\567\ Item 70 of proposed Form N-CEN.
    \568\ Item 71 of proposed Form N-CEN.
    \569\ Item 72 of proposed Form N-CEN.
    \570\ See Item 127.L of Form N-SAR (all UITs are required to
complete this item). Proposed Form N-CEN would not require UITs to
report certain assets held by a UIT as required by Item 127 of Form
N-SAR. See Items 127.A-K of Form N-SAR.
---------------------------------------------------------------------------

    As proposed, Form N-CEN would also require certain new information
to be reported by separate accounts offering variable annuity and
variable life insurance contracts. Specifically, if the UIT is a
separate account of an insurance company, proposed Form N-CEN would
require disclosure of its series identification number \571\ and, for
each security that has a contract identification number assigned
pursuant to rule 313 of Regulation S-T, the number of individual
contracts that are in force at the end of the reporting period.\572\
---------------------------------------------------------------------------

    \571\ Item 73 of proposed Form N-CEN.
    \572\ Item 74 of proposed Form N-CEN.
---------------------------------------------------------------------------

    With respect to insurance company separate accounts, our proposal
would also require new identifying and census information for each
security issued

through the separate account.\573\ This requirement would include the
name of the security,\574\ contract identification number,\575\ total
assets attributable to the security,\576\ number of contracts
sold,\577\ gross premiums received,\578\ and amount of contract value
redeemed.\579\ This item would also require additional information
relating to section 1035 exchanges, including gross premiums received
pursuant to section 1035 exchanges,\580\ number of contracts affected
in connection with such premiums,\581\ amount of contract value
redeemed pursuant to section 1035 redemptions \582\ and the number of
contracts affected by such redemptions.\583\ In addition, insurance
company separate accounts would be required to provide information on
whether they relied on rules 6c-7 \584\ and 11a-2 \585\ under the
Investment Company Act. This information, which is specific to UITs
that are separate accounts of insurance companies and is either not
otherwise filed with the Commission or is not filed in a structured
format, will further assist the Commission in its oversight of UITs,
including monitoring trends in the variable annuity and variable life
insurance markets.
---------------------------------------------------------------------------

    \573\ Item 75 of proposed Form N-CEN.
    \574\ Item 75.a of proposed Form N-CEN.
    \575\ Item 75.b of proposed Form N-CEN.
    \576\ Item 75.c of proposed Form N-CEN.
    \577\ Item 75.d of proposed Form N-CEN.
    \578\ Item 75.e of proposed Form N-CEN.
    \579\ Item 75.h of proposed Form N-CEN.
    \580\ Item 75.f of proposed Form N-CEN.
    \581\ Item 75.g of proposed Form N-CEN.
    \582\ Item 75.i of proposed Form N-CEN.
    \583\ Item 75.j of proposed Form N-CEN.
    \584\ Item 76 of proposed Form N-CEN. Rule 6c-7 under the
Investment Company Act provides exemptions from certain provisions
of sections 22(e) and 27 of the Act for registered separate accounts
offering variable annuity contracts to participants in the Texas
Optional Retirement Program. See 17 CFR 270.6c-7.
    \585\ Item 77 of proposed Form N-CEN. Rule 11a-2 under the
Investment Company Act relates to offers of exchange by certain
registered separate accounts or others, the terms of which do not
require prior Commission approval. See 17 CFR 270.11a-2.
---------------------------------------------------------------------------

    Finally, Form N-CEN would carry over the Form N-SAR \586\
requirement that a UIT provide certain information relating to
divestments under section 13(c) of the Investment Company Act.\587\
Thus, if a UIT intends to avail itself of the safe harbor provided by
section 13(c) with respect to its divestment of certain securities, it
will continue to make the following disclosures on Form N-CEN:
Identifying information for the issuer, total number of shares or
principal amount divested, date that the securities were divested, and
the name of the statute that added the provisions of section 13(c) in
accordance with which the securities were divested.\588\ If the UIT
holds any securities of the issuer on the date of the filing, it would
also provide the ticker symbol, CUSIP number, and total number of
shares or, for debt securities, the principal amount held on the date
of the filing.\589\
---------------------------------------------------------------------------

    \586\ Item 133 of Form N-SAR. Section 13(c) of the Investment
Company Act provides a safe harbor for registered investment
companies and its employees, officers, directors and investment
advisers, based solely upon the investment company divesting from,
or avoiding investing in, securities issued by persons that the
investment company determines, using credible information that is
available to the public, engage in certain investment activities in
Iran or Sudan. The safe harbor, however, provides that this
limitation on actions does not apply unless the investment company
makes disclosures about the divestments in accordance with
regulations prescribe by the Commission. See 15 U.S.C. 80a-
13(c)(2)(B). Management investment companies are required to provide
the disclosure on Form N-CSR, pursuant to Item 6(b) of the form, and
UITs are required to provide the disclosure on Form N-SAR, pursuant
to Item 133 of the form. See Technical Amendments to Forms N-CSR and
N-SAR in Connection With the Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2010, Exchange Act Release No.
34-63087 (Oct. 13, 2010) [75 FR 64120 (Oct. 19, 2010)].
    \587\ Item 78 of proposed Form N-CEN.
    \588\ Item 78.a of proposed Form N-CEN.
    \589\ Item 78.b of proposed Form N-CEN. An instruction to Item
78 would address when the UIT should report divestments pursuant to
this item.
---------------------------------------------------------------------------

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

    \590\ See Items 77.E, 77.I, 77.K, 77.L, 77.N, 77.P, 77.Q.1,
77.Q.2, 102.D, 102.H, 102.J, 102.K, 102.M, 102.O, 102.P.1, 102.P.2,
and 102.P.3 of Form N-SAR.
    \591\ Form N-SAR requires only management companies to file
attachments to reports on the form, whereas proposed Form N-CEN
would require certain attachments for all Registrants.
    \592\ With respect to certain attachments currently in Form N-
SAR, we propose to integrate the data requirements into the form
itself, rather than keep the attachment requirements. See, e.g.,
Items 77.G and 102.F of Form N-SAR; Item 48 and Item 49 of proposed
Form N-CEN. However, not all of the attachments currently required
by Form N-SAR lend themselves to integration into the form, either
because of the amount of information reported in the attachment or
because the attachment is a standalone document (e.g., the
accountant's report on internal control).
    \593\ But see supra note 591.
---------------------------------------------------------------------------

    Thus, all funds that would be required to file Form N-CEN would,
where applicable, be required to file attachments regarding legal
proceedings,\594\ provision of financial support,\595\ changes in the
fund's independent public accountant,\596\ independent public
accountant's report on internal control,\597\ and changes in accounting
principles and practices.\598\ In addition, all funds would be

required, where applicable, to provide attachments relating to
information required to be filed pursuant to exemptive orders,\599\ and
other information required to be included as an attachment pursuant to
Commission rules and regulations.\600\ Moreover, closed-end funds and
SBICs would also be required, where applicable, to provide attachments
relating to material amendments to organizational documents,\601\
instruments defining the rights of the holders of any new or amended
class of securities,\602\ new or amended investment advisory
contracts,\603\ information called for by Item 405 of Regulation S-
K,\604\ and, for SBICs only, senior officer codes of ethics.\605\ Each
attachment proposed to be required by Form N-CEN includes instructions
describing the information that should be provided in the
attachment.\606\
---------------------------------------------------------------------------

    \594\ Item 79.a.i of proposed Form N-CEN.
    \595\ Item 79.a.ii of proposed Form N-CEN.
    \596\ Item 79.a.iii of proposed Form N-CEN.
    \597\ Item 79.a.iv of proposed Form N-CEN. As noted in Item
79.a.iv, this item would only apply to management companies, other
than SBICs.
    \598\ Item 79.a.v of proposed Form N-CEN.
    \599\ Item 79.a.vi of proposed Form N-CEN.
    \600\ Item 79.a.vii of proposed Form N-CEN.
    \601\ Item 79.b.i of proposed Form N-CEN. Unlike open-end funds,
closed-end funds and SBICs do not otherwise update or file the
information requested by this item with the Commission and, thus, we
believe the information should continue to be filed as an attachment
to the census reporting form.
    \602\ Item 79.b.ii of proposed Form N-CEN.
    \603\ Item 79.b.iii of proposed Form N-CEN. Unlike open-end
funds, closed-end funds and SBICs do not otherwise update or file
the information requested by this item with the Commission and,
thus, we believe the information should continue to be filed as an
attachment to the census reporting form.
    \604\ Item 79.b.iv of proposed Form N-CEN.
    \605\ Item 79.b.v of proposed Form N-CEN.
    \606\ For example, the instructions to Item 79.b.v require SBICs
to attach detailed information regarding the senior officer code of
ethics and certain information regarding the audit committee. The
instructions also require SBICs to meet certain requirements
regarding the availability of their senior office code of ethics.
---------------------------------------------------------------------------

    As noted earlier, all of the attachments, except one, are currently
required by Form N-SAR.\607\ The new attachment relates to the
provision of financial support and would be filed by a fund if an
affiliate, promoter or principal underwriter of the fund, or affiliate
of such person, provided financial support to the fund during the
reporting period. As discussed in Part II.E.4.b, we are proposing to
include this requirement in Form N-CEN because we believe that it is
important that the Commission understand the nature and extent that a
fund's sponsor provides financial support to a fund.
---------------------------------------------------------------------------

    \607\ See supra note 593 and accompanying text.
---------------------------------------------------------------------------

    We request comment on the following information requirements
relating to attachments to the Form:
     Should any additional attachments be required to be
attached to Form N-CEN? Are any proposed attachments unnecessary and,
if so, why? Should any of the attachments requested for all Registrants
be limited to only certain Registrants?
     Should we require that the information be reported as
attachments to the form or in narrative text-boxes embedded in the
form?
     Should attachment requirements concerning copies of all
constituent instruments defining the rights of the holders of any new
class of securities and of any amendments to constituent instruments be
limited to closed-end funds and SBICs as proposed? Should such
requirements apply to all funds?
     Should the attachments regarding material amendments to
organizational documents and new or amended advisory contracts apply
only to closed-end funds and SBICs as proposed? Should these
requirements apply to all funds? Should the advisory contract
requirement apply only to advisory contracts to which the fund is a
party or should it include all advisory contracts, including
subadvisory contracts?
     Should any of the attachment filing requirements without
materiality qualifiers be limited by materiality qualifiers?
     With Form N-CEN, we are proposing to eliminate a number of
attachments currently required by items 77 and 102 of Form N-SAR. Are
there any attachments to Form N-SAR, that are proposed to be
eliminated, that should be included in Form N-CEN? Which attachments
and why? Are there any costs associated with eliminating these
attachments?
5. Items Required by Form N-SAR That Would Be Eliminated by Form N-CEN
    As we discussed above, with proposed Form N-CEN, we seek to improve
the information that we collect in order to reflect changes in the fund
industry since Form N-SAR's adoption in 1985. With that in mind, we are
proposing to eliminate certain items from Form N-SAR that we believe
are no longer needed by Commission staff or are outdated in their
current form. For example, we are proposing not to include Form N-SAR's
requirement relating to considerations which affected the participation
of brokers or dealers or other entities in commissions or other
compensation paid on portfolio transactions.\608\
---------------------------------------------------------------------------

