[Federal Register Volume 80, Number 113 (Friday, June 12, 2015)]
[Proposed Rules]
[Pages 33589-33716]
[FR Doc No: 2015-12779]

Vol. 80

Friday,

No. 113

June 12, 2015

Part II

Securities and Exchange Commission

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17 CFR Parts 200, 210, 230, et al.

Investment Company Reporting Modernization; Proposed Rule

Federal Register / Vol. 80 , No. 113 / Friday, June 12, 2015 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 210, 230, 232, 239, 240, 249, 270, 274

[Release Nos. 33-9776; 34-75002; IC-31610; File No. S7-08-15]
RIN 3235-AL42

Investment Company Reporting Modernization

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing new rules
and forms as well as amendments to its rules and forms to modernize the
reporting and disclosure of information by registered investment
companies. The Commission is proposing new Form N-PORT, which would
require certain registered investment companies to report information
about their monthly portfolio holdings to the Commission in a
structured data format. In addition, the Commission is proposing
amendments to Regulation S-X, which would require standardized,
enhanced disclosure about derivatives in investment company financial
statements, as well as other amendments. The Commission is also
proposing new rule 30e-3, which would permit but not require registered
investment companies to transmit periodic reports to their shareholders
by making the reports accessible on a Web site and satisfying certain
other conditions. The Commission is proposing new Form N-CEN, which
would require registered investment companies, other than face amount
certificate companies, to annually report certain census-type
information to the Commission in a structured data format. Finally, the
Commission is proposing to rescind current Forms N-Q and N-SAR and to
amend certain other rules and forms. Collectively, these amendments
would, among other things, improve the information that the Commission
receives from investment companies and assist the Commission, in its
role as primary regulator of investment companies, to better fulfill
its mission of protecting investors, maintaining fair, orderly and
efficient markets, and facilitating capital formation. Investors and
other potential users could also utilize this information to help
investors make more informed investment decisions.

DATES: Comments should be received on or before August 11, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File No. S7-08-15 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-08-15. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments are also available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information you wish to make
available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Daniel K. Chang, Senior Counsel, J.
Matthew DeLesDernier, Senior Counsel, Jacob D. Krawitz, Senior Counsel,
Andrea Ottomanelli Magovern, Senior Counsel, Michael C. Pawluk, Branch
Chief, or Sara Cortes, Senior Special Counsel, at<PHONE_NUMBER>,
Investment Company Rulemaking Office, Alan Dupski, Assistant Chief
Accountant, Chief Accountant's Office, at<PHONE_NUMBER>, Division of
Investment Management, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the
``Commission'') is proposing for comment new Form N-PORT [referenced in
17 CFR 274.150], new Form N-CEN [referenced in 17 CFR 274.101] under
the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.]
(``Investment Company Act''); new rules 30a-4 [17 CFR 270.30a-4], 30b1-
9 [17 CFR 270.30b1-9] and 30e-3 [17 CFR 270.30e-3] under the Investment
Company Act; rescission of rules 30b1-1 [17 CFR 270.30b1-1], 30b1-2 [17
CFR 270.30b1-2], 30b1-3 [17 CFR 270.30b1-3], and 30b1-5 [17 CFR
270.30b1-5] under the Investment Company Act; amendments to rules 8b-16
[17 CFR 270.8b-16], 8b-33 [17 CFR 270.8b-33], 10f-3 [17 CFR 270.10f-3],
30a-1 [17 CFR 270.30a-1], 30a-2 [17 CFR 270.30a-2], 30a-3 [17 CFR
270.30a-3], and 30d-1 [17 CFR 270.30d-1] under the Investment Company;
amendments to Forms N-1A [referenced in 17 CFR 274.11A], N-2
[referenced in 274.11a-1], N-3 [referenced in 274.11b], N-4 [referenced
in 17 CFR 274.11c], and N-6 [referenced in 17 CFR 274.11d] under the
Investment Company Act and the Securities Act of 1933 [15 U.S.C. 77a et
seq.] (``Securities Act''); amendments to rule 498 [17 CFR 230.498] and
Form N-14 [referenced in 17 CFR 239.23] under the Securities Act;
rescission of Form N-SAR [referenced in 17 CFR 274.101 and Form N-Q
[referenced in 17 CFR 274.130] and amendments to Form N-CSR [referenced
in 17 CFR 274.128] under the Investment Company Act and Securities
Exchange Act of 1934 [15 U.S.C. 78a et seq.] (``Exchange Act'');
amendments to rules 10A-1 [17 CFR 240.10A-1], 12b-25 [17 CFR 240.12b-
25], 13a-10 [17 CFR 240.13a-10], 13a-11 [17 CFR 240.13a-11], 13a-13 [17
CFR 240.13a-13], 13a-16 [17 CFR 240.13a-16], 14a-16 [17 CFR 240.14a-
16]; 15d-10 [17 CFR 240.15d-10], 15d-11 [17 CFR 240.15d-11], 15d-13 [17
CFR 240.15d-13], and 15d-16 [17 CFR 240.15d-16] under the Exchange Act;
rescission of section 332 [17 CFR 249.332] and amendments to sections
322 [17 CFR 249.322] and 330 [17 CFR 249.330] of 17 CFR part 249;
amendments to Article 6 [17 CFR 210.6-01 et seq.] and Article 12 [17
CFR 210.12-01 et seq.] of Regulation S-X [17 CFR 210]; amendments to
section 800 of 17 CFR part 200 [17 CFR 200.800]; and amendments to
rules 105 [17 CFR 232.105], 301 [17 CFR 232.301], and 401 [17 CFR
232.401] of Regulation S-T [17 CFR 232].

Table of Contents

I. Background
    A. Changes in the Industry and Technology
    B. Changes to Current Reporting Regime
    1. Form N-PORT, Amendments to Regulation S-X, and Option for Web
Site Transmission of Shareholder Reports
    2. Form N-CEN
II. Discussion
    A. Form N-PORT
    1. Who Must File Reports on Form N-PORT
    2. Information Required on Form N-PORT
    3. Reporting of Information on Form N-PORT
    4. Public Disclosure of Information Reported on Form N-PORT
    B. Rescission of Form N-Q and Amendments to Certification
Requirements of Form N-CSR
    1. Rescission of Form N-Q
    2. Amendments to Certification Requirements of Form N-CSR
    3. Request for Comment
    C. Amendments to Regulation S-X
    1. Overview
    2. Enhanced Derivatives Disclosures
    3. Amendments to Rules 12-12 Through 12-12C
    4. Investments In and Advances to Affiliates
    5. Form and Content of Financial Statements
    D. Option for Web Site Transmission of Shareholder Reports
    1. Overview
    2. Discussion
    3. Rule 30e-3
    4. Use of Summary Schedule of Investments
    5. Related Disclosure Amendments
    6. Requests for Comment
    E. Form N-CEN and Rescission of Form N-SAR
    1. Overview
    2. Who Must File Reports on Form N-CEN
    3. Frequency of Reporting and Filing Deadline
    4. Information Required on Form N-CEN
    5. Items Required by Form N-SAR That Would Be Eliminated by Form
N-CEN
    F. Technical and Conforming Amendments
    G. Compliance Dates
    1. Form N-PORT, Rescission of Form N-Q, and Amendments to the
Certification Requirements of Form N-CSR
    2. Form N-CEN and Rescission of Form N-SAR
    3. Option for Web Site Transmission of Shareholder Reports
    4. Regulation S-X and Related Amendments
    5. Request for Comment
III. General Request for Comment
IV. Economic Analysis
    A. Introduction
    B. Form N-PORT, Rescission of Form N-Q, and Amendments to Form
N-CSR
    C. Amendments to Regulation S-X
    D. Option for Web Site Transmission of Shareholder Reports
    E. Form N-CEN and Rescission of Form N-SAR
    F. Alternatives to the Reporting Requirements
    G. Request for Comments
V. Paperwork Reduction Act
    A. Portfolio Reporting
    1. Form N-PORT
    2. Rescission of Form N-Q
    B. Census Reporting
    1. Form N-CEN
    2. Rescission of Form N-SAR
    C. Amendments to Regulation S-X
    1. Rule 30e-1
    2. Rule 30e-2
    D. Option for Web Site Transmission of Shareholder Reports
    1. Availability of Report and Other Materials and Delivery Upon
Request
    2. Shareholder Consent and Notice
    3. Impact on Information Collections for Rules 30e-1 and 30e-2
    E. Amendments to Certification Requirements of Form N-CSR
    F. Amendments to Registration Statement Forms
    G. Request for Comments
VI. Initial Regulatory Flexibility Analysis
    A. Reasons for and Objectives of the Proposed Actions
    B. Legal Basis
    C. Small Entities Subject to the Rule
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    1. Form N-PORT
    2. Rescission of Form N-Q
    3. Form N-CEN
    4. Rescission of Form N-SAR
    5. Regulation S-X Amendments
    6. Web Site Transmission of Shareholder Reports
    7. Amendments to Form N-CSR
    8. Amendments to Registration Statement Forms
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority and Text of Proposed Amendments

I. Background

A. Changes in the Industry and Technology

    As the primary regulator of the asset management industry, the
Commission relies on information included in reports filed by
registered investment companies (``funds'') \1\ and investment advisers
for a number of purposes, including monitoring industry trends,
informing policy and rulemaking, identifying risks, and assisting
Commission staff in examination and enforcement efforts. Over the
years, however, as assets under management and complexity in the
industry have grown, so too has the volume and complexity of
information that the Commission must analyze to carry out its
regulatory duties.
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    \1\ For purposes of the preamble of this release, we use
``funds'' to mean registered investment companies other than face
amount certificate companies and any separate series thereof--i.e.,
management companies and unit investment trusts. In addition, we use
the term ``management companies'' or ``management investment
companies'' to refer to registered management investment companies
and any separate series thereof. We note that ``fund'' may be
separately and differently defined in each of the proposed new forms
or rules, or proposed rule or form amendments.
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    Commission staff estimates that there were approximately 16,619
funds registered with the Commission, as of December 2014.\2\
Commission staff further estimates that there were about 11,500
investment advisers registered with the Commission, along with another
2,845 advisers that file reports with the Commission as exempt
reporting advisers, as of January 2015.\3\ At year-end 2014, assets of
registered investment companies exceeded $18 trillion, having grown
from about $4.7 trillion at the end of 1997.\4\ At the same time, the
industry has developed new product structures, such as exchange-traded
funds (``ETFs'') \5\, new fund types, such as target date funds with
asset allocation strategies,\6\ and increased its use of derivatives
and

