regulations under the Act contain certain general
requirements that are applicable to reporting on any form under the
Act. These general requirements shall be carefully read and observed
in the preparation and filing of reports on this Form, except that
any provision in the Form or in these instructions shall be
controlling.'') See also General Instruction H of proposed Form N-
PORT (instructions regarding signature and filing of reports).
---------------------------------------------------------------------------

    We have also made clarifying revisions to certain definitions. As
discussed above, we have revised the proposed definition of ``exchange-
traded product'' to refer instead to ``exchange-traded fund'' to
harmonize the definitions used in Forms N-PORT and N-CEN.\93\ The
revision also clarifies that a separate report on Form N-PORT must be
filed by each series of a UIT organized as an ETF, and parallels
similar revisions to the definition of ETF in Form N-CEN.\94\ We have
also revised the definition of ``LEI'' to reflect new terminology
regarding LEIs.\95\
---------------------------------------------------------------------------

    \93\ See supra footnote 48 and accompanying text. Although the
definition of ``exchange-traded fund'' being adopted on Form N-PORT
is narrower than the definition of ``exchange-traded product'' as
proposed on Form N-PORT, the universe of filers on Form N-PORT is
not changing because exchange-traded managed funds that would have
been encompassed in the proposed definition of ``exchange-traded
product'' will be encompassed in the adoption through references to
managed investment companies. See rule 30b1-9 (requiring certain
funds to file reports on Form N-PORT); Form N-PORT (``Form N-PORT is
to be used by a registered management investment company, or an
exchange-traded fund organized as a unit investment trust, or series
thereof (`Fund'). . . .'').
    \94\ See infra footnote 896.
    \95\ Form N-PORT's revised definition of ``LEI'' refers to the
legal entity identifier ``endorsed'' by the Regulatory Oversight
Committee Of The Global Legal Entity Identifier System (``LEI ROC'')
or ``accredited'' by the Global Legal Entity Identifier Foundation
(``GLEIF''), as opposed to ``assigned or recognized'' by those two
entities.
---------------------------------------------------------------------------

    Finally, regarding General Instruction F, which provides
information regarding the public availability of the information in
Form N-PORT, the final Instruction clarifies, similar to language that
is contained in current Form PF, that we do not intend to make public
certain information reported on Form N-PORT ``that is identifiable to
any particular fund or adviser.'' \96\ This modification makes clear,
for example, that the Commission or Commission staff could issue
analyses and reports that are based on aggregated, non-identifying Form
N-PORT data, which would otherwise be nonpublic, such as information
reported on Form N-PORT for the first and second months of each fund's
fiscal quarter.
---------------------------------------------------------------------------

    \96\ See supra footnote 26.
---------------------------------------------------------------------------

b. Information Regarding Assets and Liabilities
    Part B of Form N-PORT seeks certain portfolio level information
about the fund. As we proposed, Part B includes questions requiring
funds to report their total assets, total liabilities, and net
assets.\97\ Funds will also separately report certain assets and
liabilities, as follows. First, as we proposed, funds will report the
aggregate value of any ``miscellaneous securities'' held in their
portfolios.\98\ As currently permitted by Regulation S-X, and as
further discussed below, Form N-PORT permits funds to report an
aggregate amount not exceeding 5 percent of the total value of their
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 report to shareholders or otherwise made available to the
public.\99\ We received only one comment on this aspect of our
proposal, which supported the reporting of aggregate information for
miscellaneous securities.\100\
---------------------------------------------------------------------------

    \97\ See Item B.1 of Form N-PORT.
    \98\ See Item B.1.a and Item B.2.a of Form N-PORT. As discussed
further below, Form N-PORT will require funds to also report
information about miscellaneous securities on an investment-by-
investment basis, although such information will be nonpublic and
will be used for Commission use only. See infra footnote 420 and
accompanying text.
    \99\ See rule 12-12 of Regulation S-X; see also Parts C and D of
Form N-PORT.
    \100\ See SIFMA Comment Letter I.
---------------------------------------------------------------------------

    Second, as we proposed, funds will 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'').\101\ We received no comments on this aspect of the proposal.
Some funds use CFCs for making certain types of investments,
particularly commodities and commodity-linked derivatives, often for
tax purposes. Form N-PORT requires funds to disclose each underlying
investment in a CFC, rather than just the investment in the CFC itself,
which will increase transparency on fund investments through CFCs.\102\
These disclosures will allow investors to look through CFCs and
understand the specific underlying holdings that they are investing in,
which will in turn allow investors to better analyze their fund
holdings and risk, and hence enable investors to make more informed
investment decisions.
---------------------------------------------------------------------------