    \608\ Item 26 of Form N-SAR. Proposed Form N-CEN does, however,
contain information relating to funds that paid commissions to
brokers and dealers for research services. See Item 43 of proposed
Form N-CEN.
---------------------------------------------------------------------------

    Form N-CEN would similarly eliminate a number of Form N-SAR items
where the information is (or would be, under our proposed reforms)
reported elsewhere--for example, items relating to fees and expenses,
including front-end and deferred/contingent sales loads, redemption and
account maintenance fees, rule 12b-1 fees, and advisory fees.\609\ Many
of the fee and expense items required by Form N-SAR are already
disclosed, in a structured format, in the risk-return summary required
by Form N-1A for open-end funds, as well as in an unstructured format
in other places in fund registration statements.\610\ For other fee and
expense items, the information is either not frequently used by
Commission staff or we believe that the benefit of having such
information is minimal while the burden to funds of reporting such
information is costly.\611\ For similar reasons as above, we are also
proposing not to require other information in proposed Form N-CEN,
including information relating to adjustments to shares outstanding by
stock split or stock dividend, minimum initial investments, investment
practices, portfolio turnover, number of shares outstanding, number of
shareholder accounts, average net assets, and certain other condensed
balance sheet data items.\612\
---------------------------------------------------------------------------

    \609\ See generally Items 29-44, 47-52 of Form N-SAR. Proposed
Form N-CEN does, however, contain items relating to information
regarding expense limitations, reductions, and waivers. See Item 32
of proposed Form N-CEN. As discussed above, proposed Form N-CEN
would also require information on management fees and net operating
expenses for closed-end funds, as that information is not available
elsewhere in a structured format. See Item 51 and Item 52 of
proposed Form N-CEN; see also supra Part II.E.4.d.
    \610\ See General Instruction C.3.G of Form N-1A; see generally
Form N-1A, Form N-2, Form N-4, Form N-5, Form N-6.
    \611\ We acknowledge that some of the information reported in
reports on Form N-SAR related to loads paid to captive or
unaffiliated broker-dealers has been used by interested third-
parties, including researchers. See, e.g., Susan E. K.
Christoffersen, Richard Evans, and David K. Musto, 2013. What do
Consumers' Fund Flows Maximize? Evidence from Their Brokers'
Incentives. The Journal of Finance, Vol. 68(1), 201-235 (2013).
While this is evidence of a discrete instance where such information
has been useful to a third party, based on staff experience with
this information and Form N-SAR information generally, we believe
that no longer requiring funds to gather and report this information
appropriately balances the burden on funds of providing this
information and the overall utility of the information to the
Commission, investors and third parties. As noted below, we request
comment generally on whether any information items not currently
being proposed to be carried over from Form N-SAR should be included
on Form N-CEN.
    \612\ See generally Items 57, 61, and 70-75 of Form N-SAR.
---------------------------------------------------------------------------

    We are also proposing to eliminate certain information requirements
specifically relating to SBICs and UITs that we no longer believe are
necessary to collect on a census form because, much like the items
discussed above, the benefit of having such information

is minimal to the Commission's oversight and examination functions
while the burdens to these funds of reporting such information is
costly.\613\ Additionally, with respect to the Form N-SAR \614\ item
relating to closed-end fund monthly sales and repurchases of shares,
this information would be reported on proposed Form N-PORT,\615\ rather
than proposed Form N-CEN.
---------------------------------------------------------------------------

    \613\ See Items 86, 93, 95, 97-100, 103-104, 109, 125-132 of
Form N-SAR.
    \614\ See Item 86 (closed-end funds) of Form N-SAR; see also
Item 28 (management investment companies generally) of Form N-SAR.
    \615\ See Item B.6 of proposed Form N-PORT.
---------------------------------------------------------------------------

    The full list of items from Form N-SAR that would be included in
Form N-CEN, as proposed, or would be eliminated is listed in Figure 2
below.

                            Inclusion of Form N-SAR Data Items in Proposed Form N-CEN
----------------------------------------------------------------------------------------------------------------
                                                                                Similar data
                                                                                would be        No longer
  Form N-SAR Item No.        Description          Included       Included but      available      required to be
                                               without change      modified      through other   reported by all
                                                                                sources *          funds
----------------------------------------------------------------------------------------------------------------
1.....................  Registrant                   [check]   ...............  ...............  ...............
                         information.
2.....................  Registrant address..         [check]   ...............  ...............  ...............
3.....................  First filing........         [check]   ...............  ...............  ...............
4.....................  Final filing........         [check]   ...............  ...............  ...............
5.....................  SBIC identification.         [check]   ...............  ...............  ...............
6.....................  UIT information.....         [check]   ...............  ...............  ...............
7.....................  Series or multiple    ...............         [check]   ...............  ...............
                         portfolio company.
----------------------------------------------------------------------------------------------------------------
                                All Management Investment Companies Except SBICS
----------------------------------------------------------------------------------------------------------------
8.....................  Investment adviser..         [check]   ...............  ...............  ...............
10 **.................  Administrator.......         [check]   ...............  ...............  ...............
11....................  Principal                    [check]   ...............  ...............  ...............
                         underwriter.
12....................  Shareholder                  [check]   ...............  ...............  ...............
                         servicing agent.
13....................  Independent public           [check]   ...............  ...............  ...............
                         accountant.
14....................  Broker or dealer             [check]   ...............  ...............  ...............
                         which is an
                         affiliated person.
15....................  Custodian                    [check]   ...............  ...............  ...............
                         arrangements.
18 **.................  Central depository    ...............         [check]   ...............  ...............
                         or book-entry
                         system.
19....................  Family of investment  ...............         [check]   ...............  ...............
                         companies.
20....................  Brokerage             ...............         [check]   ...............  ...............
                         commissions paid on
                         portfolio
                         transactions.
21....................  Aggregate brokerage          [check]   ...............  ...............  ...............
                         commissions.
22....................  Portfolio             ...............         [check]   ...............  ...............
                         transactions with
                         entities acting as
                         principal.
23....................  Aggregate principal   ...............         [check]   ...............  ...............
                         purchase/sale
                         transactions.
24....................  Holding of            ...............  ...............         [check]   ...............
                         securities of
                         registrant's
                         regular brokers or
                         dealers.
25....................  Holding of            ...............  ...............         [check]   ...............
                         securities of
                         registrant's
                         regular brokers or
                         dealers.
26....................  Considerations        ...............  ...............  ...............         [check]
                         affecting
                         participation of
                         brokers or dealers.
27....................  Open-end investment          [check]   ...............  ...............  ...............
                         company.
28....................  Monthly sales and     ...............  ...............         [check]   ...............
                         repurchases of
                         registrant's/
                         series' shares.
29....................  Registrant/series     ...............  ...............         [check]   ...............
                         imposing a front-
                         end sales load.
30....................  Total front-end       ...............  ...............  ...............         [check]
                         sales load
                         collected by
                         underwriters and
                         sales load rates.
31....................  Net sales loads       ...............  ...............  ...............         [check]
                         retained and paid
                         out by underwriters.
32....................  Net amount paid to    ...............  ...............  ...............         [check]
                         unaffiliated
                         dealers.
33....................  Net amount paid to    ...............  ...............  ...............         [check]
                         retail sales force.
34....................  Deferred or           ...............  ...............         [check]   ...............
                         contingent deferred
                         sales loads.
35....................  Deferred or           ...............  ...............  ...............         [check]
                         contingent deferred
                         sales loads
                         collected.
36....................  Deferred or           ...............  ...............  ...............         [check]
                         contingent deferred
                         sales loads
                         retained.
37....................  Redemption fees.....  ...............  ...............         [check]   ...............
38....................  Redemption fees       ...............  ...............  ...............         [check]
                         collected.
39....................  Account maintenance   ...............  ...............         [check]   ...............
                         fees.
40....................  Registrant/series     ...............  ...............         [check]   ...............
                         using its assets
                         directly to make
                         payments under a
                         12b-1 plan.
41....................  Direct use of assets  ...............  ...............         [check]   ...............
                         under 12b-1 plan.
42....................  Percentage of         ...............  ...............         [check]   ...............
                         payments under the
                         12b-1 plan.
43....................  Payments under the    ...............  ...............         [check]   ...............
                         12b-1 plan.
44....................  Unreimbursed          ...............  ...............  ...............         [check]
                         payments under the
                         12b-1 plan.
45....................  Advisory contract...  ...............         [check]   ...............  ...............
46....................  More than one         ...............         [check]   ...............  ...............
                         investment adviser.
47....................  Advisory fee based    ...............  ...............         [check]   ...............
                         on percentage of
                         assets.
48....................  Contractual advisory  ...............  ...............         [check]   ...............
                         fee rate.
49....................  Advisory fee based    ...............  ...............         [check]   ...............
                         on percentage of
                         income.
50....................  Advisory fee based    ...............  ...............         [check]   ...............
                         on percentage of
                         income and assets.
51....................  Performance based     ...............  ...............         [check]   ...............
                         advisory fee.
52....................  Advisory fee based    ...............  ...............         [check]   ...............
                         on assets, income
                         or performance.
53....................  Expense limitations   ...............         [check]   ...............  ...............
                         or reductions.
54....................  Services supplied by  ...............  ...............  ...............         [check]
                         investment advisers
                         or administrators.