other alternative strategies.\7\ These products and strategies can
offer greater opportunities for investors to achieve their investment
goals, but they can also add complexity to funds' investment
strategies, amplify investment risk, or have other risks, such as
counterparty credit risk.
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    \2\ Based on data obtained from the Investment Company
Institute. See www.ici.org/research/ stats.
    \3\ Based on Investment Adviser Registration Depository system
data. In 2010, Congress charged the Commission with implementing new
reporting and registration requirements for certain investment
advisers to private funds (known as ``exempt reporting advisers'').
See Public Law 111-203, 124 Stat. 1376, 1570-80.
     Form ADV is used by registered investment advisers to register
with the Commission and with the states and by exempt reporting
advisers to report information to the Commission. Information on
Form ADV is available to the public through the Investment Adviser
Public Disclosure System, which allows the public to access the most
recent Form ADV filing made by an investment adviser and is
available at http://www.adviserinfo.sec.gov. Today, in a
contemporaneous release, we are proposing a limited set of
amendments to Form ADV and certain rules under the Advisers Act to
fill certain data gaps and to enhance current reporting
requirements, to incorporate ``umbrella registration'' for private
fund advisers, and to make clarifying, technical and other
amendments. See Amendments to Form ADV and Investment Advisers Act
Rules, Investment Advisers Act Release No. 4091 (May 20, 2015).
    \4\ See Investment Company Institute, 2015 Investment Company
Fact Book 9 (55th ed., 2015) (``2015 ICI Fact Book''), available at
http://www.ici.org/research/stats/factbook.
    \5\ See generally Exchange-Traded Funds, Securities Act Release
No. 8901 (Mar. 11, 2008) [73 FR 14618, 14619 (Mar. 18, 2008)] (``ETF
Proposing Release''); see also http://www.ici.org/etf_resources/research/etfs_03_15 (discussing March 2015 statistics on ETFs). As
of March 2015, there were over 1400 ETFs with over $2 trillion in
assets. In the period of March 2014 to March 2015, assets of ETFs
increased $352.43 billion or 20.6%. See id.
    \6\ See generally Investment Company Advertising: Target Date
Retirement Fund Names and Marketing, Securities Act Release No. 9126
(June 16, 2010) [75 FR 35920 (June 23, 2010)] (``Investment Company
Advertising Release'').
    \7\ See generally Use of Derivatives by Investment Companies
Under the Investment Company Act of 1940, Investment Company Act
Release No. 29776 (Aug. 31, 2011) [76 FR 55237 (Sept. 7, 2011)]
(``Derivatives Concept Release''); International Swaps and
Derivatives Association (``ISDA'') Study, Size and Uses of the Non-
Cleared Derivatives Market (Apr. 2014), available at http://www2.isda.org/attachment/NjQ0MA==/FINAL%20-%20Size%20and%20Uses%20of%20the%20Non-Cleared%20Derivatves%20Market.pdf (noting increases in the use of
inflation swaps by asset managers and other investors); ISDA
Research Study, Dispelling Myths: End-User Activity in OTC
Derivatives (Aug. 2014), available at http://www2.isda.org/attachment/Njc2Nw==/ISDA-Dispelling%20myths-final.pdf (noting levels
of derivative usage by surveyed American and French asset managers
of 27% in 2011 and 53% in 2013, respectively, with 98% of total
gross notional exposure of surveyed UK hedge funds related to
derivatives in 2013; Sam Diedrich, `Alternative' or `Hedged' Mutual
Funds: What Are They, How Do They Work, and Should You Invest?,
(Feb. 28, 2014), available at http://www.forbes.com/sites/samdiedrich/2014/02/28/alternative-or-hedged-mutual-funds-what-are-they-how-do-they-work-and-should-you-invest/ (noting that
``alternative mutual fund products grew at a neck-breaking 43% [in
2013]. . . .'').
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    While these changes have been taking place in the fund industry,
there has also been a significant increase in the use of the Internet
as a tool for disseminating information and advances in the technology
that can be used to report and analyze information. As discussed below,
we have allowed the use of the Internet as a platform for providing
required disclosure to investors. We have also started to use
structured and interactive data formats to collect, aggregate, and
analyze data reported by registrants and other filers. These data
formats for information collection have enabled us and other data
users, including investors and other industry participants, to better
collect and analyze reported information and have improved our ability
to carry out our regulatory functions.
    We have historically acted to modernize our forms and the manner in
which information is filed with the Commission and disclosed to the
public in order to keep up with changes in the industry and technology.
For example, in 1985, the Commission replaced five different reporting
forms with Form N-SAR, which was designed to require reporting of data
in a structured manner so that the Commission could construct a
comprehensive database of information about the fund industry.\8\ In
2000, we adopted new rules and rule amendments under the Investment
Advisers Act of 1940 (``Advisers Act'') to require advisers registered
with the Commission to make filings under the Advisers Act with the
Commission electronically through the Investment Adviser Registration
Depository (IARD).\9\ In 2007, we sought to enhance the ability of
investors to make informed voting decisions and to expand the use of
the Internet to ultimately lower the costs of proxy solicitations by
requiring Internet availability of proxy materials.\10\
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    \8\ See Semi-Annual Report Form for Registered Investment
Companies, Exchange Act Release No. 21633 (Jan. 4, 1985) [50 FR 1442
(Jan. 11, 1985)]. Reports on Form N-SAR are publicly available on
the Commission's EDGAR Web site.
    \9\ See Electronic Filing by Investment Advisers; Amendments to
Form ADV, Investment Advisers Act Release No. 1897 (Sept. 12, 2000)
[65 FR 57438 (Sept. 22, 2000)].
    \10\ See Shareholder Choice Regarding Proxy Materials,
Investment Company Act Release No. 27911 (July 26, 2007) [72 FR
42222 (Aug. 1, 2007)].
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    In 2009, we amended Form N-1A, the registration form for open-end
funds, to enhance the information provided to investors by requiring
these funds to include a summary of key information in the front of
their prospectuses.\11\ The 2009 amendments to Form N-1A also sought to
harness the benefits of technological advances and increased Internet
usage by allowing mutual funds to satisfy their prospectus delivery
obligations by delivering a summary prospectus to investors and posting
the statutory prospectus and other materials on an Internet Web site.
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    \11\ See Enhanced Disclosure and New Prospectus Delivery Option
for Registered Open-End Management Investment Companies, Investment
Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26,
2009)].
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    Also in 2009, the Commission sought to take advantage of new
technology by adopting amendments requiring open-end funds to file
their prospectus risk/return summaries in eXtensible Business Reporting
Language (``XBRL'').\12\ In doing so, the Commission noted that this
interactive data format would make ``risk/return summary information
easier for investors to analyze [and] assist in automating regulatory
filings and business information processing.'' Additionally, in 2010,
the Commission adopted Form N-MFP, which requires money market funds to
report detailed portfolio holdings information on a monthly basis in
Extensible Markup Language (``XML'').\13\ Because these disclosures and
reports are filed in a structured data format using XBRL or XML,
Commission staff, investors and other potential users are able to
aggregate and analyze the data in a much less labor-intensive manner
than plain text or hypertext filing formats would allow. The Commission
also now uses the XML data format to collect and analyze certain
information from advisers to private funds on Form PF \14\ and has
modernized the reporting of securities holdings by institutional
investment managers on Form 13F,\15\ which we believe resulted in
efficiencies for data users.\16\
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    \12\ See Interactive Data for Mutual Fund Risk/Return Summary,
Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748
(Feb. 19, 2009)]. Just prior to adopting the XBRL requirements for
mutual fund risk/return summaries, the Commission also adopted
amendments requiring operating companies to provide their financial
statement information in XBRL format. See Interactive Data to
Improve Financial Reporting, Securities Act Release No. 33-9002
(Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)]. In adopting these
requirements, the Commission noted that ``[i]n this format,
financial statement information could be downloaded directly into
spreadsheets, analyzed in a variety of ways using commercial off-
the-shelf software, and used within investment models in other
software formats.'' Id.
    \13\ See Money Market Fund Reform, Investment Company Act
Release No. 29132 (Feb. 23, 2010) [75 FR 10060, 10082 (Mar. 4,
2010)] (``Money Market Fund Reform 2010 Release''); see also Money
Market Fund Reform; Amendments to Form PF, Investment Company Act
Release No. 31166 (July 23, 2014) [79 FR 47736 (Aug. 14, 2014)]
(``Money Market Fund Reform 2014 Release'') (adopting amendments to
Form N-MFP). The information in Form N-MFP allows the Commission,
investors, and other potential users to monitor compliance with rule
2a-7 and to better understand and monitor the underlying risks of
money market fund portfolios. Additionally, pursuant to the 2010 and
2014 amendments, money market funds are required to disclose certain
information, including portfolio holdings, on their Web sites.
    \14\ See Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Investment Advisers Act Release No. 3308 (Oct. 31, 2011)
[76 FR 71228 (Nov. 16, 2011)] (``Form PF Adopting Release'').
    \15\ See Adoption of Updated EDGAR Filer Manual, Securities Act
Release No. 9403 (May 14, 2013) [78 FR 29616 (May 21, 2013)].
    \16\ The Commission has also proposed and adopted XML data
reporting requirements in other contexts. See, e.g., Mandated
Electronic Filing and Web site Posting For Forms 3, 4 and 5,
Securities Act Release No. 8230 (May 7, 2003) [68 FR 27588 (May 13,
2003)]; Electronic Filing and Revision of Form D, Securities Act
Release No. 8891 (Feb. 6, 2008) [73 FR 10592 (Feb. 27, 2008)];
Electronic Filing of Transfer Agent Forms, Securities Exchange Act
Release No. 54864 (Dec. 4, 2006) [71 FR 74698 (Dec. 12, 2006)];
Asset-Backed Securities Disclosure and Registration, Securities Act
Release No. 9638 (Sept. 4, 2014) [79 FR 57184 (Sept. 24, 2014)];
Crowdfunding Securities Act Release No. 9470 (Oct. 23, 2013) [78 FR
66428 (Nov. 5, 2013)]; Proposed Rule Amendments for Small and
Additional Issues Exemptions Under Section 3(b) of the Securities
Act, Securities Act Release No. 9497 (Dec. 18, 2013) [79 FR 3926
(Jan. 23, 2014)]. See generally Recommendations of the Investor
Advisory Committee Regarding the SEC and the Need for the Cost
Effective Retrieval of Information by Investors (July 25, 2013),
available at http://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf.

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    As these industry changes and technological advances have occurred
over the years, we recognize a need to improve the type and format of
the information that funds provide to us and to investors. We also
recognize the need to improve the information that the Commission
receives from funds in order to improve the Commission's monitoring of
the fund industry in its role as the primary regulator of funds and
investment advisers. As discussed below, today we are proposing a set
of reporting and disclosure reforms designed to take advantage of the
benefits of advanced technology and to modernize the fund reporting
regime in order to help the Commission, investors, and other market
participants better assess different fund products and to assist us in
carrying out our mission to protect investors, maintain fair, orderly,
and efficient markets, and facilitate capital formation. Our proposed
reforms seek to (1) increase the transparency of fund portfolios and
investment practices both to the Commission and to investors, (2) take
advantage of technological advances both in terms of the manner in
which information is reported to the Commission and how it is provided
to investors and other potential users, and (3) where appropriate,
reduce duplicative or otherwise unnecessary reporting burdens on the
industry.
    We also note that in December 2014, the Financial Stability
Oversight Council (``FSOC'') issued a notice requesting comment on
aspects of the asset management industry, which includes, among other
entities, registered investment companies.\17\ The notice included
requests for comment on additional data or information that would be
helpful to regulators and market participants. Although this rulemaking
proposal is independent of FSOC, several commenters responding to the
notice discussed issues concerning data that are relevant to the rules
we are proposing today, including data regarding derivatives, global
identifiers, and securities lending activities and are cited in the
discussions below, as relevant.\18\
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    \17\ Financial Stability Oversight Council, Notice Seeking
Comment on Asset Management Products and Activities, Docket No.
FSOC-2014-0001 (``FSOC Notice''), available at http://www.treasury.gov/initiatives/fsoc/rulemaking/Documents/Notice%20Seeking%20Comment%20on%20Asset%20Management%20Products%20and%20Activities.pdf.
    \18\ Comments submitted in response to the FSOC Notice are
available at http://www.regulations.gov/#!docketDetail;D=FSOC-2014-
0001. We also note that, in addition to commenters that argued for
additional specific disclosures by funds, several commenters
asserted, as a general matter, that registered funds are currently
subject to robust disclosure requirements. See, e.g., Comment Letter
of the Investment Company Institute to the FSOC Notice (Mar. 25,
2015); Comment Letter of Federated Investors, Inc. to the FSOC
Notice (Mar. 10, 2015); Comment Letter of the Capital Group
Companies to the FSOC Notice (Mar. 25, 2015).
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B. Changes to Current Reporting Regime