    \101\ See General Instruction E (providing that ``Controlled
Foreign Corporation'' has the meaning provided 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)
of Form N-PORT.
    \102\ See Instruction to Part B of Form N-PORT (``Report the
following information for the Fund and its consolidated
subsidiaries.'').
---------------------------------------------------------------------------

    In addition, as discussed further below in section II.D.4, we
believe it will be beneficial for the Commission to have certain
information about funds' use of CFCs. The information we will be
obtaining in Form N-PORT, combined with additional information we are
requiring on Form N-CEN regarding CFCs, discussed below, will 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.
    Third, as we proposed, we are requiring that funds report the
amounts 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.\103\ We received no comments on
this aspect of the proposal. This information will allow Commission
staff, as well as investors and other potential users, to better
understand a fund's borrowing activities and payment obligations
associated with these transactions. This in turn will facilitate
analysis of the fund's use of financial leverage, as well as the fund's
liquidity profile and ability to meet redemptions or share repurchases,
which are important to understanding the risks such borrowings might
create.
---------------------------------------------------------------------------

    \103\ See Item B.2.c-Item B.2.e of Form N-PORT.
---------------------------------------------------------------------------

    One commenter suggested that certain fee and expense information
currently reported on Form N-SAR, and Item 75 of Form N-SAR in
particular--which relates to average net assets during the current
reporting period--be reported on Form N-PORT.\104\ The commenter
acknowledged that much of this information is already publicly reported
in or can be derived from information reported in other fund documents
filed with the Commission, but argued that this information should also
be reported on Form N-PORT because the structured format of Form N-PORT
would make information reported on Form N-PORT easier to aggregate and
analyze.\105\ We are not making this suggested change because similar
and complementary information will be reported on Form N-PORT in a
structured format going forward (i.e., monthly net assets for funds
more generally) and is currently available in a structured format for
mutual funds in their risk/return summaries (certain fee and expense
data).\106\ Also, as discussed further below, we are revising Form N-
CEN to require funds to report average net assets on an annual
basis.\107\
---------------------------------------------------------------------------

    \104\ See Morningstar Comment Letter.
    \105\ Id.
    \106\ See SEC, Interactive Data and Mutual Fund Risk/Return
Summaries, available at https://www.sec.gov/spotlight/xbrl/mutual-funds.shtml; Item B.6 of Form N-PORT (requiring funds to report
monthly flow information).
    \107\ See infra footnotes 1016-1017 and accompanying text.
---------------------------------------------------------------------------

    For these reasons, we are adopting this aspect of Form N-PORT as
proposed.
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.\108\
---------------------------------------------------------------------------

    \108\ See, e.g., section 408 of the Sarbanes-Oxley Act of 2002,
Public Law 107-204, 116 Stat. 745, 790-791 (2002) (requiring the
Commission to engage in enhanced review of periodic disclosures by
certain issuers every three years).
---------------------------------------------------------------------------

    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 disclosure documents 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.\109\ 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 the staff's outreach to
funds prior to our proposal, 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 risk-free rate.\110\
---------------------------------------------------------------------------

    \109\ See Morningstar Comment Letter.
    \110\ See Proposing Release, supra footnote 7, at 33598.
---------------------------------------------------------------------------

    Accordingly, we believe, and some commenters agreed, that it is
appropriate to require funds to report quantitative measurements of
certain risk metrics that will provide information beyond the
narrative, often qualitative disclosures about investment strategies
and risks in the fund's registration statement.\111\ Monthly reporting
on these risk measures, in particular, will 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.\112\
---------------------------------------------------------------------------

    \111\ See Morningstar Comment Letter (noting a range of fund
disclosures relating to fund synthetic disclosures, with some more
helpful to investors than others); Franco Comment Letter (supporting
the Commission's proposal relating to disclosures of risk metrics).
    \112\ See Morningstar Comment Letter.
---------------------------------------------------------------------------

    Specifically, we proposed to require certain funds to report
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.\113\ As discussed in
section II.A.2.g below, we proposed to require risk measures at the
investment level for options and convertible bonds. We continue to
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. As a result, we are adopting these risk
measures substantially as proposed, subject to the modifications
discussed below.\114\
---------------------------------------------------------------------------

    \113\ See Item B.3 of proposed Form N-PORT.
    \114\ See Item B.3 of Form N-PORT.
---------------------------------------------------------------------------