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

108...................  Fidelity bond claims  ...............         [check]   ...............  ...............
109...................  Losses that could     ...............  ...............  ...............         [check]
                         have been filed as
                         a claim under the
                         fidelity bond.
110...................  Errors and omissions         [check]   ...............  ...............  ...............
                         insurance policy.
----------------------------------------------------------------------------------------------------------------
                                                      UITs
----------------------------------------------------------------------------------------------------------------
111...................  Depositor...........         [check]   ...............  ...............  ...............
112...................  Sponsor.............  ...............         [check]   ...............  ...............
113...................  Trustee.............  ...............         [check]   ...............  ...............
114...................  Principal                    [check]   ...............  ...............  ...............
                         underwriter.
115...................  Independent public           [check]   ...............  ...............  ...............
                         accountant.
116...................  Family of investment  ...............         [check]   ...............  ...............
                         companies.
117...................  Separate account of   ...............         [check]   ...............  ...............
                         an insurance
                         company.
118...................  Series having                [check]   ...............  ...............  ...............
                         effective
                         registration
                         statements.
119...................  New series having            [check]   ...............  ...............  ...............
                         effective
                         registration
                         statements.
120...................  Value of new series          [check]   ...............  ...............  ...............
                         that became
                         effective.
121...................  Series for which a           [check]   ...............  ...............  ...............
                         current prospectus
                         existed at the end
                         of the period.
122...................  New units of                 [check]   ...............  ...............  ...............
                         existing series.
123...................  Value of new                 [check]   ...............  ...............  ...............
                         securities
                         deposited in
                         existing series.
124...................  Value of units of            [check]   ...............  ...............  ...............
                         prior series placed
                         in portfolio of
                         subsequent series.
125...................  Amount of sales       ...............  ...............  ...............         [check]
                         loads collected.
126...................  Amount of sales       ...............  ...............  ...............         [check]
                         loads collected
                         from secondary
                         market operations.
127...................  Classification of     ...............  ...............         [check]   ...............
                         series and assets.
128...................  Insured or            ...............  ...............  ...............         [check]
                         guaranteed
                         securities.
129...................  Insured or            ...............  ...............  ...............         [check]
                         guaranteed
                         securities.
130...................  Insured or            ...............  ...............  ...............         [check]
                         guaranteed
                         securities.
131...................  Total expenses......  ...............  ...............         [check]   ...............
132...................  811 number of series  ...............  ...............         [check]   ...............
                         included in filing.
133...................  Divestment of                [check]   ...............  ...............  ...............
                         securities.
----------------------------------------------------------------------------------------------------------------
* While not available in proposed Form N-CEN, similar data is or would be available through other sources, such
  as proposed Form N-PORT or a fund's prospectus, statement of additional information, or financial statements.
** Items 9, 16, and 17 are reserved in Form N-SAR.

    We request comment on the information requirements relating to
items required in Form N-SAR, but not required in proposed Form N-CEN,
including the following:
     Should proposed Form N-CEN require more detailed
information relating to the fund's 12b-1 plan, as required by items 40
through 44 of Form N-SAR, considering detailed information regarding
the fund's 12b-1 plan is otherwise disclosed in response to other
reporting requirements?
     Should proposed Form N-CEN include financial information
or balance sheet items, such as those required by item 72 of Form N-
SAR?
     Despite the fact that certain items relating to fee
information are required by other forms, should we include fee
information in proposed Form N-CEN? If so, what specific information
and why?
     Should proposed Form N-CEN include information relating to
number of shares outstanding, total number of shareholder accounts, or
average net assets during the reporting period as required by Items
74.U.1, 74.X, and 75 of Form N-SAR?
     Are there any other items currently in Form N-SAR that are
proposed to be eliminated, which should be included in Form N-CEN?
Which items and why? Are there any costs associated with eliminating
these items?

F. Technical and Conforming Amendments

    We are also proposing technical and conforming amendments to
various rules and forms. As discussed above, our proposal would rescind
Form N-Q and create new Form N-PORT. In order to implement this
proposed change, we propose to revise Forms N-1A, N-2, and N-3 to refer
to the availability of portfolio holdings schedules attached to reports
on Form N-PORT and posted on fund Web sites rather than on reports on
Form N-Q.\616\ In addition, we propose to rescind 17 CFR 249.332 and
revise the following rules to remove references to Form N-Q: 17 CFR
232.401, 17 CFR 270.8b-33, 17 CFR 270.30a-2, 17 CFR 270.30a-3, and 17
CFR 270.30d-1.
---------------------------------------------------------------------------

    \616\ See Form N-1A, Item 16(f), Instruction 3(b) (we would
remove references to Form N-Q) and Item 27(d), Instruction 4 (we
would replace references to portfolio schedules reported on Form N-Q
with references to portfolio schedules attached to reports on Form
N-PORT or posted on fund Web sites); Form N-2, Item 24, Instruction
6.b (same); Form N-3, Instruction 6(ii) to Item 28(a) (same).
---------------------------------------------------------------------------

    Our proposal would also rescind Form N-SAR and replace it with new
Form N-CEN. In order to implement this proposed change, we propose to
revise the following rules and sections to remove references to Form N-
SAR and replace them with references to Form N-CEN: 17 CFR 232.301, 17
CFR 240.10A-1, 17 CFR 240.12b-25, 17 CFR 249.322, 17 CFR 249.330, 17
CFR 270.8b-16, 270.30d-1, and 17 CFR 274.101.\617\
---------------------------------------------------------------------------

    \617\ Although we are proposing to delete references to Form N-
SAR in 17 CFR 232.301, we are not proposing to replace them with
references to Form N-CEN because the references in that section
relate to specific portions of the EDGAR Filer Manual that would not
be relevant to Form N-CEN.

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

    Currently, reports on Form N-SAR are filed semi-annually by
management investment companies as required by 17 CFR 270.30b1-1, and
annually by UITs as required by 17 CFR 270.30a-1. Because our proposal
would require reports on Form N-CEN to be filed annually by all
registered investment companies, we propose to rescind 17 CFR 270.30b1-
1 and revise 17 CFR 270.30a-1 to require all registered investment
companies to file reports on Form N-CEN. We also propose to revise the
following rules to remove references to 17 CFR 270.30b1-1 and add
references to proposed rule 17 CFR 270.30a-1: 17 CFR 240.13a-10, 17 CFR
240.13a-11, 17 CFR 240.13a-13, 17 CFR 240.13a-16, 17 CFR 240.15d-10, 17
CFR 240.15d-11, 17 CFR 240.15d-13, and 17 CFR 240.15d-16.
    In addition, as a result of the proposed new annual reporting
requirement that would apply to all registered investment companies, we
propose to rescind 17 CFR 270.30b1-2--which currently permits wholly-
owned management investment company subsidiaries of management
investment companies to not file Form N-SAR under certain
circumstances--and propose new rule 17 CFR 270.30a-4--which would
permit wholly-owned management investment company subsidiaries of
management investment companies to not file Form N-CEN under those same
circumstances. We also propose to amend 17 CFR 200.800 to display
control numbers assigned to information collection requirements for
Forms N-PORT and N-CEN by the Office of Management and Budget pursuant
to the Paperwork Reduction Act. As discussed further below, an agency
may not conduct or sponsor, and a person is not required to respond to
a collection of information unless it displays a currently valid OMB
control number.\618\
---------------------------------------------------------------------------

    \618\ See infra Part V.
---------------------------------------------------------------------------

    Our proposed amendments to Regulation S-X would, among other
things, require management investment companies to report new schedules
for certain derivatives holdings.\619\ To implement these changes, we
propose to renumber the sections for schedules required to be reported
by management investment companies and renumber the list of schedules
provided in 17 CFR 210.6-10, which outlines the schedules to be
reported by investment companies.\620\ We propose conforming changes to
references to Regulation S-X in the following forms: Form N-1A, Form N-
2, Form N-3, and Form N-14.\621\
---------------------------------------------------------------------------

    \619\ Our proposal would require new schedules to be filed to
report open futures contracts, open forward foreign currency
contracts, and open swap contracts. See proposed new rules 12-13A,
B, and C of Regulation S-X.
    \620\ Among other things, our proposed amendments would renumber
the CFR for open option contracts and the summary schedule of
investments in unaffiliated issuers from 17 CFR 210.12-12B and 17
CFR 210.12-12C to 17 CFR 210.12-13 and 17 CFR 210.12-B,
respectively. These amendments would group the schedule for open
option contracts written together with the new schedules for open
futures contracts, open forward foreign currency contracts, and open
swap contracts, and would list the summary schedule sequentially
after the investments in securities of unaffiliated issuers. We
would also amend 17 CFR 210.6-10 to, among other things, add new
schedules V, VI, and VII for open futures contracts, open forward
foreign currency contracts, and open swap contracts, respectively,
and renumber schedule II for investments other than securities and
schedule VI for summary of investments in securities of unaffiliated
issuers as schedules VIII and IX, respectively. See proposed rule 6-
10 of Regulation S-X (listing the schedules required to be filed by
management investment companies, UITs, and face-amount certificate
companies).
    \621\ See Form N-1A, Item 27(b)(1) (reference to Schedule VI
would be changed to Schedule IX and reference to schedule I would be
corrected to cite to the appropriate CFR section); Form N-2,
Instruction 7 to Item 24 (we would update references to schedule
VI); Form N-3, Instruction 7(i) and (ii) to Item 28(a) (we would
update references to schedule VI).
---------------------------------------------------------------------------

    We also propose to amend Form N-CSR to delete instructions
addressing how certifications as to changes in the registrant's
internal control over financial reporting should be handled during the
transition period when certifications were being implemented on Form N-
Q, because those instructions are no longer applicable.\622\
---------------------------------------------------------------------------

    \622\ Form N-CSR, Item 12 (the instruction to paragraph (a)(2)
of that item would be removed).
---------------------------------------------------------------------------

    We also propose to remove paragraph (a) of 17 CFR 232.105, which
currently requires electronic filers to submit Forms N-SAR and 13F in
ASCII, and redesignate paragraphs (b) and (c) as (a) and (b),
respectively. Our proposal would rescind Form N-SAR, and Form 13F has
been submitted by electronic filers in XML, rather than ASCII, since
2013.\623\
---------------------------------------------------------------------------

    \623\ See Notice to EDGAR Form13 Filers, available at http://www.sec.gov/divisions/investment/imannouncements/notice-form-13f-im.htm (requiring funds to file Form 13F according to EDGAR XML
Technical Specifications beginning on April 29, 2013).
---------------------------------------------------------------------------

    We request comment on these technical and conforming amendments.