1. Form N-PORT, Amendments to Regulation S-X, and Option for Web Site
Transmission of Shareholder Reports
    Currently, management investment companies (other than small
business investment companies (``SBICs'')) are required to report their
complete portfolio holdings to the Commission on a quarterly basis.\19\
These funds are required to provide this information in reports on Form
N-Q under the Investment Company Act and the Exchange Act as of the end
of each first and third fiscal quarter,\20\ and in reports on Form N-
CSR under those Acts as of the end of each second and fourth fiscal
quarter.\21\
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    \19\ See Shareholder Reports and Quarterly Portfolio Disclosure
of Registered Management Investment Companies, Securities Act
Release No. 8393 (Feb. 27, 2004) [69 FR 11244 (Mar. 9, 2004)]
(``Quarterly Portfolio Holdings Adopting Release'').
    \20\ Rule 30b1-5 under the Investment Company Act [17 CFR
270.30b1-5]. While SBICs file reports on Form N-CSR, SBICs are not
required to file reports on Form N-Q.
    \21\ See rule 30b2-1 under the Investment Company Act [17 CFR
270.30b2-1].
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    As discussed in Parts II.A and II.B of this release, we propose to
rescind Form N-Q and adopt a new portfolio holdings reporting form,
Form N-PORT, which would be filed by all registered management
investment companies and unit investment trusts (``UITs'') that operate
as ETFs,\22\ other than money market funds and SBICs.\23\ We are
proposing that reports on Form N-PORT would be filed with the
Commission on a monthly basis, with every third month available to the
public 60 days after the end of the fund's fiscal quarter. The reports
on Form N-PORT would include a fund's complete portfolio holdings in a
structured data format. Additionally, as discussed below, proposed Form
N-PORT would include additional information concerning fund portfolio
holdings that are not currently provided on Forms N-Q and N-CSR, but
that would facilitate risk analyses and other Commission oversight. For
example, Form N-PORT would require reporting of additional information
relating to derivative investments. It would also include certain risk
metric calculations that would measure a fund's exposure and
sensitivity to changing market conditions, such as changes in asset
prices, interest rates, or credit spreads.
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    \22\ Under the proposal, all ETFs would be required to file
reports on Form N-PORT, regardless of whether they are organized as
management companies or UITs. UITs are a type of investment company
which (a) are organized under a trust indenture contract of
custodianship or agency or similar instrument, (b) do not have a
board of directors, and (c) issue only redeemable securities. See
section 4(2) of the Investment Company Act.
    \23\ Money market funds file reports on Form N-MFP on a monthly
basis and, thus, would not be required to file reports on Form N-
PORT.
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    We believe that more timely and frequent reporting of portfolio
holdings information, as well as the additional information we are
proposing to require, would enable the Commission to further its
mission to protect investors by assisting the Commission and Commission
staff in carrying out its regulatory responsibilities related to the
asset management industry. These responsibilities include its
examination, enforcement, and monitoring of funds, the Commission's
formulation of policy, and the staff's review of fund registration
statements and disclosures.
    While Form N-PORT is primarily designed to assist the Commission
and Commission staff, we believe that information in Form N-PORT would
be beneficial to investors and other potential users. In particular, we
believe that both sophisticated institutional investors and third-party
users that provide services to investors may find the information we
propose to require on Form N-PORT useful. For example, Form N-PORT's
structured format would allow the Commission, investors, and other
potential users to better collect and analyze portfolio holdings
information. The portfolio holdings information currently filed on Form
N-Q, in contrast, is filed in a plain text or hypertext format, which
often requires labor-intensive manual reformatting by Commission staff
and other potential users in order to prepare the reported data for
analysis. While we do not anticipate that many individual investors
would analyze data using Form N-PORT, although some may, we believe
that individual investors would benefit indirectly from the information
collected on reports on Form N-PORT, through enhanced Commission
monitoring and oversight of the fund industry and through analyses
prepared by third-party service providers.
    In addition, we are proposing amendments to Regulation S-X that
would require standardized enhanced derivatives disclosures in fund
financial statements, as well as other amendments. Currently,
Regulation S-X does not prescribe specific information for most types
of derivatives, including swaps, futures, and forwards. While we
recognize that many fund groups provide disclosures regarding the terms

of their derivatives contracts, the lack of standard disclosure
requirements has resulted in inconsistent disclosures in fund financial
statements.
    We believe our proposed amendments to Regulation S-X to enhance and
standardize derivatives disclosures in financial statements would allow
comparability among funds and help all investors better assess funds'
use of derivatives. We are proposing to require reports on Form N-PORT
to contain similar derivatives disclosures to facilitate analysis of
derivatives investments across funds. Because Form N-PORT is not
primarily designed for individual investors, the proposed amendments to
Regulation S-X would require disclosures concerning the fund's
investments in derivatives, as well as other disclosures related to
liquidity and pricing of investments, in the financial statements that
are provided to investors. We have endeavored to mitigate burdens on
the industry by conforming the derivatives disclosures that would be
required by both Regulation S-X and Form N-PORT.
    Finally, we are also proposing a rule that would provide funds with
an optional method to satisfy shareholder report transmission
requirements by posting such reports online if they meet certain
conditions. In order to rely on the rule, funds would be required to
make the report and other required materials publicly accessible and
free of charge at a Web site address specified in a notice to
shareholders, and meet certain conditions relating to shareholder
consent, and notice to shareholders of the Web site availability of
shareholder reports and of the methods by which shareholders would be
able to request a paper copy of the materials. This optional method is
intended to modernize the manner in which periodic information is
transmitted to shareholders, which we believe would improve the
information's overall accessibility while reducing burdens such as the
costs associated with printing and mailing shareholder reports.
2. Form N-CEN
    Currently, the Commission collects census-type information on
management investment companies and UITs on reports on Form N-SAR.\24\
As discussed above, Form N-SAR was adopted in 1985 and, at that time,
was intended to reduce reporting burdens and better align the
information that was required to be reported with the characteristics
of the fund industry. While Commission staff has indicated that the
census-type information reported on Form N-SAR is useful in its support
of the Commission's regulatory functions, staff has also indicated that
in the thirty years since Form N-SAR's adoption, changes in the
industry have reduced the utility of some of the currently required
data elements. Additionally, the filing format that is required for
reports on Form N-SAR limits our ability to use the reported
information for analysis. Commission staff also believes that obtaining
certain additional census-type information not currently collected by
Form N-SAR would improve the staff's ability to carry out regulatory
functions, including risk monitoring and analysis of the industry.
---------------------------------------------------------------------------

    \24\ See rules 30a-1 and 30b1-1 under the Investment Company Act
[17 CFR 270.30a-1 and 17 CFR 270.30b1-1].
---------------------------------------------------------------------------

    Accordingly, we are proposing to rescind Form N-SAR and replace it
with Form N-CEN, a new form on which funds will report census-type
information to the Commission. Form N-CEN would include many of the
same data elements as Form N-SAR, but, in order to improve the quality
and utility of information reported, would replace those items that are
outdated or of limited usefulness with items that we believe to be of
greater relevance today. Where possible, we are also proposing to
eliminate items that are reported on other Commission forms, or are
available elsewhere. In addition, we are proposing to require that
reports on Form N-CEN be filed in a structured XML format, which, we
believe, could reduce reporting burdens for current Form N-SAR filers
and yield data that can be used more effectively by the Commission and
other potential users. Finally, we are proposing that reports on new
Form N-CEN be filed annually, rather than semi-annually as is required
for reports on Form N-SAR by management companies, which would further
reduce current burdens on funds.

II. Discussion

A. Form N-PORT

    As discussed above, we are proposing to create a new monthly
portfolio reporting form, Form N-PORT. Our proposal would require
registered management investment companies and ETFs organized as UITs,
other than money market funds and SBICs, to electronically file with
the Commission monthly portfolio investments information on new Form N-
PORT in an XML format no later than 30 days after the close of each
month.\25\ As discussed below in Part II.A.4, only information reported
for the third month of each fund's fiscal quarter on Form N-PORT would
be publicly available, and that information would not be made public
until 60 days after the end of the fiscal quarter.\26\
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    \25\ See proposed rule 30b1-9.
    \26\ As used throughout this section, the term ``fund''
generally refers to investment companies that would file reports on
Form N-PORT.
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    As the primary regulator of the fund industry, the Commission
relies on information that funds file with us, including their
registration statements, shareholder reports, and various reporting
forms such as Form N-SAR, Form N-CSR, and Form N-Q. The Commission and
its staff use this information to understand trends in the fund
industry and carry out regulatory responsibilities, including
formulating policy and guidance, reviewing fund registration
statements, and assessing and examining a fund's regulatory compliance
with the federal securities laws and Commission rules thereunder.
    Information on fund portfolios is currently filed with the
Commission quarterly with up to a 70-day delay.\27\ Moreover, the
reports are currently filed in a format that does not allow for
efficient searches or analyses across portfolios, and even limits the
ability to search or analyze a single portfolio. Based on staff
experience with data analysis of funds, including staff experience
using Form N-MFP, we believe that more frequent and timely information
concerning fund portfolios than we currently receive through
registration statements, shareholder reports on Form N-CSR, and reports
on Form N-Q will assist the Commission in

its role as the primary regulator of funds, as discussed further below.
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    \27\ Funds currently file with the Commission portfolio
schedules for the fund's first and third fiscal quarters on Form N-
Q, and shareholder reports, including portfolio schedules for the
fund's second and fourth fiscal quarters, on Form N-CSR. These
reports are available to the public and the Commission with either a
60- or 70-day delay. See rule 30b1-5 (requiring management
companies, other than SBICs, to file reports on Form N-Q no more
than 60 days after the close of the first and third quarters of each
fiscal year); rule 30b2-1 (requiring management companies to file
reports on Form N-CSR no later than 10 days after the transmission
to stockholders of any report required to be transmitted to
stockholders under rule 30e-1). See also rules 30e-1 and 30e-2 under
the Investment Company Act [17 CFR 270.30e-1 and 17 CFR 270.30e-2]
(requiring management companies and certain UITs to transmit to
stockholders semi-annual reports containing, among other things, the
fund's portfolio schedules, no more than 60 days after the close of
the second and fourth quarters of each fiscal year). These reports
include portfolio holdings information as required by Regulation S-
X. See rule 12-12 of Regulation S-X [17 CFR 210.12-12], et seq.
---------------------------------------------------------------------------

    The information we are proposing to collect on Form N-PORT would be
important to the Commission in analyzing and understanding the various
risks in a particular fund, as well as risks across specific types of
funds and the fund industry as a whole. These risks can include the
investment risk that the fund is undertaking as part of its investment
strategy, such as interest rate risk, credit risk, volatility risk,
other market risks, or risks associated with specific types of
investments, such as emerging market debt or commodities. Additionally,
the information is helpful to understanding liquidity risks and
counterparty risks, and determining whether a fund's exposure to price
movements is leveraged, either through borrowings or the use of
derivatives. We believe that information we are proposing to require on
Form N-PORT will assist the Commission in better understanding each of
these risks in the fund industry. We believe that the ability to
understand the risks that funds face will help our staff better
understand and monitor risks and trends in the fund industry as a
whole, facilitating our informed regulation of the fund industry.
    We also believe that information obtained from Form N-PORT filings
would facilitate our oversight of funds and assist Commission staff in
examination, enforcement, and monitoring, as well as in formulating
policy and in its review of fund registration statements and
disclosures. In this regard, we expect that Commission staff would use
the data reported on Form N-PORT for many of the same purposes as
Commission staff has used data reported on Form N-MFP by money market
funds. The data received on Form N-MFP has been used extensively by
Commission staff, including for purposes of assessing regulatory
compliance, identifying funds for examination, and risk monitoring.
Form N-MFP data has also informed Commission policy; for example, staff
used Form N-MFP data in analyses that informed the Commission's
considerations when it proposed and adopted money market fund reform
rules in 2013 and 2014.\28\
---------------------------------------------------------------------------