    While we received some comments generally supporting our proposal
to require portfolio-level risk metrics,\115\ some suggested
alternative methods for collecting risk metrics,\116\ or opposed

our proposal to make certain of the risk metrics public.\117\ These
comments are discussed in more detail below.
---------------------------------------------------------------------------

    \115\ See, e.g., SIFMA Comment Letter I (``We support the
Commission's proposal to require funds to provide the Commission
with portfolio level risk metrics, and generally would defer to the
Commission as to the information the Commission would consider
useful for its regulatory purposes.''); State Street Comment Letter;
Wells Fargo Comment Letter (``We are in agreement with the
Commission's request for risk metrics as it relates to duration and
spread duration; however, we suggest that the calculation for
providing such risk metrics are defined differently than
proposed.'').
    \116\ See, e.g., BlackRock Comment Letter (Commission should use
the same interest rate and credit risk questions as is required in
Form PF; Commission should consider implementing a reporting
requirement to obtain a comprehensive measure of fund's use of
leverage); Morningstar Comment Letter (but also urging the
Commission to collect more position level information which will
enable the Commission, investors, and service providers to
independently calculate risk); see also Interactive Data Comment
Letter (``[P]osition level reporting aligns with what is standard
practice in the industry and so would not be burdensome. Position
level reporting would provide the Commission with greater insight
into sources of risk within a portfolio.''); Comment Letter of
Simpson Thacher & Bartlett LLP (Aug. 11, 2015) (``Simpson Thacher
Comment Letter'') (derivatives reporting should focus on portfolio-
level risk metrics, such as ``value at risk'' models)
    \117\ See, e.g., Comment Letter of the Independent Directors
Council (Aug. 11, 2015) (``IDC Comment Letter''); SIFMA Comment
Letter I; Simpson Thacher Comment Letter; Invesco Comment Letter;
Schwab Comment Letter; ICI Comment Letter; Comment Letter of Dechert
LLP (Aug. 11, 2015) (``Dechert Comment Letter'') (or, in the
alternative, include a disclaimer that risk metrics are an
estimate); T. Rowe Price Comment Letter; BlackRock Comment Letter;
Oppenheimer Comment Letter. Our decision to make [certain] Items in
Parts C, D, and E of the Form non-public is discussed in more detail
below. See infra section II.A.4.
---------------------------------------------------------------------------

    We believe, and some commenters agreed, that institutional
investors, as well as entities that provide services to both
institutional and individual investors, could use these risk metrics to
conduct their own analyses in order to help them better understand fund
composition, investment strategy, and interest rate and credit spread
risk the fund is undertaking. As discussed further below, however,
other commenters, were mixed as to whether this information would be
useful for investors and if this information should be made
public.\118\ These measures can complement the risk disclosures that
are contained in the registration statement, thereby potentially
helping investors to make more informed investment choices.
Accordingly, we disagree with commenters that argued this information
has no utility for investors. We also continue to believe that
requiring 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 debt than they currently have.\119\ As
discussed further in Section II.A.4 below, we are adopting, largely as
proposed, the requirement that funds provide public disclosure of
portfolio-level risk metrics on a quarterly basis.\120\ For these
reasons, and as discussed further below in section II.A.4, we were not
persuaded by commenters that such information should be nonpublic.
---------------------------------------------------------------------------

    \118\ See Franco Comment Letter (Noting that the information on
Form N-PORT is relevant to information intermediaries and market
professionals and would assist them in assessing individual fund
performance or comparing among funds); see also Morningstar Comment
Letter (same); but see Invesco Comment Letter (stating that Form N-
PORT's disclosures would not complement fund registration
statements, nor be useful in helping investors make more informed
investing decisions); SIFMA Comment Letter I (same); Federated
Comment Letter.
    \119\ See Franco Comment Letter (``The rule proposal's various
disclosure and reporting requirements, especially those requirements
relating to portfolio disclosure, risk metrics and fund use of
derivatives, serve the public interest and/or the protection of
investors.'').
    \120\ See Item B.3 of Form N-PORT; see also generally Proposing
Release, supra footnote 7, at n. 56 and accompanying text.
---------------------------------------------------------------------------

    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 can help them analyze how
portfolio values might change in response to changes in interest rates
or credit spreads.\121\ 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
proposed that a fund that invests in debt instruments, or derivatives
that provide notional exposure to debt instruments or interest rates,
representing at least 20% of the fund's net asset value as of the
reporting date, provide a portfolio level calculation of duration and
spread duration across the applicable maturities in the fund's
portfolio.\122\
---------------------------------------------------------------------------