G. Compliance Dates

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

    \624\ For these purposes, we expect that the threshold would be
based on the definition of ``group of related investment
companies,'' as such term is defined in rule 0-10 under the
Investment Company Act. Rule 0-10 defines the term as ``two or more
management companies (including series thereof) that: (i) Hold
themselves out to investors as related companies for purposes of
investment and investor services; and (ii) Either: (A) Have a common
investment adviser or have investment advisers that are affiliated
persons of each other; or (B) Have a common administrator; and (2)
In the case of a unit investment trust, the term group of related
investment companies shall mean two or more unit investment trusts
(including series thereof) that have a common sponsor.'' We believe
that this broad definition would encompass most types of fund
complexes and therefore is an appropriate definition for compliance
date purposes.
    \625\ We believe that an eighteen month compliance period for
larger groups of investment companies is an adequate amount of time
for funds to implement proposed new Form N-PORT and make the
necessary system and operational changes. We adopted a nine month
compliance periods when we first required money market funds to
report their portfolio holdings to the Commission on a monthly basis
on Form N-MFP. Based upon our Form N-MFP compliance experience, and
the larger number of non-money market fund filers, we believe that
doubling the Form N-MFP compliance period to eighteen months for
filing reports on Forms N-PORT is appropriate. See Money Market Fund
Reform 2010 Release, supra note 13, at 10087.
---------------------------------------------------------------------------

    For smaller entities (i.e., funds that together with other
investment companies in the same ``group of related investment
companies'' have net assets of less than $1 billion as of the end of
the most recent fiscal year),\626\ we are

proposing to provide for an extra 12 months (or 30 months after the
effective date) to comply with the new reporting requirements. We
believe that smaller groups would benefit from this extra time to
comply with the filing requirements for Form N-PORT and would
potentially benefit from the lessons learned by larger investment
companies and groups of investment companies during the adoption period
for Form N-PORT.\627\
---------------------------------------------------------------------------

    \626\ Based on staff analysis of data obtained from Morningstar
Direct, as of March 31, 2015, we estimate that a $1 billion assets
threshold would provide an extended compliance period to more than
66% of the fund groups, but only 0.6% of all fund assets. We
therefore believe that the $1 billion threshold would appropriately
balance the need to provide smaller groups of investment companies
with more time to prepare for the initial filing of reports on Form
N-PORT, while still including the vast majority of fund assets in
the initial compliance period.
    \627\ We likewise intend to rescind Form N-Q (referenced in 17
CFR 274.130) and the amendments to the certification requirements of
Form N-CSR (referenced in 17 CFR 274.128) with a timing that is
consistent with this proposal.
---------------------------------------------------------------------------

2. Form N-CEN and Rescission of Form N-SAR
    If Form N-CEN and the related proposals are adopted, we are
proposing a compliance date of 18 months after the effective date to
comply with the new reporting requirements. We expect that eighteen
months would provide an adequate period of time for funds,
intermediaries, and other service providers to conduct the requisite
operational changes to their systems and to establish internal
processes to prepare, validate, and file reports on proposed Form N-CEN
with the Commission. We are proposing the same compliance date for the
related amendments to other rules and forms we are proposing
today.\628\
---------------------------------------------------------------------------

    \628\ We similarly intend to rescind Form N-SAR (referenced in
17 CFR 274.101) with a timing that is consistent with this proposal.
---------------------------------------------------------------------------

    Unlike Form N-PORT, we do not expect to provide for a tiered
compliance date based on asset size. We believe that it is less likely
that smaller fund complexes would need additional time to comply with
the requirements to file Form N-CEN because the requirements are
similar to the current requirements to file Form N-SAR, and we expect
that filers will prefer the updated, more efficient filing format of
Form N-CEN. We are therefore proposing to require all funds, regardless
of size, to file reports on Form N-CEN with the same compliance period.
3. Option for Web Site Transmission of Shareholder Reports
    Proposed rule 30e-3, if adopted, would permit (but not require) a
fund to satisfy requirements under the Act and rules thereunder to
transmit reports to shareholders if the fund makes the reports and
certain other materials accessible on its Web site. As reliance on the
rule would be optional, we believe a compliance period would not be
necessary. Therefore, we expect that funds would be able to rely on the
rule immediately after the effective date.
4. Regulation S-X and Related Amendments
    As discussed above, our proposed amendments to Regulation S-X are
largely consistent with existing fund disclosure practices. As such, we
do not expect that fund, intermediaries, or service providers would
require significant amounts of time to modify systems or establish
internal processes to prepare financial statements in accordance with
our proposed amendments to Regulation S-X. Accordingly, we are
proposing a compliance date for our proposed amendments to Regulation
S-X of eight months after the effective date. We expect the same
compliance date would apply to conforming amendments related to our
proposed amendments to Regulation S-X, including the related amendment
we are proposing today.
5. Request for Comment
    We request comment on the compliance dates discussed above.
     How, if at all, should the proposed compliance dates be
modified? What factors should we consider when setting the compliance
dates for the proposed rules and forms?
     We request comment on our proposed tiered compliance dates
for filings on Form N-PORT. Is a threshold of $1 billion based on the
net assets of funds together with other investment companies in the
same ``group of related investment companies'' as of the end of the
most recent fiscal year appropriate? Should the threshold be higher or
lower? \629\ Should the threshold include aggregation of net assets
with other investment companies in the same ``group of related
investment companies?'' Why or why not? In lieu of ``group of related
investment companies,'' should aggregation be based on a different set
of related companies? For example, should aggregate assets be based on
``family of investment companies,'' as such term defined in instruction
1(a) to Item 17 of Form N-1A or ``fund complex'' as defined in
instruction 1(b) to Item 17 of Form N-1A? Should we require
administrator-sponsored funds to aggregate assets for purposes of this
threshold regardless of whether the individual funds (or series
thereof) do not hold themselves out to investors as related companies
for purposes of investment and investor services? Why or why not?
---------------------------------------------------------------------------

    \629\ Based on staff analysis of data obtained from Morningstar
Direct, as of March 31, 2015, we estimate that a threshold of $100
million would include 38% of fund firms and 0.1% of all fund assets.
A threshold of less than $3 billion would include 76.9% of fund
firms and 1.5% of fund assets.
---------------------------------------------------------------------------

     With respect to Form N-PORT, is our compliance date of
eighteen months for larger filers appropriate? If not, what length of
time would be appropriate for compliance with Form N-PORT? Would a
shorter or longer compliance date be appropriate? For example, would a
compliance date of 15 months be sufficient? Conversely, would funds
need more time to comply, such as 20 months? Is our 12 month extension
of the compliance period for smaller entities appropriate? If not, what
length of time would be appropriate for compliance with Form N-PORT?
Would a shorter or longer extension, such as 9 months or 15 months, be
appropriate? How do we appropriately consider the benefits and costs to
receiving the information more quickly and the potential costs and
benefits associated with a shorter or longer compliance period?
     Should the Commission consider the implementation of
reporting on Form N-PORT initially through a voluntary pilot program?
If so, what length of time would be needed for funds and their service
providers to appropriately test their reporting procedures?
     Is our eighteen-month compliance period for Form N-CEN
appropriate? If not, what length of time would be appropriate? Would a
shorter or longer compliance date be appropriate? For example, would a
compliance date of 15 months be sufficient? Conversely, would funds
need more time to comply, such as 20 months? Should the compliance
period for Form N-CEN mirror that for Form N-PORT, or should we
consider different compliance periods? Should we adopt a tiered
compliance period for Form N-CEN? Why or why not?
     We are proposing to not have a compliance period for the
option for Web site transmission of shareholder reports under proposed
rule 30e-3. Is this appropriate?
     Is our eight-month compliance period for our proposed
amendments to Regulation S-X adequate? If not, what length of time
would be adequate and why?

III. General Request for Comment

    We request and encourage any interested person to submit comments

regarding the proposed rules and forms, specific issues discussed in
this release, and other matters that may have an effect on the proposed
rules and forms. With regard to any comments, we note that such
comments are of particular assistance to our rulemaking initiative if
accompanied by supporting data and analysis of the issues addressed in
those comments.

IV. Economic Analysis

A. Introduction

    The Commission is sensitive to the economic effects, including the
benefits and costs and the effects on efficiency, competition, and
capital formation that will result from the proposed changes to the
current reporting regime. Changes to the current reporting regime
include proposed Form N-PORT, the rescission of Form N-Q, amendments to
the certification requirements for Form N-CSR, amendments to Regulation
S-X, the proposed rule governing electronic transmission of shareholder
reports, proposed Form N-CEN, and the rescission of Form N-SAR. The
economic effects of the proposed changes are discussed below.
    The Commission is proposing to modernize the content and format
requirements of reports and disclosures by funds, and the manner in
which information is filed with the Commission and disclosed to the
public. The intent of the proposal is to enhance the Commission's
ability to effectively oversee and monitor the activities of investment
companies in order to better carry out its regulatory functions and to
aid investors and other market participants to better assess the
benefits, costs, and risks of investing in different fund products. In
summary, and as discussed in greater detail in Part II above, the
Commission is proposing the following changes to its rules and forms:
     We propose to require registered management investment
companies and ETFs organized as UITs, other than money market funds or
SBICs, to report monthly portfolio information in a structured data
format on a proposed new form, Form N-PORT.
     Because we believe that monthly portfolio reports on Form
N-PORT would render quarterly portfolio reports on current Form N-Q
unnecessarily duplicative, we are proposing to rescind Form N-Q. We
also propose to lengthen the look-back for Sarbanes-Oxley
certifications on Form N-CSR to six months to cover the gap in
certification coverage that would otherwise occur once Form N-Q is
rescinded.
     We propose to revise Regulation S-X to require new,
standardized enhanced disclosures regarding fund holdings in certain
derivatives instruments; update the disclosures for other investments;
and amend the rules regarding the general form and content of fund
financial statements.
     We propose new rule 30e-3 under the Investment Company
Act, which would allow funds to satisfy shareholder report transmission
requirements by posting such reports on their own Web sites if they
meet certain conditions, including posting quarterly portfolio holdings
on their Web sites and notifying investors of its availability.
     We propose to rescind Form N-SAR, the form on which funds
currently report census-type information on a semi-annual basis, and
replace it with Form N-CEN, which would require the annual reporting of
similar and additional information in an updated, structured format.
    The current disclosure of information by funds serves as the
baseline against which the costs and benefits as well as the impact on
efficiency, competition, and capital formation of this proposal are
discussed. The baseline includes the current set of requirements for
funds to file reports on Forms N-CSR, N-Q, and N-SAR with the
Commission and the content of such reports, including Regulation S-X,
and in particular, its schedule of investments. The baseline also
includes guidance from Commission staff and other industry groups that
has established industry practices for the disclosure of a fund's
schedule of investments and financial statements, and includes
Commission guidance that permits funds to transmit these materials
electronically today provided that certain other conditions are met.
Lastly, the baseline includes the current practice of some funds to
voluntarily disclose additional information. For example, some funds
disclose monthly or quarterly portfolio investment information on their
Web sites or to third-party information providers, and disclose
additional information (e.g., particular information on derivative
positions) in fund financial statements that is not currently required
under Regulation S-X. The parties that would be affected by the
proposed amendments are funds that have registered or will register
with the Commission; the Commission; and other current and future users
of fund information including investors, third-party information
providers, and other potential users; and other market participants
that could be affected by the change in fund disclosures.
    We discuss separately below the economic effects of each part of
the proposal: the introduction of Form N-PORT, rescission of Form N-Q,
amendments to the certification requirements for Form N-CSR, amendments
to Regulation S-X, the electronic transmission of shareholder reports,
and the introduction of Form N-CEN and the rescission of Form N-SAR. We
identify for each part of the proposal the baseline from which the
economic effects will be discussed and the parties most likely to be
affected.
    As noted above, the assets of registered investment companies
exceeded $18 trillion at year-end 2014, having grown from about $4.7
trillion at the end of 1997.\630\ In addition, approximately 90 million
individuals own mutual funds, representing 53.2 million or 43.3% of
U.S. households.\631\ Among investment companies, we estimate that, as
of December 2014, there were 3,146 investment companies registered with
the Commission, of which 1,636 were open-end funds, 780 were closed-end
funds (including one SBIC), and 727 were UITs.\632\ We further estimate
that those registered funds included 16,619 series thereof, of which
1,411 were exchange-traded funds, 528 were money market funds, 5,381
were UITs, and 9,299 were other funds.\633\ The following table
summarizes the entities likely to be affected by the proposed forms,
rescissions, and amendments.
---------------------------------------------------------------------------