    \28\ See, e.g., Money Market Fund Reform; Amendments to Form PF,
Investment Company Act Release No. 30551 (June 5, 2013) [78 FR 36834
(June 19, 2013)]; Money Market Fund Reform 2014 Release, supra note
13 at n.502 and accompanying text (citing use of Form N-MFP data in
discussing the Commission's decision to require basis point
rounding); and at n.651 and accompanying text (citing use of Form N-
MFP data in discussing the Commission's decision regarding the size
of the non-government securities basket for government money market
funds).
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    We recognize that, unlike money market funds, which as cash
management vehicles generally share common investment objectives and
strategies and thus invest in a relatively small number of common
security types, other funds invest in a much more diverse manner.
Accordingly, Form N-PORT, as proposed, would require reporting of
additional information relative to Form N-MFP, in order to facilitate
understanding and analysis of the investment strategies that funds
pursue, as well as the large variety of securities, commodities,
currencies, derivatives, and other investments that funds may invest
in.
    In addition to assisting the Commission in its regulatory
functions, we believe that investors and other potential users could
benefit from the periodic public disclosure of the information reported
on Form N-PORT. Proposed Form N-PORT is primarily designed for use by
the Commission and its staff, and not for disclosing information
directly to individual investors. This is because the form's structured
format, while needed for quantitative analysis within a fund and across
funds, is not an easily human-readable format. Additionally, the
information we are proposing to require on Form N-PORT is more
voluminous than on a schedule of investments. We believe, however, that
some investors, particularly institutional investors, could directly
use the data from the information on proposed Form N-PORT for their own
quantitative analysis of funds, including to better understand the
funds' investment strategies and risks, and to better compare funds
with similar strategies. Additionally, we believe that entities
providing services to investors, such as investment advisers, broker-
dealers, and entities that provide information and analysis for fund
investors, could also utilize and analyze the information that would be
required by proposed Form N-PORT to help all investors make more
informed investment decisions. Accordingly, whether directly or through
third parties, we believe that the periodic public disclosure of the
information on proposed Form N-PORT could benefit all fund investors.
As discussed further below, in order to mitigate the risk that the
information on Form N-PORT could be used in ways that might ultimately
result in investor harm, we are proposing to limit the public
availability of Form N-PORT reports to those reports filed as of
quarter end, as well as delay public availability of those reports by
60 days after quarter end.
    We intend to increase transparency of fund investments through
proposed Form N-PORT in several ways. First, N-PORT would improve
reporting of fund derivative usage. As the Commission has previously
noted, we have observed significant increases in the use of derivatives
by funds, which have highlighted the need for more robust and
standardized derivatives disclosures.\29\ Additionally, funds that are
considered ``alternative'' funds, which often use derivatives for
implementing their investment strategy, are becoming increasingly
popular among investors.\30\ Although Regulation S-X establishes
general disclosure requirements for financial statements in fund
registration statements, based on staff review of fund filings, the
lack of standardized requirements as to the terms of derivatives that
must be reported has sometimes led to inconsistent approaches to
reporting derivatives information and, in some cases, insufficient
information concerning the terms and underlying reference assets of
derivatives to allow the Commission or investors to understand the
investment. This hinders both an analysis of a particular fund's
investments, as well as comparability among funds.\31\ The information
requested in Form N-PORT would create a more detailed, uniform, and
structured reporting regime. This would allow the Commission and
investors to better analyze and compare

funds' derivatives investments and the exposures they create, which can
be important to understanding funds' investment strategies, use of
leverage, and potential for risk of loss.
---------------------------------------------------------------------------

    \29\ See Derivatives Concept Release, supra note 7, at n.7 and
accompanying text.
    \30\ While there is no clear definition of ``alternative'' in
the fund industry, an alternative fund is generally understood to be
a fund whose primary investment strategy falls into one or more of
the three following categories: (1) Non-traditional asset classes
(for example, currencies); (2) non-traditional strategies (such as
long/short equity positions); and/or (3) less liquid assets (such as
private debt).
     At the end of December 2014, alternative mutual funds had
almost $200 billion in assets. Although alternative mutual funds
only accounted for 1.19% of the mutual fund market as of December
2014, the almost $20.1 billion of inflows into these funds in 2014
represented 4.3% of the inflows for the entire mutual fund industry
in that year. These statistics were obtained from staff analysis of
Morningstar Direct data, and are based on fund categories as defined
by Morningstar.
    \31\ See, e.g., rule 12-13 of Regulation S-X [17 CFR 210.12-13]
(requiring funds to generally disclose derivatives together with
``other'' investments); rule 6-03 of Regulation S-X [17 CFR 210.6-
03] (applying articles 1-4 of Regulation S-X to investment
companies, but not specifying where derivative disclosures should be
made for funds); ASC 815, Disclosures about Derivative Instruments
and Hedging Activities (discussing general derivative disclosure)
(``ASC 815''); ASC 820, Fair Value Measurements (requiring
disclosure of valuation information for major categories of
investments) (``ASC 820''). See also Part II.C.
---------------------------------------------------------------------------

    Furthermore, as discussed further below, proposed Form N-PORT would
require funds to report certain risk metrics that would provide
measurements of a fund's exposure to changes in interest rates, credit
spreads and asset prices, whether through investments in debt
securities or in derivatives. Financial statement information provides
historical information over a particular time period (e.g., a statement
of operations), or information about values of assets at a particular
point in time (e.g., a balance sheet including, for funds, a schedule
of investments). Risk metrics, on the other hand, measure the change in
value of an investment in response to small changes in the underlying
reference asset of an investment, whether the underlying reference
asset is a security (or index of securities), commodity, interest rate,
or credit spread over an interest rate. Based on staff experience, as
well as staff outreach to asset managers and entities that provide risk
management services to asset managers, discussed further below, we
believe that fund portfolio managers and risk managers commonly
calculate these risk metrics to analyze the exposures in their
portfolios.\32\ The Commission believes that staff can use these risk
measures to better understand the exposures in the fund industry,
thereby facilitating better monitoring of risks and trends in the fund
industry as a whole.
---------------------------------------------------------------------------

    \32\ See generally John C. Hull, Options, Futures, and Other
Derivatives, Seventh Edition (2009) (discussing, for example, the
function of duration, convexity, delta, and other calculations used
for measuring changes in the value of bonds or derivatives as a
result in changes in underlying asset prices or interest rates);
Sheldon Natenberg, Option Volatility and Pricing (1994) (same).
---------------------------------------------------------------------------

    Form N-PORT would also require information about certain fund
activities such as securities lending, repurchase agreements, and
reverse repurchase agreements, including information regarding the
counterparties to which the fund is exposed in those transactions, as
well as in over-the-counter derivatives transactions. Such information
would increase transparency concerning these activities and would
provide better information regarding counterparty information, which
would be useful in assessing both individual and multiple fund
exposures to a single counterparty.\33\
---------------------------------------------------------------------------

    \33\ See, e.g., Report by Task Force on Tri-Party Repo
Infrastructure, May 17, 2010 (concluding that insufficient
transparency of the tri-party repurchase agreement market
contributed to the build-up of exposures and the lack of prior
concerted action to address the issues that led to financial turmoil
during 2007-2009). The Task Force on Tri-Party Repo Infrastructure
was formed in September 2009 under the purview of the Payments Risk
Committee, a private sector body sponsored by the Federal Reserve
Bank of New York. The Task Force membership includes representatives
from multiple types of market participants that participate in the
tri-party repo market, as well as relevant industry associations.
Federal Reserve and Commission staff participated in meetings of the
Task Force as observers and technical advisors.
---------------------------------------------------------------------------

    Proposed Form N-PORT also requires information that would assist
the Commission in assessing fund liquidity risk by, for example,
requiring funds to provide information about the market liquidity and
pricing of portfolio investments, as well as information regarding fund
flows, which is helpful to understanding the liquidity pressures a fund
might experience due to investor redemption activity.
    Finally, as discussed further below, Form N-PORT would be filed
electronically in a structured, XML format. This format would enhance
the ability of the Commission, as well as investors and other potential
users, to analyze portfolio data both on a fund-by-fund basis and also
across funds. As a result, although we are proposing to collect certain
information on Form N-PORT that may be similarly disclosed or reported
elsewhere (e.g., portfolio investments would continue to be included as
part of the schedules of investments contained in shareholder reports,
and filed on a semi-annual basis with the Commission on Form N-CSR), we
believe that it is appropriate to also collect this information in a
structured format for analysis by our staff as well as investors and
other potential users.
1. Who Must File Reports on Form N-PORT
    Our proposal would require a report on Form N-PORT to be filed by
each registered management investment company and each ETF organized as
a UIT.\34\ Registrants offering multiple series would be required to
file a report for each series separately, even if some information is
the same for two or more series. Money market funds and SBICs would not
be required to file reports on Form N-PORT.\35\
---------------------------------------------------------------------------

    \34\ See proposed rule 30b1-9.
    \35\ Money market funds already file their monthly portfolio
investments with the Commission. See Form N-MFP. SBICs are unique
investment companies that operate differently than other management
investment companies. They are ``privately owned and managed
investment funds, licensed and regulated by [the Small Business
Administration (``SBA'')], that use their own capital plus funds
borrowed with an SBA guarantee to make equity and debt investments
in qualifying small businesses.'' See SBIC Program Overview
available at https://www.sba.gov/content/sbic-program-overview. As
of December 31, 2014, only one SBIC had publicly offered securities
outstanding.
---------------------------------------------------------------------------

    As indicated above, our proposal would require all ETFs to file
reports on Form N-PORT, regardless of their form of organization.
Although most ETFs today are structured as open-end management
investment companies, there are several ETFs that are organized as
UITs.\36\ ETFs organized as UITs have significant numbers of investors
who we believe could benefit from the disclosures required in Form N-
PORT.\37\
---------------------------------------------------------------------------

    \36\ There are currently eight ETFs organized as UITs that have
registered with the Commission.
    \37\ Commission staff estimates that as of December 2014, ETFs
organized as UITs represented 14% of all assets invested in ETFs.
This analysis is based on data from Morningstar Direct.
---------------------------------------------------------------------------

    We request comment on the entities that would be required to file
reports on Form N-PORT.
     Should any funds that we are proposing to require to file
reports on Form N-PORT not be required to do so? If so, what types of
funds?
     Should we require SBICs to file reports on Form N-PORT?
How useful would the information reported on Form N-PORT be for
investors?
     Our proposal would allow investors in different types of
ETFs to compare their portfolio investments by means of identical
disclosures on reports on Form N-PORT, regardless of whether an ETF was
organized as an open-end management investment company or as a UIT.
Should ETFs organized as UITs not be required to file reports on Form
N-PORT? If so, why?
2. Information Required on Form N-PORT
    Form N-PORT would require a fund to report certain information
about the fund and the fund's portfolio investments as of the close of
the preceding month, including: (a) General information about the fund;
(b) assets and liabilities; (c) certain portfolio-level metrics,
including certain risk metrics; (d) information regarding securities
lending counterparties; (e) information regarding monthly returns; (f)
flow information; (g) certain information regarding each investment in
the portfolio; (h) miscellaneous securities (if any); (i) explanatory
notes (if any), and (j) exhibits. Each of these is discussed in more
detail below.
a. General Information and Instructions
    Part A of Form N-PORT would require general identifying information
about the fund, including the name of the registrant, name of the
series, and relevant file numbers.\38\ Funds would

also report the date of their fiscal year end, the date as of which
information is reported on the form, and indicate if they anticipated
that this would be their final filing on Form N-PORT.\39\ This
information would be used to identify the registrant and series filing
the report, track the reporting period, and identify final filings.
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    \38\ See Form N-PORT, Items A.1 and A.2. Funds would provide the
name of the registrant, the Investment Company Act and CIK file
numbers for the registrant, and the address and telephone number of
the registrant. Funds would also provide the name of and EDGAR
identifier for the series.
    \39\ See Form N-PORT, Items A.3 and A.4.
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    Additionally, we are proposing that funds provide the Legal Entity
Identifier (``LEI'') number of the registrant and series.\40\ The LEI
is a unique identifier associated with a single corporate entity and is
intended to provide a uniform international standard for identifying
counterparties to a transaction.\41\ Fees are not imposed for the usage
of or access to LEIs, and all of the associated reference data needed
to understand, process, and utilize the LEIs are widely and freely
available and not subject to any usage restrictions. Funds or
registrants that have not yet obtained an LEI would be required to
obtain one, which would entail a modest fee.\42\ The inclusion of LEI
information on Form N-PORT, however, would facilitate the ability of
investors and the Commission to link the data reported on Form N-PORT
with data from other filings or sources that is or will be reported
elsewhere as LEIs become more widely used by regulators and the
financial industry.\43\
---------------------------------------------------------------------------