    \121\ As 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
instrument-by-instrument basis, instead of as a portfolio level
calculation.
    \122\ Specifically, as proposed, funds would have calculated
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, and 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 proposed Instruction to Item B.3 of Form N-PORT.
    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 to Derivatives Concept Release (Nov. 7, 2011)
(``Morningstar Derivatives Concept Release Comment Letter'')
(submitted in response to the Derivatives Concept Release, supra
footnote 38, which sought comment regarding the use of derivatives
by management investment companies).
---------------------------------------------------------------------------

    Commenters were generally supportive of our proposal to include a
threshold.\123\ However, several commenters requested that we increase
the threshold for risk reporting from 20% and that the calculation of
debt investments be made based on the fund's three-month average
notional value of debt investments as a percentage of NAV.\124\ Some
commenters requested an increase in the threshold in order to make the
risk metric threshold more consistent with the Commission's threshold
for requiring funds to disclose industry concentration in their
prospectus.\125\ Additionally, some commenters argued that the three-
month average would better reflect a fund's true investment strategy
and mitigate short-term market fluctuations that could cause a fund to
temporarily exceed the threshold.\126\ We agree with both
recommendations.
---------------------------------------------------------------------------

    \123\ See, e.g., Interactive Data Comment Letter (supporting 20%
level as reasonable and stating belief that threshold should be
measured by considering notional value for derivatives and market
values for bonds); State Street Comment Letter (supporting 20%
threshold and recommending that the Commission provide clarity on
the threshold calculation); Fidelity Comment Letter; Franco Comment
Letter; Simpson Thacher Comment Letter (20% threshold and holds more
than 100 debt securities); Wells Fargo Comment Letter (supporting
20% threshold).
    \124\ See, e.g., Oppenheimer Comment Letter (25% threshold
consistent with prospectus disclosure of industry concentration);
ICI Comment Letter (same); MFS Comment Letter (25% threshold);
Pioneer Comment Letter (same); Dreyfus Comment Letter (``we believe
the Commission should consider a 25% threshold because, at least, it
would define a subset of `balanced' and `asset allocation' funds
that would, by prospectus or name test mandate, for example, have to
maintain a minimum fixed income exposure.''); SIFMA Comment Letter I
(recommending a 30% threshold); Invesco Comment Letter (same); but
see Morningstar Comment Letter (supporting 20% threshold).
    \125\ See, e.g., ICI Comment Letter; Oppenheimer Comment Letter;
MFS Comment Letter; Pioneer Comment Letter; Dreyfus Comment Letter;
see also Instruction 4 to Item 9(b)(1) of Form N-1A (``Disclose any
policy to concentrate in securities of issuers in a particular
industry or group of industries (i.e. investing more than 25% of a
Fund's net assets in a particular industry or group of
industries).''); Registration Form Used by Open-End Management
Investment Companies, Investment Company Act Release No. 23064 (Mar.
13, 1998) [63 FR 13916 (Mar. 23, 1998)] at nn. 100-101 and
accompanying text (``. . . the Commission continues to believe that
25% is an appropriate benchmark to gauge the level of investment
concentration that could expose investors to additional risk.'').
    \126\ See, e.g., ICI Comment Letter; MFS Comment Letter; Dreyfus
Comment Letter.
---------------------------------------------------------------------------

    We believe that a 25% threshold, as several commenters suggested,
will still allow the Commission to receive measurements of duration and
spread duration from funds that make investments in debt instruments as
a significant part of their investment strategy because we do not
believe many, if any, funds that make investments in debt instruments
as a significant part of their investment strategy have less than 25%
of their NAV invested in such instruments. Commenters persuaded us that
some funds that primarily invest in assets other than debt instruments,
such as equities, could, at times, have more than 20% of the net asset
value of the fund

invested in debt instruments for cash management or other
purposes.\127\ Thus raising the threshold from 20% to 25% will relieve
more funds of having to monitor each month whether they trigger the
requirement for making such calculations, while still achieving the
goal the Commission stated in the Proposing Release of requiring funds
that make investments in debt instruments as a significant part of
their investment strategy to report such metrics.\128\
---------------------------------------------------------------------------

    \127\ See, e.g. Pioneer Comment Letter.
    \128\ See, e.g., State Street Comment Letter.
---------------------------------------------------------------------------

    We agree with commenters that using the same thresholds we use for
discussing industry concentration in current prospectuses is
appropriate as it will achieve an objective that is similar to the one
in Form N-1A of requiring funds to disclose only where such investments
are a central part of the fund's investment objectives. We are
therefore adopting a 25% threshold for reporting portfolio-level risk
metrics.\129\
---------------------------------------------------------------------------