    \630\ See supra note 4.
    \631\ See id.
    \632\ Based on data obtained from registrants' filings with the
Commission on Form N-SAR.
    \633\ Based on data obtained from the Investment Company
Institute. See http://www.ici.org/research/stats.

                                                               Figure 3--Affected Parties
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Funds                                      UITS
                                                                      -------------------------------------------------------------------------------------
                                                                         Money market
                                                                            funds            SBICs         Other funds          ETFs          Other UITs
----------------------------------------------------------------------------------------------------------------------------------------- -----------------
Current:
    Form N-SAR..........................  [check]....................         [check]          [check]          [check]          [check]
    Form N-CSR..........................  [check]....................         [check]          [check]
    Form N-Q............................  [check]....................  ...............         [check]   ...............  ...............
As proposed:
    Form N-PORT.........................  ...........................  ...............         [check]          [check]   ...............
    Form N-CEN..........................  [check]....................         [check]          [check]          [check]          [check]
    Form N-CSR..........................  [check]....................         [check]          [check]   ...............  ...............
                                         ---------------------------------------------------------------------------------------------------------------
    Form N-SAR..........................                                             Rescinded
                                         ---------------------------------------------------------------------------------------------------------------
Form N-Q................................                                             Rescinded
--------------------------------------------------------------------------------------------------------------------------------------------------------

Figure 3
    The Commission relies on information included in reports filed by
funds to monitor trends, identify risks, inform policy and rulemaking,
and assist Commission staff in examination and enforcement efforts of
the asset management industry. An essential factor to the Commission's
ability to carry out its regulatory functions is regular, timely
information about portfolio holdings and general, census information
about funds. In general, this proposal would modernize the fund
reporting regime and, among other effects, would result in an increased
transparency of fund portfolios and investment practices. The increased
transparency would improve the ability of the Commission to fulfill its
regulatory functions. These functions include the development of policy
and guidance, the staff's review of fund registration statements and
disclosures, and the Commission's examination and enforcement programs.
The increased transparency would also improve the ability of investors
to select funds for investment, and therefore improve their ability to
allocate capital across funds and other investments to more closely
reflect their investment risk preferences. Increased transparency would
also enhance competition among funds to attract investors.
    At the outset, the Commission notes that, where possible, it has
sought to quantify the costs, benefits, and effects on efficiency,
competition, and capital formation expected to result from each part of
the proposal and its reasonable alternatives. As discussed in further
detail below, in many cases the Commission is unable to quantify the
economic effects because it lacks the information necessary to provide
a reasonable estimate.
    The economic effects of the proposal depend upon a number of
factors that we cannot estimate or quantify, such as the extent to
which investor protection would increase along with the ability of the
Commission to oversee the fund industry; the amount of new information
that would become available as a result of requiring such information
in regulatory filings (as opposed to information that is provided
voluntarily); the increase in the availability of the information to
all investors, institutional and individual, as a result of the
improved structured format of the information; and the extent to which
investors are able to use the information to make more informed
investment decisions either through direct use or through third-party
service providers. Therefore, much of the discussion below is
qualitative in nature although we try to describe where possible the
direction of these effects.

B. Form N-PORT, Rescission of Form N-Q, and Amendments to Form N-CSR

a. Introduction and Economic Baseline
    Form N-PORT, as proposed, would require registered management
investment companies and ETFs organized as UITs, other than money
market funds or SBICs, to report portfolio investment information to
the Commission on a monthly basis. As discussed, only information
reported for the last month of each fiscal quarter would be made
available to the public in order to minimize potential costs associated
with making the information public, including front-running or reverse
engineering of a fund's investment strategies. Reports would be filed
in a structured format using XML to allow for easier aggregation and
manipulation of the data. As discussed above, we are also proposing to
rescind Form N-Q but require that funds attach their complete portfolio
holdings to Form N-PORT for the first and third fiscal quarters in
accordance to Regulation S-X. We are also proposing to amend the form
of certification in Form N-CSR to require each certifying officer to
state that he or she has disclosed in the report any change in the
registrant's internal control over financial reporting that occurred
during the most recent fiscal half-year to fill the gap in
certification coverage that would otherwise occur once Form N-Q is
rescinded.\634\
---------------------------------------------------------------------------

    \634\ Proposed Item 11(b) of Form N-CSR; proposed paragraph 5(b)
of certification exhibit of Item 11(a)(2) of Form N-CSR.
---------------------------------------------------------------------------

    The current set of requirements under which registered management
investment companies (other than money market funds and SBICs) and ETFs
organized as UITs publicly report their complete portfolio investments
to the Commission on a quarterly basis and certain other information on
a semi-annual basis,\635\ as well as the current practice of some
investment companies to voluntarily disclose portfolio investment
information either on their Web sites or to third-party information
providers on a more frequent basis, is the baseline from which we will
discuss the economic effects of new Form N-PORT.\636\ The parties that
could be affected by the introduction of Form N-PORT are registered
management investment companies (other than money market funds and
SBICs) and ETFs organized as UITs, that have registered or will
register with the

Commission; the Commission; and other current and future users of
investment company portfolio investment information including
investors, third-party information providers, other interested
potential users; and other market participants that could be affected
by the change in fund disclosure of portfolio investment information.
---------------------------------------------------------------------------

    \635\ Form N-PORT would also require information that is
currently being reported on Form N-SAR such as information on fund
flows, assets, and liabilities. The current requirement to report
this information as part of Form N-SAR is also part of this
baseline. The baseline also includes the current obligation of Form
N-Q filers to make certifications regarding (1) the accuracy of the
portfolio holdings information reported on that form, and (2) the
fund's disclosure controls and procedures and internal control over
financial reporting.
    \636\ Additionally, many funds currently provide additional
information concerning derivatives investments, based on industry
guidance and practices. See discussion supra Part II.C.2.
---------------------------------------------------------------------------

    Currently, the Commission requires registered management investment
companies (other than money market funds and SBICs) to report their
complete portfolio investments to the Commission on a quarterly
basis.\637\ These funds are required to provide this information in
reports on Form N-Q as of the end of the first and third fiscal
quarters of each year \638\ and in reports on Form N-CSR as of the end
of the second and fourth fiscal quarters of each year.\639\ Both forms
require that the reported schedule of portfolio investments conform to
the requirements of Regulation S-X, and the schedule for the close of
the fiscal year must be audited (but those schedules for the other
three fiscal quarters need not be).\640\ These reports are generally
required to be filed on the EDGAR system and are made publicly
available upon receipt.\641\ Reports on Form N-CSR may be filed up to
70 days after the end of the reporting period,\642\ and reports on Form
N-Q may be filed up to 60 days after the end of the reporting period.
---------------------------------------------------------------------------

    \637\ See General Instruction A to Form N-CSR; Item 6 of Form N-
CSR; General Instruction A to Form N-Q; Quarterly Portfolio Holdings
Adopting Release, supra note 19.
    \638\ Item 1 of Form N-Q.
    \639\ Item 6 of Form N-CSR.
    \640\ Instruction to Item 6(a) of Form N-CSR; Item 1 of Form N-
Q.
    \641\ See rule 101(a)(i) of Regulation S-T [17 CFR
232.101(a)(i)].
    \642\ Form N-CSR must be filed within 10 days after the
shareholder report is sent to shareholders, and the shareholder
report must be sent within 60 days after the end of the reporting
period. Rule 30b2-1(a); rule 30e-1(c).
---------------------------------------------------------------------------

    Forms N-CSR and N-Q are required to be filed in HTML or ASCII/SGML
format.\643\ In order to prepare reports in HTML and ASCII/SGML,
reporting persons generally need to reformat information from the way
the information is stored for normal business use.\644\ The resulting
format, when rendered in an end user's web browser, is comprehensible
to a human reader, but it is not suitable for automated processing.
These formats do not allow the Commission or other interested data
users to combine information from more than one report in an automated
way to, for example, construct a database of fund portfolio positions
without additional formatting.
---------------------------------------------------------------------------

    \643\ See rule 301 of Regulation S-T; EDGAR Filer Manual (Volume
II) version 27 (June 2014), at 5-1.
    \644\ In so doing, reporting persons typically strip out
incompatible metadata (i.e., syntax that is not part of the HTML or
ASCII/SGML specification) that their business systems use to ascribe
meaning to the stored data items and to represent the relationships
among different data items.
---------------------------------------------------------------------------