    \40\ See Form N-PORT, Items A.1.d and A.2.c. The Commission has
begun to require disclosure of the LEI in other contexts. See, e.g.,
Form PF Adopting Release, supra note 14; Regulation SBSR-Reporting
and Dissemination of Security-Based Swap Information, Securities
Exchange Act Release No. 74244 (Feb. 11, 2015) [80 FR 14438 (Mar.
19, 2015)] (``Regulation SBSR Adopting Release'').
    \41\ The global LEI system operates under an LEI Regulatory
Oversight Committee (``ROC'') that currently includes members that
are official bodies from over 40 jurisdictions. The Commission is a
member of the ROC and currently serves on its Executive Committee.
The Commission notes that it would expect to revisit the proposed
requirement to report LEIs if the operation of the LEI system were
to change significantly.
    \42\ As of December 26, 2014, the cost of obtaining an LEI from
the Global Markets Entity Identifier (``GMEI'') Utility in the
United States was $200, plus a $20 surcharge for the LEI Central
Operating Unit. The annual cost of maintaining an LEI from the GMEI
Utility was $100, plus a $20 surcharge for the LEI Central Operating
Unit. See https://www.gmeiutility.org/frequentlyAskedQuestions.jsp.
    \43\ See, e.g., Press Release: Commodities Futures Trading
Commission (``CFTC'') Announces Mutual Acceptance of Approved Legal
Entity Identifiers, CFTC (Oct. 30, 2013), available at http://www.cftc.gov/PressRoom/PressReleases/pr6758-13; Letter from Kenneth
Bentsen, President & CEO of SIFMA to Jacob Lew, Chairman of FSOC re:
Adoption of the Legal Entity Identifier, SIFMA (Apr. 11, 2014),
available at http://www.sifma.org/issues/item.aspx?id=8589948488;
Regulation SBSR Adopting Release, supra note 40.
    Commenters to the FSOC Notice expressed support for regulatory
acceptance of LEI identifiers. See, e.g., Joint Comment Letter of
SIFMA/Investment Adviser Association (Mar. 25, 2015) (``SIFMA/IAA
FSOC Notice Comment Letter'') (expressing support for the LEI
initiative, and noting that the use of LEIs has already enhanced the
industry's ability to identify and monitor global market
participants); Comment Letter of Fidelity to FSOC Notice (Mar. 25,
2015) (expressing the need to develop analytics to make data
intelligible, such as the ability to map exposures across the
financial system, such as through the use of LEIs).
---------------------------------------------------------------------------

    Form N-PORT would also include general filing and reporting
instructions, as well as definitions of specific terms referenced in
the form.\44\ These instructions and definitions are intended to
provide clarity to funds and to assist them in filing reports on Form
N-PORT.\45\
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    \44\ See Form N-PORT, General Instructions A (Rule as to Use of
Form N-PORT), B (Application of General Rules and Regulations), C
(Filing of Reports), D (Paperwork Reduction Act Information), E
(Definitions), F (Public Availability), G (Responses to Questions),
and H (Signature and Filing of Report).
    \45\ See id. For example, General Instructions A, B, C, G, and H
provide specific filing and reporting instructions (including how to
report entity names, percentages, monetary values, numerical values,
and dates), General Instructions D and F provide information about
the Paperwork Reduction Act and the public availability of
information reported on Form N-PORT, and General Instruction E
provides definitions for specific terms referenced in Form N-PORT.
---------------------------------------------------------------------------

    We seek comment on these proposed disclosures and instructions.
     Is there any additional or alternative information that
should be required to facilitate identification of funds and analysis
of the reported information with information from other filings or
otherwise available elsewhere?
     Should the Commission require funds to obtain LEIs? Is it
appropriate for the Commission to require LEIs, which are only
available through the global LEI system? Why or why not? In the case of
funds that have not obtained an LEI, will those funds seek to obtain an
LEI in the future absent any regulatory requirement to do so? In
addition to the fees for obtaining and maintaining an LEI, would there
be other costs associated with funds obtaining LEIs? \46\
---------------------------------------------------------------------------

    \46\ See supra note 42 (discussing the costs of obtaining and
maintaining an LEI identifier in the United States). The Commission
has further estimated the one-time burden associated with obtaining
an LEI is one hour, with ongoing administration of an LEI
corresponding to one hour per year. See SBSR Adopting Release, supra
note 40, at nn. 1109-1111 and accompanying text.
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     Are there any instructions or definitions that should be
revised? If so, how? Should any instructions or definitions be added to
provide additional clarity, or deleted to avoid confusion with
conflicting instructions, definitions, or industry practices?
b. Information Regarding Assets and Liabilities
    Part B of proposed Form N-PORT would seek certain portfolio level
information about the fund. Part B would include questions requiring
funds to report their total assets, total liabilities, and net
assets.\47\ Funds would separately report certain assets and
liabilities, as follows. First, funds would report the aggregate value
of any ``miscellaneous securities'' held in their portfolios.\48\
Currently, Regulation S-X permits funds to report an aggregate amount
not exceeding five percent of the total value of the portfolio
investments in one amount as ``Miscellaneous securities,'' provided
that securities so listed are not restricted, have been held for not
more than one year prior to the date of the related balance sheet, and
have not previously been reported by name to the shareholders, or set
forth in any registration statement, application, or annual report or
otherwise made available to the public, and, as discussed further
below, we are proposing the same conditions for Form N-PORT.\49\
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    \47\ See Form N-PORT, Item B.1.
    \48\ See Form N-PORT, Items B.1.a and B.2.a. As discussed
further below, we are proposing that funds would also report
information about miscellaneous securities on an investment-by-
investment basis, although such information would be nonpublic and
would be used for Commission use only. We also request comment below
on whether funds should continue to be permitted to categorize
investments as ``miscellaneous securities.'' See infra note 151 and
accompanying text.
    \49\ See rule 12-12 of Regulation S-X.
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    Funds would also report any assets invested in a controlled foreign
corporation for the purpose of investing in certain types of
investments (``controlled foreign corporation'' or ``CFC'').\50\ Some
funds use CFCs for making certain types of investments, particularly
commodities and commodity-linked derivatives, often for tax purposes.
Our proposal would require funds to disclose each underlying investment
in a CFC, rather than just the investment in the CFC itself, which
would increase transparency on fund investments through CFCs.\51\ These
disclosures would allow investors to look through CFCs and understand
the specific underlying holdings that they are

investing in, which would in turn allow investors to better analyze
their fund holdings and risk associated with CFC investments, and hence
enable investors to make more informed investment decisions. In
addition, as discussed further below in Part II.E.4, we believe it
would be beneficial for the Commission to have certain information
about funds' use of CFCs. The information we are proposing to obtain in
Form N-PORT, combined with additional information we are proposing to
require on Form N-CEN regarding CFCs, discussed below, would help the
Commission better monitor funds' compliance with the Investment Company
Act and assess funds' use of CFCs, including the extent of their use by
reporting of total assets in CFCs.\52\
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    \50\ See Form N-PORT, Instruction E (providing that ``controlled
foreign corporation'' has the meaning defined in section 957 of the
Internal Revenue Code [26 U.S.C. 957]) and Item B.2.b (requiring
funds to report assets invested in controlled foreign corporations).
    \51\ See Form N-PORT, Part B Instruction (``Report the following
information for the Fund and its consolidated subsidiaries.'').
    \52\ See infra note 467 and accompanying and following text.
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    Second, we are proposing to require that funds report the amount of
certain liabilities, in particular: (1) Borrowings attributable to
amounts payable for notes payable, bonds, and similar debt, as reported
pursuant to rule 6-04(13)(a) of Regulation S-X [17 CFR 210.6-
04(13)(a)]; (2) payables for investments purchased either (i) on a
delayed delivery, when-delivered, or other firm commitment basis, or
(ii) on a standby commitment basis; and (3) liquidation preference of
outstanding preferred stock issued by the fund.\53\ This information
would allow Commission staff, as well as investors and other potential
users, to better understand a fund's borrowing activities and payment
obligations for assets that have been already received, which would
facilitate analysis of the fund's use of financial leverage, as well as
the fund's liquidity and ability to meet redemptions, which are
important to understanding the risks such borrowings might create.
---------------------------------------------------------------------------

    \53\ See Form N-PORT, Items B.2.c to B.2.e.
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    We request comment on the reporting of assets and liabilities
proposed on Form N-PORT.
     As discussed above, our proposal would require funds to
disclose each underlying investment in a CFC. Should we consider
modifying the information we propose to require, or require additional
information? How commonly do funds invest in CFCs that in turn invest
their assets in underlying investments? Should we provide instructions
to clarify how funds should report investments in this situation? If
so, should the Commission permit funds to disclose only the ultimate
underlying investments, or should the Commission require disclosure of
each layer of investment?
     Are there other methods of reporting the assets (including
assets in CFCs) and liabilities described above that we should
consider?
     Are there other assets and liabilities that funds should
be required to separately report? If so, why? For example, should the
Commission require funds to separately break out categories of assets
and liabilities similar to what is currently required by Form N-SAR?
\54\ What would be the costs associated with providing such information
on a monthly basis?
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    \54\ See Form N-SAR, Item 74 (requiring funds to report
consolidated balance sheet data, including cash, repurchase
agreements, debt-securities, preferred stock, common stock, options,
other investments, receivables, other assets, total assets, payables
for portfolio instruments purchased, amounts owed to affiliated
persons, senior long-term debt, other liabilities, senior equity,
net assets of common shareholders, number of shares outstanding, net
asset value per share, total number of shareholder accounts, and
total value of assets in segregated accounts).
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c. Portfolio Level Risk Metrics
    One of the purposes of Form N-PORT is to provide the Commission
with information regarding fund portfolios to help us better monitor
trends in the fund industry, including investment strategies funds are
pursuing, the investment risks that funds undertake, and how different
funds might be affected by changes in market conditions. As discussed
above, the Commission uses information from fund filings, including a
fund's registration statement and reports on Form N-CSR (which includes
the fund's shareholder report) and Form N-Q, to inform its
understanding and regulation of the fund industry. Additionally our
staff reviews fund disclosures--including registration statements,
shareholder reports, and other documents--both on an ongoing basis as
well as retroactively every three years.\55\
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    \55\ See, e.g., section 408 of the Sarbanes-Oxley Act of 2002,
Pub. L. 107-204, 116 Stat. 745 (2002) (requiring the Commission to
engage in enhanced review of periodic disclosures by certain issuers
every three years).
---------------------------------------------------------------------------