    \129\ See supra footnote 125.
---------------------------------------------------------------------------

    We are also modifying the rule from the proposal to require funds
to calculate this threshold on the three-month average of a fund's
value as percentage of NAV (rather than, as proposed, value as
percentage of NAV at the reporting date (i.e. month-end)) because we
agree with commenters who pointed out that this should mitigate the
chance that short-term market fluctuations could cause a fund that does
not typically use such instruments as part of its investment strategy
to temporarily exceed the threshold and be required to report the
metrics.\130\
---------------------------------------------------------------------------

    \130\ See Item B.3 of Form N-PORT; see, e.g. Pioneer Comment
Letter; Oppenheimer Comment Letter. One commenter requested that the
threshold be based on the fund's net asset value and not notional
value. See MFS Comment Letter. We continue to believe that basing
the threshold on notional amount, especially for derivatives, is a
better measure of a fund's exposure than the just the investment's
value because some derivatives may have a negligible net asset
value, but represent significant exposures to the fund. We have,
however, made a clarifying change to the terminology from the
proposal, and instruction B.3 now refer to ``value'' rather than
``notional value.'' See infra footnote 165.
---------------------------------------------------------------------------

    Finally, another commenter opposed requiring risk metrics data for
index funds because it believed that this requirement would be
unnecessarily burdensome for those funds.\131\ However, index funds
incorporate a wide variety of funds--some of which are primarily
invested in debt securities, including derivatives based on debt
securities. It is our view that if a fund is exposed to debt
instruments or interest rates in amounts that trigger the reporting of
risk metrics, they have an exposure large enough to warrant reporting.
Moreover, some index funds have indexes that change weekly or daily.
Accordingly, because we believe it is important to monitor the risk
metrics for all funds with exposures to debt instruments exceeding the
threshold, we do not believe it would be appropriate to exempt index
funds from Form N-PORT's requirements for risk metric reporting.
---------------------------------------------------------------------------

    \131\ See ICI Comment Letter.
---------------------------------------------------------------------------

    For duration, we proposed 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.\132\
We realized 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, we proposed that a fund
only report the key rates that are applicable to the fund. We proposed
that funds report zero for maturities to which they have no
exposure.\133\ For exposures outside of the range of listed maturities
listed on Form N-PORT, we proposed that funds include those exposures
in the nearest maturity.
---------------------------------------------------------------------------

    \132\ See Item B.3.aof proposed Form N-PORT.
    \133\ For funds with exposures that fall between any of the
listed maturities in the form, we proposed in the Instructions to
Item B.3 that funds use linear interpolation to approximate exposure
to each maturity listed above.
---------------------------------------------------------------------------

    One commenter stated that calculating DV01 along key rates of the
Treasury curve is ``common and intuitive'' to analyzing shifts of the
yield curve.\134\ However, some commenters suggested that calculating
the DV01 and SDV01 for 11 proposed key rates could be burdensome, and
requested that we limit the number of applicable key rates along the
risk-free curve.\135\ For example, commenters recommended that the
Commission limit the calculations to the key rates to those most
representative of bond fund overall exposures by limiting the
calculation to the 1-, 2-, 5-, 10-, 20-, and 30-year rates.\136\
Another commenter recommended collapsing the 1-, 3-, and 6-month
exposures into the 1-year exposure, as a detailed breakout inside 1-
year is not informative for most instruments.\137\ Commenters argued
that reducing the number of key rates will reduce burdens for fund
companies while providing the Commission with sufficient information on
yield curve exposures for staff analysis.\138\ Finally, one commenter
suggested that we only require a single measure of duration (i.e.,
total portfolio duration) that is the weighted average of the top 5
currencies (including the base currency) rather than providing duration
calculations for key rates along the Treasury curve, arguing that a
single measure would capture the majority of a fund's portfolio
risk.\139\
---------------------------------------------------------------------------

    \134\ See Wells Fargo Comment Letter.
    \135\ See, e.g., Fidelity Comment Letter; Dreyfus Comment
Letter; Simpson Thacher Comment Letter.
    \136\ See Dreyfus Comment Letter; Simpson Thacher Comment
Letter.
    \137\ See Fidelity Comment Letter.
    \138\ See id.; Dreyfus Comment Letter.
    \139\ See, e.g., ICI Comment Letter (suggesting as an
alternative, a single duration measurement that is the weighted
average of the top 5 currencies (including the base currency));
SIFMA Comment Letter I (duration disclosure should be limited to top