    The economic effects from the introduction of new Form N-PORT would
largely result from the disclosure of portfolio investment information
in a structured format, as well as the additional information that
investment companies would report. The economic effects would depend on
the extent to which the portfolios and investment practices of
investment companies become more transparent as a result of the
increase in the amount and availability of portfolio investment
information, and the ability of Commission staff and all investors to
utilize the structured data. The current reporting requirements for
investment companies, however, reduce the ability of Commission staff
to evaluate the potential economic effects. For example, the non-
structured format of reported portfolio investment information, the
absence of information to identify securities, and reporting
inconsistencies between investment companies all reduce the ability of
Commission staff to aggregate information across the fund industry and
to evaluate the economic effects of the proposal.
    The proposal would increase the amount of portfolio investment
information available for some investment companies more so than
others. For example, investment companies that utilize derivatives as
part of their investment strategy, or that otherwise engage in
alternative strategies, would have more information become available
describing their businesses than other investment companies.
Information from Form N-SAR provides some indication as to the current
use of derivatives by investment companies. Form N-SAR requires
investment companies to identify permitted investment policies, and if
permitted, investment policies engaged in during the reporting period.
As of the second half of 2014, on average 75.4% of investment companies
reported as permitted investment policies involving the writing or
investing in options or futures, and on average 5.2% of investment
companies reported engaging in each one of these policies during the
report period.\645\ In addition, the total net assets of alternative
funds from which more information would become available were as of
year-end 2014 approximately $200 billion or 1.2% of the total net
assets of the mutual fund market.\646\ Although the percentage of net
assets of alternative funds relative to the mutual fund market is
currently small, the percentage of flows to alternative funds was 10.2%
in 2013 and 4.3% in 2014.\647\
---------------------------------------------------------------------------

    \645\ See Item 70 of Form N-SAR for a list of permitted
investment policies, and if permitted, the investment policies
engaged in during the reporting period. The percentages are
calculated from the percentage of funds that report affirmatively to
either of the two parts for Items 70.B though 70.I. There is little
difference in the proportion of investment companies that reported
as permitted the investment practices relating to Items 70.B through
70.I. The greatest proportion of funds reported engaging in writing
or investing in stock index futures (13.1%) and engaging in writing
or investing in interest rate futures (12.0%), and the smallest
proportion of funds reported engaging in writing or investing in
other commodity futures (1.7%) and engaging in writing or investing
in options on stock index futures (0.9%). Aggregate condensed
balance sheet information reported on Form N-SAR indicates that
funds held $2.6 billion in options on equities and options on all
futures (Items 74.G and 74.H) or 0.013% of net assets from the
second half of 2014. Aggregate condensed balance sheet information
reported on Form N-SAR from the second half of 2014 also indicates
that funds had $55.9 billion in short sales (Item 74.R.(2)) and $4.2
billion in written options (Item 74.R.(3)), or 0.285% and 0.021% of
net assets, respectively. The estimates are approximate.
    \646\ See supra note 30. These statistics were obtained from
staff analysis of Morningstar Direct data, and are based on fund
categories as defined by Morningstar.
    \647\ See id.
---------------------------------------------------------------------------

b. Benefits
    As discussed, Form N-PORT would improve the information that
registered management investment companies and ETFs organized as UITs
(other than money market funds and SBICs) disclose to the Commission.
The increase in the reporting frequency, the update to the structure of
the information that reporting funds would disclose, and the additional
information not currently disclosed, discussed in further detail below,
would improve the ability of the Commission to understand, analyze, and
monitor the fund industry. We believe that the information we receive
on these reports would facilitate the oversight of funds and would
assist the Commission, as the primary regulator of such funds, to
better effectuate its mission to protect investors, maintain fair,
orderly and efficient markets, and facilitate capital formation,
through better informed policy decisions, more specific guidance and
comments in the disclosure review process, and more targeted
examination and enforcement efforts.
    To the extent that monthly portfolio investment information is not
currently available, the requirement that all investment companies make
available

portfolio investment information on a monthly basis to the Commission
would improve the ability of the Commission to oversee investment
companies by increasing the timeliness of the information available,
and by providing a larger number of data points, would increase the
ability of Commission staff to identify trends in investment strategies
and fund products as well as industry outliers.\648\ As discussed
above, the quarterly portfolio reports that the Commission currently
receives on Forms N-Q and N-CSR could become stale due to the turnover
of portfolio securities and fluctuations in the values of the
portfolio's investments. Requiring monthly reports on Form N-PORT would
decrease the delay between fund reports, so that the Commission would
have more timely information than it has currently; portfolio
investment information that is more timely would improve the ability of
Commission staff to identify risks a fund is facing, particularly
during times of market stress.
---------------------------------------------------------------------------

    \648\ See, e.g., supra text following note 169. Although likely
not a significant effect, the increase in the frequency of portfolio
investment disclosure to the Commission could also reduce the
ability of investment companies to alter or ``window-dress''
portfolio investments in an attempt to disguise investment
strategies and risk profiles that are not consistent with the
disclosures in registration statements and shareholder reports. The
incentives for managers to window-dress in an attempt to mislead
investors would not change because the frequency of public
disclosure of portfolio investment information would remain the
same. See, e.g., Vikas Agarwal, Gerald D. Gay, and Leng Ling, Window
Dressing in Mutual Funds, The Review of Financial Studies, Vol.
27(11), 3133-3170 (2014).
---------------------------------------------------------------------------

    The ability of Commission staff to effectively use the information
reported in Form N-PORT is dependent on the ability of staff to compile
and aggregate information into a single database that can then be
utilized to conduct industry-wide analyses. Otherwise, the information
would only improve the ability of staff to analyze a single or a small
number of funds at any one time. The structuring of the information in
an XML format would improve the ability of the Commission to compile
and aggregate information across all funds, and to analyze individual
funds, a subset of funds, or the fund industry as a whole, and would
increase the overall efficiency of staff to analyze the information.
For example, the ability to compare portfolio investment information
across reporting funds or for a single fund across report dates would
improve the ability of the Commission to identify funds for examination
and to identify trends in the fund industry.
    The structuring of portfolio investment information may also
improve the quality of the information disclosed by imposing
constraints on how the information would be provided. A feature of XML
is a built-in validation framework that can provide precise constraints
as to how the information could be provided. These data checks, which
are not available in the current formats for Form N-CSR and Form N-Q,
are important to ensure that the reports contain information that is
accurate and consistent across filings, and therefore usable by
Commission staff. An improved, structured format may also promote
additional efficiency among investment companies to the extent that the
new reporting requirements encourage an update and integration of
systems, and standardized formats for the disclosure and transmission
of filings.
    Form N-PORT would require information that is not currently
required to be reported to the Commission, including portfolio and
position level risk-sensitivity measures and additional information
describing derivatives, securities lending activities, repurchase and
reverse repurchase agreements, the pricing and liquidity of securities,
and information regarding fund returns and flows. The information would
increase the ability of Commission staff to understand the use of these
products and activities as part of a fund's investment strategy, as
well as the risks of a particular fund, a group of funds, and the fund
industry.
    The proposed requirement to report portfolio- and position-level
risk sensitivity measures would provide Commission staff with a set of
estimates that summarizes the risk exposures of a fund. The risk
sensitivity measures improve the ability of Commission staff to
efficiently analyze information for all funds and identify those funds
not only with specific risk exposures but also risk exposures that
appear to be outliers among peer funds. An ability to efficiently
identify funds based on exposure to certain risks would improve the
Commission's ability to analyze fund industry trends, monitor funds,
and, as appropriate, engage in further inquiry or timely outreach in
case of a market or other event. Commission staff could also use these
measures to determine whether additional guidance or policy measures
are appropriate to improve disclosures.
    The calculation of portfolio- or position-level measures of risk
for some derivatives, including derivatives with unique or complicated
payoff structures, sometimes requires time-intensive computational
methods or additional information that Form N-PORT would not require.
As discussed above, based on staff experience and outreach, we
understand that most funds calculate risk measures for such securities.
Accordingly, we believe that requiring funds to provide these measures
is more efficient than requiring funds to provide all of the
information that might be necessary for the Commission, investors, or
other potential users to calculate these measures. The requirement for
investment companies to provide risk measures for derivatives, at the
position-level and at the portfolio-level, would therefore improve the
ability of staff to efficiently identify the risk exposures of funds
regardless of the types of derivatives held or that could be introduced
to the marketplace. In addition, the requirement for investment
companies to provide portfolio-level measures of risk would also
improve the ability of staff to efficiently identify interest rate and
credit spread exposures at the fund level and conduct analyses without
first aggregating position-level measures.
    Form N-PORT would require funds to provide the contractual terms
for debt securities and many of the more common derivatives including
options, futures, forwards, and swaps; the reference instrument for all
convertible debt securities and derivatives, and information describing
the size of the position. The information would provide Commission
staff an ability to identify funds with interest rate risk exposure or
exposure to other risks such as those pertaining to a company,
industry, or region.
    As discussed, for securities lending activities and reverse
repurchase agreements, Form N-PORT would require counterparty
identification information, contractual terms, and information
describing the collateral and reinvestment of the collateral. The
additional information could improve the ability of Commission staff to
assess fund compliance with the conditions that they must meet to
engage in securities lending, as well as better analyze the extent to
which funds are exposed to the creditworthiness of counterparties, the
loss of principal of the reinvested collateral, and leverage creation
through the reinvestment of collateral.
    Form N-PORT would also require additional identification
information regarding the reporting fund, the issuers of fund
investments, and the investments themselves, including the reference
instruments for convertible debt securities and derivatives
investments. The additional

identification information would benefit the Commission by improving
the ability of staff to link the information from Form N-PORT with
information from other sources, such as Form N-CEN, that also identify
market participants and investments with these identifiers. The
additional identification information would be especially important to
identify the issuers of fund investments and the investments
themselves. The information would improve the ability of Commission
staff, from the current requirement to provide just the issuer name, to
identify and compare funds that have exposures to particular
investments or issuers regardless of the whether the exposure is direct
or indirect such as through a derivative security.
    Investors, third-party information providers, and other potential
users would also experience benefits from the introduction of Form N-
PORT. While the frequency of public disclosure of portfolio information
would not change, we believe that the structured format of this
information would allow investors and other potential users to more
efficiently analyze portfolio information. Investors and other
potential users would also have quarterly disclosure of additional
information that is currently not included in the schedule of
investments reported on Form N-Q and Form N-CSR. The additional
information as well as the structure of the information would increase
the transparency of funds' investment strategies and improve the
ability of investors and other potential users to more efficiently
identify the risk exposures of the fund.
    Form N-PORT would benefit investors, to the extent that they use
the information, to better differentiate investment companies based on
their investment strategies and other activities. For example,
investors would be able to more efficiently identify funds that use
derivatives and the extent to which they use derivatives as part of
their investment strategies.\649\ In general, we expect that
institutional investors and other market participants would directly
use the information from Form N-PORT more so than individual investors.
As discussed, the format of Form N-PORT is not designed to be human
readable and the amount of information could result in reports that are
voluminous. The Commission therefore has endeavored to mitigate the
potential loss of information to individual investors from the
rescission of From N-Q through the additional disclosure requirements
for investment companies as part of this proposal, including the
requirement for investment companies to attach to Form N-PORT complete
portfolio holdings in accordance with Regulation S-X for the first and
third fiscal quarters.\650\ Individual investors, however, could
indirectly benefit from the information in Form N-PORT to the extent
that third-party information providers and other interested parties are
able to obtain, aggregate, provide, and report on the information.
Individual investors could also indirectly benefit from the information
in Form N-PORT to the extent that other entities, including investment
advisers and broker-dealers, utilize the information to help investors
make more informed investment decisions.
---------------------------------------------------------------------------