    The disclosures in a fund's registration statement about its
investment objective, investment strategies, and risks of investing in
the fund, as well as the fund's financial statements, are fundamental
to understanding a fund's implementation of its investment strategies
and the risks in the fund. However, the financial statements and
narrative disclosures in fund registration statements and shareholder
reports do not always provide a complete picture of a fund's exposure
to changes in asset prices, particularly as fund strategies and fund
investments become more complex. The financial statements, including a
fund's schedule of portfolio investments, provide data regarding
investments' values as of the end of the reporting period--a
``snapshot'' of data at a particular point in time--or, in the case of
the statement of operations, for example, historical data over a
specified time period. By contrast, based on staff experience and
outreach to funds, we understand that funds commonly internally use
multiple risk metrics that provide calculations that measure the change
in the value of fund investments assuming a specified change in the
value of underlying assets or, in the case of debt instruments and
derivatives that provide exposure to interest rates and debt
instruments, changes in interest rates or in credit spreads above the
risk-free rate.
    Accordingly, we believe it is appropriate to propose requiring
funds to report quantitative measurements of certain risk metrics that
would provide information beyond the narrative, often qualitative
disclosures about investment strategies and risks in the fund's
registration statement, as well as a fund's historical financial
statement disclosures. Monthly reporting on these risk measures, in
particular, would help provide the Commission with more current
information on how funds are implementing their investment strategies
through particular exposures. Receiving this information on a monthly
basis could help the Commission, for example, more efficiently analyze
the potential effects of a market event on funds.
    Specifically, we are proposing to require certain funds to provide
portfolio level measures on Form N-PORT that will help Commission staff
better understand and monitor funds' exposures to changes in interest
rates and credit spreads across the yield curve. As discussed in Part
II.A.2.g below, we are also proposing to require risk measures at the
investment level for options and convertible bonds. We believe that the
staff can use these measures, for example, to determine whether
additional guidance or policy measures are appropriate to improve
disclosures in order to help investors better understand how changes in
interest rate or credit spreads might affect their investment in a
fund.
    Additionally, as we discussed above, we believe that institutional
investors, as well as entities that provide services to both
institutional and individual investors, would be able to use these risk
metrics to conduct their own analyses in order to help them better
understand fund composition, investment strategy, and interest rate

and credit spread risk the fund is undertaking. This would complement
the risk disclosures that are contained in the registration statement,
thereby potentially helping all investors to make more informed
investment choices. We believe that our proposal to require these funds
to publicly disclose these measures quarterly, like other information
in the schedule of investments, will also help provide investors with
more specific, quantitative information regarding the nature of a
fund's exposure to particular asset classes than they do currently.
Providing this more specific and current information through periodic
public disclosure of such risk metrics could be especially important
for investors with respect to funds that continuously offer new shares
to the public, because such funds are generally required to maintain an
updated or ``evergreen'' prospectus that must precede or accompany
delivery of those securities.\56\
---------------------------------------------------------------------------

    \56\ See section 5(b)(2) of the Securities Act.
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    In particular, for funds that invest in debt instruments, or in
derivatives that provide exposure to debt or debt instruments, we
believe it is important for the Commission staff, investors, and other
potential users to have measures that would help them analyze how
portfolio values might change in response to changes in interest rates
or credit spreads.\57\ To improve the ability of the Commission staff,
investors, and other potential users to analyze how changes in interest
rates and credit spreads might affect a fund's portfolio value, we are
proposing that a fund that invests in debt instruments, or derivatives
that provide exposure to debt instruments or interest rates,
representing at least 20% of the fund's notional exposure, provide a
portfolio level calculation of duration and spread duration across the
applicable maturities in the fund's portfolio.
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    \57\ As discussed further below, the Commission also believes
that there would be a benefit to collecting risk measures for
derivatives that provide exposure to certain assets, such as
equities and commodities. Due to the nature of these instruments,
however, we believe that such information should be provided on an
instrument-by-instrument basis, instead of as a portfolio level
calculation.
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    We are proposing to limit this requirement to funds that invest in
debt instruments or derivatives that provide exposure to debt
instruments or interest rates that represent at least 20% of the fund's
notional value as of the reporting date.\58\ We are proposing the 20%
threshold because we believe that at this level, the Commission would
still receive measurements of duration and spread duration from funds
that make investments in debt instruments as a significant part of
their investment strategy, while providing an appropriate threshold so
that funds that do not invest in debt to achieve their investment
strategy would not have to monitor each month whether they trigger the
requirement for making such calculations. Funds that primarily invest
in assets other than debt instruments, such as equities, might have
some level of investments in debt instruments for cash management or
other purposes. We do not believe that requiring such funds to provide
monthly calculations of duration or spread duration would be helpful
for understanding such funds' investment strategy or risk exposures,
and we believe that the 20% threshold will provide a de minimis level
to relieve the burden of calculating these measures for such funds. We
believe that information would be most useful from funds that actually
use debt exposures as part of their investment strategy. Based on staff
experience, we believe that such funds have a debt exposure of at least
20%, and commonly greater than that. As discussed below, we request
comment on the proposed de minimis threshold.
---------------------------------------------------------------------------

    \58\ Specifically, we are proposing to calculate notional value
as the sum of the absolute values of: (i) The value of each debt
security, (ii) the notional amount of each swap, including, but not
limited to, total return swaps, interest rate swaps credit default
swaps, for which the underlying reference asset or assets are debt
securities or an interest rate; and (iii) the delta-adjusted
notional amount of any option for which the underlying reference
asset is an asset described in clause (i) or (ii). See Form N-PORT,
Item B.3, Instruction.
    The delta-adjusted notional value of options is needed to have
an accurate measurement of the exposure that the option creates to
the underlying reference asset. See, e.g., Comment Letter of
Morningstar (Nov. 7, 2011) (``Morningstar Derivatives Concept
Release Comment Letter'') (submitted in response to the Derivatives
Concept Release, supra note 7, which sought comment regarding the
use of derivatives by management investment companies).
---------------------------------------------------------------------------

    For duration, we are proposing to require that a fund calculate the
change in value in the fund's portfolio from a 1 basis point change in
interest rates (commonly known as DV01) for each applicable key rate
along the risk-free interest rate curve, i.e., 1 month, 3 month, 6
month, 1 year, 2 year, 3 year, 5 year, 7 year, 10 year, 20 year, and 30
year interest rate, for each applicable currency in the fund. We
realize that funds might not have exposures for every applicable key
rate. For example, a short-term bond fund is unlikely to have debt
exposures with longer maturities. Accordingly, a fund would only report
the key rates that are applicable to the fund. Funds would report zero
for maturities to which they have no exposure.\59\ For exposures
outside of the range of listed maturities listed on Form N-PORT (i.e.,
maturities shorter than one month or longer than 30 years), funds would
be instructed to include those exposures in the nearest maturity.
---------------------------------------------------------------------------

    \59\ For funds with exposures that fall between any of the
listed maturities in the form, funds would be instructed to use
linear interpolation to approximate exposure to each maturity listed
above.
---------------------------------------------------------------------------

    We believe that requiring funds to provide further detail about
their exposures to interest rate changes along the risk-free rate curve
would provide the Commission with a better understanding of the risk
profiles of funds with different strategies for achieving debt
exposures. For example, funds targeting an effective duration of five
years could achieve that objective in different ways--one fund could
invest predominantly in intermediate-term debt; another fund could
create a long position in longer-term bonds, matched with a short
position in shorter-term bonds. While both funds would have an
intermediate-term duration, the risk profiles of these two funds, that
is, their exposures to changes in long-term and short-term interest
rates, are different. Having the proposed DV01 calculations along the
risk-free interest rate curve would clarify this difference. The
Commission staff could use this information to better understand how
funds are achieving their exposures to interest rates, and use this
information to perform analysis across funds with similar strategies to
identify outliers for potential further inquiry, as appropriate.
    Additionally, we are proposing to require that the same funds
provide a measure of spread duration (commonly known as SDV01) at the
portfolio level for each of the same maturities listed above,
aggregated by non-investment grade and investment grade exposures.\60\
This would measure the fund's sensitivity to changes in credit spreads,
i.e., a measure of spread above the risk-free interest rate. This is
helpful for analyzing shifts in credit spreads for non-investment grade
and investment grade debt, respectively, over the yield curve, as
credit spreads for investment grade and non-investment grade debt do
not always shift in parallel or in lock

step, particularly during times of market stress.\61\ Because credit
spreads can also vary based on the maturity of the bonds, we believe
that providing credit spread measures for the key rates along the yield
curve, as with DV01, would help the Commission better analyze credit
spreads of investments in funds.\62\ Again, similar to the example
above regarding the potential use of the DV01 metric, SDV01 can provide
more precise information regarding funds' exposures to credit spreads
when they engage in a strategy investing in investment-grade or non-
investment grade debt.
---------------------------------------------------------------------------

    \60\ Form N-PORT would include instructions stating that
``Investment Grade'' refers to an investment that is sufficiently
liquid that it can be sold at or near its carrying value within a
reasonably short period of time and is subject to no greater than
moderate credit risk, and ``Non-Investment Grade'' refers to an
investment that is not Investment Grade. See Form N-PORT, General
Instruction E. These instructions are consistent with the
definitions of ``Investment Grade'' and ``Non-Investment Grade''
used in Form PF.
    \61\ See, e.g., Frank K. Reilly, David J. Wright, and James A.
Gentry, Historic Changes in the High Yield Bond Market, Journal of
Applied Corporate Finance, Volume 21, No. 3, 65-79 (Summer 2009)
(discussing the historical performance, including the credit spreads
of the high yield bond market compared to the investment grade bond
market).
    \62\ The delineation between non-investment grade and investment
grade debt is similar to information regarding private fund
exposures gathered on Form PF, which could be helpful for comparing
and analyzing credit spreads between public and private funds. See,
e.g., Item 26 of Form PF.
---------------------------------------------------------------------------

    In determining the methodology for the proposed measures of
duration and spread duration, staff engaged in outreach to asset
managers and risk service providers that provide risk management and
other services to asset managers and institutional investors. The
methodology proposed is both based on staff experience in using
duration and spread duration, as well as this outreach to better
understand common fund practices for calculating such measures. The
Commission recognizes that particular funds might currently vary their
methodology for calculating duration and spread duration by, for
example, only providing a single measure of duration or spread duration
or by only reporting key rate durations for particular maturities.
Based on staff experience and outreach, the Commission believes that
the proposed methodologies for reporting duration and spread duration
will allow for better comparability across funds.
    Also, based on outreach, Commission staff believes that service
providers that provide risk management services to funds generally use
a ``bottom up'' approach to calculating duration and spread duration,
meaning that such measures are first calculated at the position level
and then aggregated at the portfolio level. Accordingly, we believe
that providing the specific methodology for aggregation of duration and
spread duration would not significantly increase the burden of
calculating such metrics by funds, even if funds analyze such measures
at the portfolio level using a methodology different from what we are
proposing. As discussed below, however, we request comment on the
proposed methodologies, including whether such methodologies should be
modified.
    For both duration and spread duration, we are proposing to require
that funds provide the change in value in the fund's portfolio from a 1
basis point change in interest rates or credit spreads, rather than a
larger change, such as 5 basis points or 25 basis points. Based on
staff's outreach, we believe that a 1 basis point change is the
methodology that many funds currently use to calculate these risk
measures at the position level for internal risk monitoring and would
provide sufficient information to assist the Commission in analyzing
fund exposures to changes in interest rate or credit spreads. We
believe that requiring funds to calculate such measures based on a
larger basis point change could require more customized calculations,
and therefore increase costs to funds, relative to the approach
proposed. We request comment on this aspect of the proposed
methodology.
    While the Commission is proposing that funds provide a calculation
of each of these measures at a portfolio level, the Commission has
considered whether to propose, instead, that funds report these risk
metrics for each debt instrument or derivative that has an interest
rate or credit exposure. This would provide more precise data for
analysis of various movements in interest rates and credit spreads.
Additionally, as discussed above, the Commission believes that most
funds currently calculate these risk metrics at a position level;
however, we recognize that even if such calculations are available at a
position level, reporting these metrics could cause funds to make
additional systems changes to collect such position-level data for
reporting, as well as potential burdens related to increased review
time and quality control in submitting the reports. Based on staff's
outreach and staff's experience, the Commission believes that requiring
funds to provide this information for each maturity at the portfolio
level would provide a sufficient level of granularity for purposes of
Commission staff analysis. Finally, we believe that there would be
certain efficiencies for the Commission, investors, and other potential
users to having funds report the portfolio-level calculations relative
to reporting position-level calculations, as this could allow for more
timely and efficient analysis of the data by not requiring the
Commission or other potential users to calculate the portfolio-level
measures from the position-level measures. We request comment below on
the relative burdens and benefits of providing portfolio level and
position level data.
    The Commission also considered whether to require funds to report a
portfolio level measure (or, for the same reasons discussed immediately
above in connection with how risk measures are calculated, position
level measures) for convexity, which facilitates more precise
measurement of the change in a bond price with larger changes in
interest rates.\63\ We have preliminarily determined not to require
reporting of this metric, however, because we believe, based on staff
outreach, that funds more commonly analyze non-linear changes to
interest rates through stress testing, rather than through calculating
convexity. We request comment, however, on whether requiring funds to
report a portfolio-level measure of convexity would be useful to the
Commission, investors, and other potential users, and the relative
burdens and benefits of reporting convexity.
---------------------------------------------------------------------------