    \649\ Form N-PORT would also eliminate the reporting gap between
money market funds, which report portfolio investment information in
an XML format on Form N-MFP, and funds engaging in similar
investment strategies such as ultra-short bond funds, which would be
required to file reports on Form N-PORT.
    \650\ See discussion supra Part II.A.2.j.
---------------------------------------------------------------------------

    Portfolio investment information that investment companies report
to the Commission is informative in describing the ongoing investment
strategy of the fund,\651\ and investors could use the information to
select funds based on security selection, industry focus, level of
diversification, and the use of leverage and derivatives.\652\ An
increase in the ability of investors to differentiate investment
companies would allow investors to allocate capital across reporting
funds more in line with their risk preferences and increase the
competition among funds for investor capital. In addition, by improving
the ability of investors to understand the risks of investments and
hence their ability to allocate capital across funds and other
investments more efficiently, the introduction of Form N-PORT could
promote capital formation.
---------------------------------------------------------------------------

    \651\ Academic research indicates that the portfolio investment
information funds provide to the Commission, such as on Form N-CSR
and Form N-Q, has value even though the information is publicly
available only after a time-lag. See infra notes 664-667. Just as
investors can use the information to front-run or copycat/reverse
engineer the investment strategy of a reporting fund, investors of
funds can also use the information to identify funds for investment.
    \652\ Empirical research shows that fund flows are sensitive to
many factors including past fund performance and investor search
costs. See, e.g., Erik R. Sirri and Peter Tufano, Costly Search and
Mutual Fund Flows, The Journal of Finance, Vol. 53(5), 1589-1622
(1998); Zoran Ivkovi[cacute] and Scott Weisbenner, Individual
Investor Mutual Fund Flows, Journal of Financial Economics, Vol. 92,
223-237 (2009); George D Cashman, Convenience in the Mutual Fund
Industry, Journal of Corporate Finance, Vol. 18, 1326-1336 (2012).
---------------------------------------------------------------------------

    Rescission of Form N-Q, along with its certifications of the
accuracy of the portfolio schedules reported for each fund's first and
third fiscal quarters, may result in some cost savings by funds in
terms of administrative or filing costs. However, we expect any such
savings, if any, to be minimal, because under our proposal each fund
would still be required to file portfolio schedules prepared in
accordance with Sec. Sec.  210.12-12 to 12-14 of Regulation S-X for the
fund's first and third fiscal quarters, by attaching those schedules as
attachments to its reports on Form N-PORT for those reporting periods.
c. Costs
    Form N-PORT, as proposed, would require registered management
investment companies and ETFs organized as UITs, other than money
market funds or SBICs, to incur one-time and ongoing costs to comply
with the new filing requirements. Funds would incur additional ongoing
costs to report portfolio investment information on a monthly basis on
Form N-PORT instead of a quarterly basis as currently reported on Forms
N-Q and N-CSR. Funds that voluntarily provide information to third-
party information providers and on its Web site, including monthly
portfolio investments, and additional information in fund financial
statements, including additional information regarding derivatives
similar to the requirements that we are proposing today, would bear
fewer costs as a result of the proposal than those that do not.\653\
The Commission is aware that these funds would nonetheless likely incur
additional costs on reports on proposed Form N-PORT than on voluntary
submissions, such as validation and signoff processes, given that
reports on Form N-PORT would be a required regulatory filing and would
possibly require different data than the funds are currently providing
to third-party information providers. Over time, the filings could
become highly automated and could involve fewer costs.\654\
---------------------------------------------------------------------------

    \653\ Monthly portfolio investment information is available for
approximately 45% of funds covered by The CRSP Survivor-Bias-Free US
Mutual Fund Database as of the third quarter of 2014. The database
covers more than 9,000 open-ended mutual funds during this time
period. This estimate suggests that a large proportion of funds
already report monthly portfolio investment information, although it
is unclear whether monthly information is reported following each
month or if information relating to several months is periodically
reported at a later date. Calculated based on data from The CRSP
Survivor-Bias-Free US Mutual Fund Database (copyright) 2015 Center
for Research in Security Prices (CRSP[supreg]), The University of
Chicago Booth School of Business.
    \654\ Costs related to such processes are included in the
estimate below of the paperwork costs related to Form N-PORT,
discussed below.

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

    Funds would also incur costs to file reports on Form N-PORT in a
structured format. Based on staff experience with other XML filings,
however, these costs are expected to be minimal given the technology
that would be used to structure the data.\655\ XML is a widely used
data format, and based on the Commission's understanding of current
practices, most reporting persons and third party service providers
have systems already in place to report schedules of investments and
other information. Systems would be able to accommodate an alternative
format such as XML without significant costs, and large-scale changes
would likely not be necessary to output structured data files. In an
effort to reduce some of the potential burdens on smaller entities, we
are proposing to extend the compliance period to begin filing reports
on Form N-PORT to thirty months after the effective date for groups of
funds with assets under $1 billion.\656\ The additional time could
increase the ability of these investment companies to comply with the
filing requirements by providing more time for system and operation
changes and from observing larger fund groups.
---------------------------------------------------------------------------

    \655\ See, e.g., Form PF Adopting Release, supra note 14, at
text following n.357 (discussing the costs to advisers to private
funds of filing Form PF in XML format); Money Market Fund Reform
2010 Release, supra note 13, at nn.341-344 and accompanying text
(discussing the costs to money market funds of filing reports on
Form N-MFP in XML format).
    \656\ See supra Part II.G.1.
---------------------------------------------------------------------------

    Form N-PORT would also require the disclosure of certain
information that is not currently required by the Commission. In some
instances, such as in the case of increased disclosures regarding
derivatives investments and information concerning the pricing and
liquidity of investments, the Commission is proposing to require
parallel disclosures in the fund's schedule of investments;
accordingly, we expect funds would generally incur one set of costs to
adhere to the reporting of new information on Form N-PORT and in its
schedule of investments. For other information, such as the reporting
of particular asset classifications, identification of investments and
reference instruments, and risk measures, the information would be
disclosed on Form N-PORT only.
    To the extent that our proposal would require information to be
reported that is not currently contained in fund accounting or
financial reporting systems, funds would bear one-time costs to update
systems to adhere to the new filing requirements. The one-time costs
would depend on the extent to which investment companies currently
report the information required to be disclosed. The one-time costs
would also depend on whether an investment company would need to
implement new systems, such as to calculate and report risk-sensitivity
measures, and to integrate information maintained in separate internal
systems or by third parties to comply with the new requirements. Based
on staff outreach to funds, we believe that, at a minimum, funds would
incur systems or licensing costs to obtain a software solution or to
retain a service provider in order to report data on risk metrics, as
risk metrics are not required to be reported on the fund financial
statements. Our experience with and outreach to funds indicates that
the types of systems funds use for warehousing and aggregating data,
including data on risk metrics, varies widely.
    To the extent possible, we have attempted to quantify these costs.
As discussed below, we estimate that funds would incur certain annual
paperwork costs associated with preparing, reviewing, and filing
reports on Form N-PORT.\657\ Assuming that 35% of funds (3,749 funds)
would choose to license a software solution to file reports on Form N-
PORT, we estimate an upper bound on the initial annual costs to funds
choosing this option of $55,970 per fund \658\ with annual ongoing
costs of $46,745 per fund.\659\ We further assume that 65% of funds
(6,962 funds) would choose to retain a third-party service provider to
provide data aggregation and validation services as part of the
preparation and filing of reports on Form N-PORT, and we estimate an
upper bound on the initial costs to funds choosing this option of
$54,821 per fund \660\ with annual ongoing costs of $38,746 per
fund.\661\ In total, we estimate that funds would incur initial annual
costs of $515,537,918 and ongoing annual costs of $444,996,657.\662\
---------------------------------------------------------------------------

    \657\ See infra Part V.A.1.
    \658\ See infra notes 736-739, 749 and accompanying text. This
estimate is based upon the following calculations: $55,970 = $4,805
in external costs + $51,165 in internal costs ($51,165 = 15 hours x
$303/hour for a senior programmer) + (39 hours x $312/hour for a
senior database administrator) + (30 hours x $266/hour for a
financial reporting manager) + (30 hours x $198/hour for a senior
accountant) + (30 hours x $157/hour for an intermediate accountant)
+ (30 hours x $301/hour for a senior portfolio manager) + (24 hours
x $283/hour for a compliance manager)). The hourly wage figures in
this and subsequent footnotes are from SIFMA's Management &
Professional Earnings in the Securities Industry 2013, modified by
Commission staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
    \659\ See infra notes 740, 749 and accompanying text. This
estimate is based upon the following calculations: $46,745 = $4,805
in external costs + $41,940 in internal costs ($41,940 = (30 hours x
$266/hour for a financial reporting manager) + (30 hours x $198/hour
for a senior accountant) + (30 hours x $157/hour for an intermediate
accountant) + (30 hours x $301/hour for a senior portfolio manager)
+ (24 hours x $283/hour for a compliance manager) + (24 hours x
$312/hour for a senior database administrator)).
    \660\ See infra notes 743-745, 750 and accompanying text. This
estimate is based upon the following calculations: $54,821 = $11,440
in external costs + $43,481 in internal costs ($43,481 = (30 hours x
$303/hour for a senior programmer) + (46.5 hours x $312/hour for a
senior database administrator) + (16.5 hours x $266/hour for a
financial reporting manager) + (16.5 hours x $198/hour for a senior
accountant) + (16.5 hours x $157/hour for an intermediate
accountant) + (16.5 hours x $301/hour for a senior portfolio
manager) + (16.5 hours x $283/hour for a compliance manager)).
    \661\ See infra notes 746, 750 and accompanying text. This
estimate is based upon the following calculations: $38,746 = $11,440
in external costs + $27,306 in internal costs ($27,306 = (18 hours x
$266/hour for a financial reporting manager) + (18 hours x $198/hour
for a senior accountant) + (18 hours x $157/hour for an intermediate
accountant) + (18 hours x $301/hour for a senior portfolio manager)
+ (18 hours x $283/hour for a compliance manager) + (18 hours x
$312/hour for a senior database administrator)).
    \662\ These estimates are based upon the following calculations:
$591,495,332 = (3,749 funds x $55,970 per fund) + (6,962 funds x
$54,821 per fund). $444,996,657 = (3,749 funds x $46,745 per fund) +
(6,962 funds x $38,746 per fund).
---------------------------------------------------------------------------