    \63\ More specifically, convexity measures the non-linearities
in a bond's price with respect to changes in interest rates. See
Frank J. Fabozzi, The Handbook of Fixed Income Securities 149-152
(8th ed. 2012).
---------------------------------------------------------------------------

    We request comment on the proposed requirements to provide risk
measures at the portfolio level.
     We are proposing a 20% threshold because, based on staff
experience, we believe that this would require funds that use debt and
exposure to debt or interest rate changes as part of their investment
strategy to provide those metrics, while providing a minimum threshold
so that funds that invest in debt for cash management or other purposes
unrelated to implementing their investment strategy would not be
required to collect, calculate, or report such data. Given this
objective, is 20% the appropriate threshold for determining which funds
must provide these risk metrics? Should this threshold be lower, such
as 5% or 10% or higher, such as 30% or 35%? Are there alternative
methodologies that the Commission should consider for determining which
funds should be required to provide this information? Should we,
instead, base the threshold directly on the net asset value (``NAV'')
of the fund's debt securities and interest rate investments, rather
than the fund's notional exposure to debt securities or interest rates
as a percentage of the fund's NAV?
     We are proposing to require reporting information on DV01
and SDV01 at the portfolio level because we believe that this can
provide the

Commission and investors with useful information regarding funds'
exposures to changes in interest rate and credit spreads, without
imposing a potential burden that might be involved in providing such
risk metrics at a position level. We believe, however, based on staff
outreach that funds or their service providers generally do calculate
such information at a position level. We request comment on the
relative burdens and benefits of requiring funds to report portfolio
level calculations of duration and spread duration, as opposed to
providing those for each relevant instrument in the portfolio. What, if
any, would be the added costs and burdens associated with adapting
systems in order to centrally collect and report such information? What
would be the benefits to the Commission, investors, and other potential
users to having more precise information in order to evaluate such
exposures? Conversely, are there benefits to having funds report these
measures at the portfolio level rather than the position level, even if
reporting at the position level would not significantly increase costs?
     To what extent would the values reported for these risk
metrics be affected by the inputs and assumptions underlying the
methodologies by which funds would calculate these metrics, including
assumptions regarding the valuation of the investments or underlying
securities of investments, particularly for investments that have pre-
payment options, such as mortgage-backed securities? Specifically, how
would the comparability of information reported by different funds be
affected if funds used different inputs and assumptions in their
methodologies? Do funds have concerns regarding reporting measures that
include such assumptions, such as proprietary or liability concerns?
Are there ways the Commission could improve the standardization of the
calculation of these risk metrics? If so, how?
     To the extent that funds are calculating such measures
using a methodology other than what the Commission is proposing, what
would the associated costs and other burdens be for funds to calculate
and report these measures according to a different methodology than
that typically used by the fund?
     Are there any alternatives or modifications to the
methodologies that the Commission is proposing that the Commission
should consider? \64\ For example, should the Commission require, or
permit, funds to report duration and spread duration only for the
maturities that represent the highest exposures in the fund, such as
the top three or the top five (or another quantity)? Should the
Commission require, or permit, funds to report duration and spread
duration based on a larger change in interest rates or credit spreads,
such as 5 basis points or 25 basis points? How would these
methodologies affect the burden on funds of reporting duration and
credit spread duration? Are there more efficient ways for the
Commission to collect information to increase the transparency of
funds' duration and spread duration?
---------------------------------------------------------------------------

    \64\ As discussed further below, we separately propose and
request comment on additional and alternative risk metrics. See,
e.g., infra note 127 and accompanying and following text (proposing
that funds report delta for certain derivative contracts), text
following note 142 (requesting comment on vega, gamma, and other
risk metrics), and Part II.A.4.k (generally requesting comment on
additional risk measures).
---------------------------------------------------------------------------

     Should we provide a de minimis amount for exposure to
different currencies, under which level a fund would not have to report
the DV01 or SDV01 for exposures in that currency? For example, should
we only require funds with exposure to a currency equal to 5% or more
of the fund's NAV to provide a DV01 and SDV01 calculation for such
currency? If we were to provide a de miminis, should the threshold be
higher or lower?
d. Securities Lending
    To increase the rate of return on their portfolios, some funds
engage in securities lending activities whereby a fund lends certain of
its portfolio securities to other financial institutions such as
broker-dealers. In return for the security lent, funds receive
collateral and sometimes a fee. To protect the fund from the risk of
borrower default, the borrower generally posts collateral with the fund
in an amount at least equal to the value of the borrowed securities,
and this amount of collateral is adjusted daily as the value of the
borrowed securities is marked to market.\65\ Funds generally receive
cash as collateral. A fund will typically invest cash collateral that
it receives in short-term, highly liquid instruments, such as money
market funds or similar pooled investment vehicles, or directly in
money market instruments.\66\
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    \65\ See Securities Industry and Financial Markets Association,
Master Securities Loan Agreement (2000 Version) Sec. Sec.  4, 9,
available at http://www.sifma.org/services/standard-forms-and-documentation/. See also Division of Investment Management,
Securities and Exchange Commission, Securities Lending by U.S. Open-
End and Closed-End Investment Companies (``Securities Lending
Summary''), available at http://www.sec.gov/divisions/investment/securities-lending-open-closed-end-investment-companies.htm.
    \66\ Lending funds and borrowers may negotiate the collateral
that the borrower posts to the lender, and a cash collateral fee,
commonly called a ``rebate,'' that the lender pays to the borrower.
The rebate is negotiated and can be negative (i.e., a fee paid from
the borrower to the lender) when demand for the loan of a particular
security is especially great or its supply especially constrained.
See id. at Sec.  5.
---------------------------------------------------------------------------

    The fund's income from these activities may come from fees paid by
the borrowers to the fund and/or from the reinvestment of collateral.
Many funds engage an external service provider--commonly called a
``securities lending agent''--to administer the securities lending
program. The securities lending agent is typically compensated by being
paid a share of the fund's securities lending revenue after the
counterparty has been paid any rebate due to it.\67\
---------------------------------------------------------------------------

    \67\ See Securities Lending Summary, supra note 65.
---------------------------------------------------------------------------

    Securities lending implicates certain provisions of the Investment
Company Act, and funds that engage in securities lending do so in
reliance on Commission staff no-action letters, and in some
circumstances, exemptive orders.\68\ These letters and orders address a
number of areas, including loan collateralization and termination, fees
and compensation, board approval and oversight, and voting of proxies.
---------------------------------------------------------------------------

    \68\ For example, the transfer of a fund's portfolio securities
to a borrower implicates section 17(f) of the Investment Company
Act, which generally requires that a fund's portfolio securities be
held by an eligible custodian. A fund's obligation to return
collateral at the termination of a loan implicates section 18 of the
Investment Company Act, which governs the extent to which a fund may
incur indebtedness. See id.
---------------------------------------------------------------------------

    Currently, the information that funds are required to report about
securities lending activity, whether in a structured format or
otherwise, is limited. For example, funds disclose on Form N-SAR
whether they are permitted under their investment policies to, and
whether they did engage during the reporting period in, securities
lending activities.\69\ Funds generally also disclose additional
information regarding their securities lending programs in their
registration statements.\70\ In addition, consistent with current
industry practices, many funds voluntarily identify particular
securities that are on loan in their schedules of portfolio investments
prepared pursuant to Regulation S-X. These requirements do not address
other pertinent considerations, such as

the extent to which a fund lends its portfolio securities, the
counterparties to which the fund is exposed, the fees and revenues
associated with those activities, and the significance of securities
lending revenue to the investment performance of the fund.
---------------------------------------------------------------------------

    \69\ Item 70.N of Form N-SAR.
    \70\ See, e.g., Form N-1A, Items 9(c) (disclosures regarding
risks), 16(b) (disclosures of investment strategies and risks),
17(f) (disclosures of proxy voting policy), and 28(h) (exhibits of
other material contracts).
---------------------------------------------------------------------------

    To address these data gaps and provide additional information to
the Commission, investors, and other potential users regarding a fund's
securities lending activities, we are proposing that funds report
certain counterparty information and position-level information monthly
on Form N-PORT.\71\ Also, as to other information for which annual
reporting would be sufficient because it is unlikely to change on a
frequent basis (e.g., name and other identifying information for a
fund's securities lending agent), we are proposing that funds report
this information annually on Form N-CEN as discussed below in Part
II.E. We are also proposing, as discussed below in Part II.C.5, to
require that certain information about the income from and fees paid in
connection with securities lending activities, and the monthly average
of the value of portfolio securities on loan, be disclosed as part of
the notes to funds' financial statements.\72\
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    \71\ See infra text following note 74 (discussing the reporting
of counterparty information); Part II.A.2.g (discussing the proposed
requirements regarding position-level information). Commenters to
the FSOC Notice also suggested that enhanced securities lending
disclosures could be beneficial to investors and counterparties.
See, e.g., SIFMA/IAA FSOC Notice Comment Letter, supra note 43
(``Disclosures related to securities lending practices, if
appropriately tailored, could potentially assist investors and
counterparties in making informed choices about where they deploy
their assets and how they engage in lending practices.''); Comment
Letter of the Vanguard Group, Inc. (Mar. 25, 2015) (``Vanguard FSOC
Notice Comment Letter'') (asserting that securities lending as a
whole suffers from a lack of readily available data, and supporting
further efforts to gather data and study the practice of securities
lending).
    \72\ See infra text following note 276 (discussing proposed
disclosures in the notes to funds' financial statements that would
allow investors to better understand the income generated from, as
well as the expenses associated with, securities lending
activities).
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    Our proposals today are intended, in part, to increase the
transparency of information available related to the lending and
borrowing of securities with respect to funds as a subset of the
universe of market participants engaged in securities lending
activities.\73\
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    \73\ See, e.g., section 984(b) of the Dodd-Frank Act, Pub. L.
No. 111-203, 124 Stat. 1376 (2010) (directing the Commission to
promulgate rules designed to increase the transparency of
information available to brokers, dealers, and investors, with
respect to the loan or borrowing of securities).
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    Counterparty Information. One risk that funds engaging in
securities lending are exposed to is counterparty risk because
borrowers could fail to return the loaned securities. In this event,
the lender would keep the collateral. Collateral is generally posted in
cash and, in practice, the loan is generally over-collateralized. The
collateral requirements thereby mitigate the extent of a fund's
counterparty risk. In some cases, this risk is further mitigated for
the fund if the fund's securities lending agent indemnifies the fund
against default by the borrower.
    While we believe there is value to having information concerning
securities lending counterparties to monitor risk, as well as to
monitor compliance with conditions set forth in staff no-action letters
and exemptive orders,\74\ we are proposing to require that funds
report, for each of their securities lending counterparties as of the
reporting date, the full name and LEI of the counterparty (if any), as
well as the aggregate value of all securities on loan to the
counterparty, rather than at the loan level.\75\ We believe that
disclosure of counterparty information at an aggregate portfolio level
would provide the Commission and investors with information to better
understand the level of potential counterparty risk assumed as part of
the fund's securities lending program, with a lower relative burden on
funds than requesting such information on a per loan level.
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    \74\ See generally Securities Lending Summary, supra note 65.
    \75\ Form N-PORT, Item B.4.
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    We request comment on the portfolio level securities lending
information requirements we are proposing.
     As discussed above, Form N-PORT would require funds to
disclose the aggregate value of all securities on loan to each
securities lending counterparty and the name and LEI (if any) of the
counterparty. Should we instead require funds to report this
information on a loan-by-loan or security-by-security basis? To what
extent, if any, would such information be used by investors and other
potential users? What, if any, additional issues would funds face in
tracking and reporting such information on a loan-by-loan or security-
by-security basis? Do funds currently track or have the ability to
readily determine their counterparty exposure on a loan-by-loan or
security-by-security basis? If securities lending counterparty
information should be reported on a loan-by-loan or security-by-
security basis, is there any additional or alternative information we
should require funds to report, such as the rebate or compensation to
the securities lending agent?
     Instead of requiring funds to report the aggregate value
of all securities on loan to each securities lending counterparty,
should we limit such disclosures to counterparties to which the fund
has the greatest exposure, such as the top five or top ten
counterparties? \76\ Alternately, should we require funds to report
aggregate exposure to a given counterparty only if such exposure
constitutes more than a certain percentage of the NAV of the fund
(e.g., one percent)? Would either approach more appropriately consider
the costs of tracking and reporting such information and the benefits
that increased transparency would provide to the Commission and other
potential users?
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    \76\ Cf. Form PF, Section 1c, Item 22 (requiring advisers to
private funds to report exposures to the five counterparties to
which the reporting fund has the greatest mark-to-market net
counterparty credit exposure).
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     Alternately, or in addition, should the Commission request
information regarding other types of counterparty exposures? For
example, should the Commission require funds to report counterparty
exposures based on the amount of unsettled trades with each
counterparty? If so, should such information be reported in terms of
aggregate or net exposure, and why?
e. Return Information
    We are proposing to require funds to provide monthly total returns
for each of the preceding three months.\77\ If the fund is a multiple
class fund, it would report returns for each class.\78\ Funds with
multiple classes would also report their class identification
numbers.\79\ Funds would calculate returns using the same standardized
formulas required for calculation of returns as reported in the
performance table contained in the risk-return summary of the fund's
prospectus and in fund sales materials.\80\
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    \77\ See Form N-PORT, Item B.5.a.
    \78\ See id.
    \79\ See Form N-PORT, Item B.5.b.
    \80\ See Form N-1A, Item 26(b)(1); Form N-2, Item 4, Instruction
13; Form N-3, Item 26(b)(i).
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    We are proposing to require this information on Form N-PORT because
we believe it would be useful to have such information in a structured
format to facilitate comparisons across funds. For example, analysis of
return information over time among similar funds could reveal outliers
that might merit further inquiry by Commission staff. Additionally,
performance that appears to be inconsistent with a fund's investment
strategy or other benchmarks