    Although under the proposal there would be no change to the
frequency or time-lag for which investment company security position
information is publicly disclosed, the increase in the amount of
publicly available information and the greater ability to analyze the
information as a result of its structure may facilitate activities such
as ``front-running,'' ``predatory trading,'' and ``copycatting/reverse
engineering of trading strategies'' by other investors. For example,
Form N-PORT would result in the disclosure of additional information,
such as pertaining to derivatives and securities lending activities,
which could more clearly reveal the investment strategy of reporting
funds and its risk exposures. The structured format of portfolio
investments disclosure could also improve the ability of other
investors to obtain and aggregate the data, and identify specific funds
to front-run or predatory trade. These activities could reduce the
profitability from developing new investment strategies, and therefore
could reduce innovation and impact competition in the fund industry.
    Investors that trade ahead of funds could reduce the profitability
of funds by increasing the price of fund purchases and by decreasing
the price of fund sales. These activities can reduce the returns to
shareholders who invest

in actively managed funds, making actively managed funds less
attractive investment options.\663\ Portfolio investment information,
along with flow information, can also create opportunities for other
market participants to front-run the sales of funds that experience
large outflows and the purchases of funds that experience large
inflows,\664\ or create opportunities for other market participants to
engage in predatory trading that could lead to further fund
distress.\665\
---------------------------------------------------------------------------

    \663\ See, e.g.,
    \664\ See, e.g., Joshua Coval and Erik Stafford, Asset Fire
Sales (and Purchases) in Equity Markets, Journal of Financial
Economics, Vol. 86, 479-512 (2007).
    \665\ See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen,
Predatory Trading, The Journal of Finance, Vol. 60(4), 1825-1864
(2005).
---------------------------------------------------------------------------

    A trading strategy that follows the publicly reported holdings of
actively managed funds can also earn similar if not higher after
expense returns.\666\ An implication of this finding is that the public
disclosure of portfolio investment information could induce free-riding
by investors that use the information and reduce the potential benefit
from developing new investment strategies and engaging in proprietary
market research. The effect of free-riding would reduce the ability of
an investment companies with longer investment horizons to benefit from
researching investment opportunities and developing new strategies more
so than investment companies with shorter investment horizons because
of the increased likelihood that the disclosed portfolio investment
information would reveal their long-term investment strategies.\667\
---------------------------------------------------------------------------

    \666\ See, e.g., Mary Margaret Frank, James M. Poterba, Douglas
A. Shackelford, and John B. Shoven, Copycat Funds: Information
Disclosure Regulation and the Returns to Active Management in the
Mutual Fund Industry, The Journal of Law and Economics, Vol. 47(2),
515-541 (2004).
    \667\ See, e.g., Vikas Agarwal, Kevin Andrew Mullaly, Yuehua
Tang, and Baozhong Yang, Mandatory Portfolio Disclosure, Stock
Liquidity, and Mutual Fund Performance, The Journal of Finance,
(``Agarwal et al''), forthcoming (available at http://onlinelibrary.wiley.com/doi/10.1111/jofi.12245/pdf); Marno Verbeek
and Yu Wang, Better than the Original? The Relative Success of
Copycat Funds, Journal of Banking and Finance, Vol. 37, 3454-3471
(2013) (``Verbeek and Wang'').
---------------------------------------------------------------------------

    A comparison can be made between the economic effects from the
introduction of Form N-PORT and the economic effects from the
introduction of Form N-Q in May 2004 which increased the reporting
frequency of portfolio investment information to the Commission from
semiannual to quarterly. The introduction of Form N-Q resulted in an
increase in the amount of information that could have been acted upon
by other investors. For example, evidence indicates that the ability of
copycat funds to outperform actively managed funds increased after the
introduction of Form N-Q,\668\ and additional evidence indicates that
the performance of those funds with better previous performance or that
invest in low-information stocks decreased following the introduction
of Form N-Q.\669\ The increase in the frequency of portfolio investment
information as a result of Form N-Q resulted in an increase in the
amount of portfolio investment information available. Although Form N-
PORT would not increase the frequency of public disclosure, Form N-PORT
would increase the amount of portfolio investment information
available. In addition, Form N-PORT, unlike Form N-Q, would also
increase the accessibility of the information as a result of its
structured format.
---------------------------------------------------------------------------

    \668\ See Verbeek and Wang, supra note 667.
    \669\ See Agarwal et al., supra note 667. Low information stocks
include stocks with smaller market capitalization, less liquidity,
and less analyst coverage. The authors also find that the liquidity
of stocks with higher fund ownership increased following the
introduction of Form N-Q. Although the increase in liquidity would
benefit investors by reducing trading costs, this benefit stems as a
result of the costly disclosure of potential investment
opportunities.
---------------------------------------------------------------------------

    We have endeavored to mitigate the potential for front-running,
predatory trading, and copycatting/reverse engineering by other market
participants by proposing to maintain the status quo for the frequency
and timing of disclosure of publicly available portfolio information.
In addition, much, though not all, of the information that Form N-PORT
would require, is already disclosed by reporting funds on Form N-CSR
and Form N-Q.\670\ The additional information and the structure of the
information that would be required under Form N-PORT, however, would
improve the ability of investors to obtain, aggregate, and analyze all
fund investments. Thus, Form N-PORT could negatively affect actively
managed funds by increasing the ability of other investors to copycat
or front-run investment strategies, and in particular could negatively
affect those funds that would have more additional information
disclosed, such as funds that use derivatives as part of their
investment strategies. The Commission has considered the needs of the
Commission, investors, and other users of portfolio investment
information and the potential that other investors may use the
information to the detriment of the reporting funds.
---------------------------------------------------------------------------

    \670\ See supra note 27 and accompanying text.
---------------------------------------------------------------------------

    Form N-PORT would require the disclosure of information that is
currently nonpublic that could result in additional costs to funds and
market participants. For example, Form N-PORT would require a fund to
report the identities and weights of each of the individual components
comprising the reference instruments underlying the fund's derivative
investments, unless the reference instrument is an index whose
components are publicly available on a Web site and are updated on that
Web site no less frequently than quarterly, or the notional amount of
the derivative represents 1% or less of the net asset value of the
fund.\671\ We understand that many indices used as reference
instruments in derivative investments are proprietary to index
providers, and are subject to licensing agreements between the index
provider and the fund. Disclosing the components of a non-public index
could result in costs to both the index provider, whose proprietary
indexing strategy could be imitated, and the fund, whose investments
could be front-run.\672\ Moreover, disclosing the underlying components
of such an index could subject the fund to one-time costs associated
with renegotiating licensing agreements and the ongoing payment of fees
in order to obtain the rights to disclose the components of the
index.\673\ Additionally, the increased transparency in proprietary
indexes could ultimately decrease the incentives of index providers to
license the use of such indices to funds as well as fund demand for
securities products that incorporate these indices. Likewise, Form N-
PORT, as well as the proposed amendments to regulation S-X, would
require funds to report certain information regarding fees and
financing terms for certain derivatives contracts, particularly OTC
swaps, which are not currently required to be publicly disclosed. The
increased transparency could increase the competition among swap and
security-based swap dealers to offer favorable fees and financing
terms, as the fees and financing terms offered to one fund

would be known to other funds negotiating the terms of such contracts.
---------------------------------------------------------------------------

    \671\ See supra note 123 and accompanying text.
    \672\ See Antti Petajisto, The Index Premium and its Hidden Cost
for Index Funds, Journal of Empirical Finance, Vol. 18, 271-288
(2011). Petajisto finds evidence that mechanically induced demand
changes to demand, such as index fund rebalancing, can result in
price effects. If predictable, then other investors could take
advantage of the changes to the proprietary indexes by front-running
future trades.
    \673\ The Commission does not have information available to
provide a reliable estimate of the increased costs of such licensing
agreements because funds are currently not required to disclose the
agreements or the components of the index.
---------------------------------------------------------------------------

    As discussed above, although our proposal would rescind Form N-Q,
it would also require funds to file portfolio schedules prepared in
accordance with Sec. Sec.  210.12-12 to 12-14 of Regulation S-X for the
fund's first and third fiscal quarters, by attaching those schedules as
attachments to its reports on Form N-PORT for those reporting periods.
Although the schedules attached to Form N-PORT would be largely
identical to the information currently reported on Form N-Q, under our
proposal funds would have 30 days to prepare and file the attachments
to Form N-PORT, as opposed to the 60 days that funds currently have to
prepare, certify, and file reports on Form N-Q. The faster turnaround
time may result in increased costs to funds, but we expect these costs
may be mitigated by removing the requirement that funds certify this
information.
    Rescission of Form N-Q would also eliminate certifications of the
accuracy of the portfolio schedules reported for the first and third
fiscal quarters, and would also result in funds providing
certifications regarding their disclosure controls and procedures and
internal control over financial reporting semi-annually rather than
quarterly. To the extent that such certifications improve the accuracy
of the data reported, removing such certifications could have negative
effects on the quality of the data reported. Likewise, if the reduced
frequency of the certifications affects the process by which controls
and procedures are assessed, requiring such certifications semi-
annually rather than quarterly could reduce the effectiveness of the
fund's disclosure controls and procedures and internal control over
financial reporting are assessed. However, we expect such effects, if
any, to be minimal because certifying officers would continue to
certify portfolio holdings for the fund's second and fourth fiscal
quarters and would further provide semi-annual certifications
concerning disclosure controls and procedures and internal control over
financial reporting that would cover the entire year.

C. Amendments to Regulation S-X

a. Introduction and Economic Baseline
    The proposed amendments to Regulation S-X would require new,
standardized disclosures regarding fund holdings in open futures
contracts, open forward foreign currency contracts, and open swap
contracts, and additional disclosures regarding fund holdings of
written and purchased option contracts; update the disclosures for
other investments with conforming amendments, as well as reorganize the
order in which some investments are presented; and amend the rules