can form a basis for further inquiry and monitoring.\81\
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    \81\ Similar risk analytics were used in the Commission's
Aberrational Performance Inquiry, an initiative by the Division of
Enforcement's Asset Management Unit to identify hedge funds with
suspicious returns. See, e.g., Press Release, SEC Charges Hedge Fund
Adviser and Two Executives with Fraud in Continuing Probe of
Suspicious Fund Performance (Oct. 17, 2012), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485332.
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    Because only quarter-end reports on Form N-PORT would be made
public, we are proposing that funds provide return information for each
of the preceding three months.\82\ This would provide investors and
other potential users with monthly return information, so that they
would have access to each month's return on a quarterly basis.
Otherwise, we are concerned that investors might potentially confuse
the month's disclosed return as representing the return for the full
quarter.
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    \82\ See Form N-PORT, Item B.5.a. Although generally only
information reported on Form N-PORT for the third month of each
fund's fiscal quarter would be publicly available, the concerns
associated with more frequent public disclosure are related to the
disclosure of portfolio holdings information and would not apply to
the disclosure of fund return information. See generally note 170
and accompanying and following text (discussing the risks of
predatory trading practices such as front-running and the ability of
outside investors to reverse engineer and copycat fund's investment
strategies).
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    We are also proposing that funds report, for each of the preceding
three months, monthly net realized gain (or loss) and net change in
unrealized appreciation (or depreciation) attributable to derivatives
for each of the following categories: Commodity contracts, credit
contracts, equity contracts, foreign exchange contracts, interest rate
contracts, and other derivatives contracts.\83\ This item is modeled
after disclosure requirements in Financial Accounting Standards Board
(``FASB'') Accounting Standards Codification (``ASC'') 815, which
governs the accounting disclosure for derivatives and hedging. This
information would help the Commission staff, investors, and other
potential users better understand how a fund is using derivatives in
accomplishing its investment strategy and the impact of derivatives on
the fund's returns. In order to provide a point of comparison, we are
also proposing that funds report, for each of the last three months,
monthly net realized gain (or loss) and net change in unrealized
appreciation (or depreciation) for investments other than
derivatives.\84\
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    \83\ See Form N-PORT, Item B.5.c.
    \84\ See Form N-PORT, Item B.5.d. Our proposal would also amend
Regulation S-X to require funds to report similar information in
their financial statements, although Regulation S-X would require
such information to be aggregated by type of derivative contract,
rather than by category of exposure as required by Form N-PORT. We
discuss below our reasons for proposing information to be reported
based on contract type on Regulation S-X. See infra Part II.C.
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    We request comment on the return information we are proposing in
Form N-PORT.
     Should the Commission consider, as an alternative,
requiring funds to provide monthly return information annually on Form
N-CEN, rather than on Form N-PORT? Would this significantly reduce the
burden of reporting such information?
     We are proposing to require that funds report three months
of returns so that investors and other potential users, who would only
observe reports on Form N-PORT on a quarterly basis, would still
receive return data for each month of the year. Do commenters agree
that such disclosure of monthly returns would be helpful to investors?
Are there preferable alternatives for providing such information to
investors? Are there potential negative consequences of reporting
monthly returns? For example, could the availability of this
information cause investors to emphasize short-term returns?
     We request comment on alternative requirements for fund
reporting of return information. For example, the Commission requests
comment on whether to require reporting by funds of gross returns.
Would gross information, with or without accompanying fee information
for each class, be confusing for investors? If so, are there ways to
mitigate the risk of investor confusion? Instead of requiring reporting
of returns for all classes, should the Commission, for example, require
funds to report return information for a single class, such as the
class with the highest expense ratio or the largest share class in
terms of assets under management? What would be the relative benefits
and burdens of only requiring disclosure of a single class?
     Are there alternative methods that the Commission should
consider for requiring funds to report the effect of derivatives on the
return of the fund? For example, should the Commission require that
funds report the monthly net realized gain or loss and net change in
unrealized appreciation or depreciation attributable to derivatives by
type of derivative (i.e., forward, future, option, swap), rather than
by category of exposure? What would be the burden and benefits of
reporting such information relative to the proposed requirement?
f. Flow Information
    Form N-PORT would require funds to separately report, for each of
the preceding three months, the total net asset value of: (1) Shares
sold (including exchanges but excluding reinvestment of dividends and
distributions); (2) shares sold in connection with reinvestments of
dividends and distributions; and (3) shares redeemed or repurchased
(including exchanges).\85\ This information is similar to what is
currently reported on Form N-SAR, and would be generally reported
subject to the same guidelines that currently govern reporting of flow
information on that form.\86\ We propose to require this information on
Form N-PORT because we believe that this information would be more
helpful if reported on a monthly basis rather than retrospectively on
an annual basis on Form N-CEN.
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    \85\ See Form N-PORT, Item B.6.
    \86\ Similar to Form N-SAR, Form N-PORT would instruct funds to
report amounts after any front-end sales loads had been deducted and
before any deferred or contingent deferred sales loads or charges
had been deducted. Shares sold would include shares sold by the fund
to a registered UIT. Funds would also include as shares sold any
transaction in which the fund acquired the assets of another
investment company or of a personal holding company in exchange for
its own shares. Funds would include as shares redeemed any
transaction in which the fund liquidated all or part of its assets.
Exchanges would be defined as the redemption or repurchase of shares
of one fund or series and the investment of all or part of the
proceeds in shares of another fund or series in the same family of
investment companies. Cf. Form N-PORT, Item B.6 and Item 28 of Form
N-SAR (requiring reporting of monthly sales and repurchases of the
Registrant's/Series' shares for the past six months).
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    We believe that having flow information reported to us monthly will
help us better monitor trends in the fund industry. For example, it
could help us analyze types of funds that are becoming more popular
among investors and areas of high growth in the industry. It could help
us better examine investor behavior in response to market events.
Finally, in combination with other information reported on Form N-PORT
regarding liquidity of fund positions, it could also help us identify
funds that might be at risk of experiencing liquidity stress due to
increased redemptions.
     What would be the costs and burdens of providing flow
information on a monthly basis on Form N-PORT? Should the Commission
consider, as an alternative, requiring funds to provide monthly flow
information annually on Form N-CEN, rather than on Form N-PORT?
     To what extent would the usefulness of the flow
information be

affected by the fact that omnibus accounts, which generally have
significant amounts of purchases and redemptions, typically net their
transactions prior to executing with the funds' transfer agents? Should
the Commission revise the proposed flow disclosures to address this
issue and, if so, how?
     Form N-SAR currently also requires funds to report flow
information related to ``other'' shares sold (i.e., other than through
new sales and exchanges and reinvestments of dividends and
distributions).\87\ Should the Commission also require funds to report
this category of flow information on Form N-PORT? What would be the
utility of requesting flow information to be separately reported in
this additional category?
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    \87\ See id.
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     Should we require that flow information be reported as to
each class of the fund? Would such additional information be helpful to
investors and other potential users? What would be the burdens to funds
with multiple classes of reporting such information?
g. Schedule of Portfolio Investments
    Part C of proposed Form N-PORT would require funds to report
certain information on an investment-by-investment basis about each
investment held by the fund and its consolidated subsidiaries as of the
close of the preceding month. Funds would respond to certain questions
that would apply to all investments (i.e., the investment's
identification, amount, payoff profile, asset and issuer type, country
of investment or issuer, and fair value level, and whether the
investment was a restricted security or illiquid asset). Funds would
also respond, if relevant, to additional questions related to specific
types of investments (i.e., debt securities, repurchase and reverse
repurchase agreements, derivatives, and securities lending).
    Funds would have the option of identifying any investments that are
``miscellaneous securities.'' \88\ Unless otherwise indicated, funds
would not report information related to those investments in Part C,
but would instead report such information in Part D.\89\
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    \88\ See Form N-PORT, Part D. See also supra note 49 and
accompanying text.
    \89\ See infra note 150 and accompanying and following text.
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i. Information for All Investments
    Proposed Form N-PORT would require funds to report certain basic
information about each investment. In particular, funds would report
the name of the issuer and title of issue or description of the
investment, as they are currently required to do on their reported
schedules of investments.\90\
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    \90\ See Form N-PORT, Items C.1.a and C.1.c.
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    To facilitate analysis of fund portfolios, it is important for
Commission staff to be able to identify individual portfolio
securities, as well as the reference instruments of derivative
investments through the use of an identifying code or number, which is
not currently required to be reported on the schedule of investments.
Fund shareholders and potential investors that are analyzing fund
portfolios or investments across funds could similarly benefit from the
clear identification of a fund's portfolio securities across funds. The
staff has found that some securities reported by funds lack a
securities identifier, and this absence has reduced the usefulness of
other information reported.\91\
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    \91\ Our inability to identify specific securities has limited
our ability in other contexts to compare ownership of the securities
across multiple funds and monitor issuer exposure. For example,
during the month of February 2013, money market funds reported 6,821
securities without CUSIPs (approximately 10% of all securities
reported on Form N-MFP).
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    To address this issue, we propose to require that funds report
additional information about the issuer and the security. Funds would
report certain securities identifiers, if available.\92\ For example,
for swaps and security-based swaps, funds could report the product
identification number used for reporting such instrument to a swap data
repository or securities-based swap data repository, if available.\93\
If a unique identifier is reported, funds would also indicate the type
of identifier used.\94\ Such an identifier may be internally generated
by the fund or provided by a third party, but should be consistently
used across the fund's filings for reporting that investment so that
the Commission, investors, and other potential users of the information
can track the investment from report to report.
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    \92\ See Form N-PORT, Item C.1.b and C.1.d to C.1.e (requiring
reporting of identifiers such as LEI of the issuer, CUSIP, ISIN,
ticker or other unique identifier).
    \93\ See infra notes 138-140 (discussing product identifiers for
security-based swaps and swaps, as addressed in rulemakings by the
Commission and Commodity Futures Trading Commission, respectively).
    \94\ See Form N-PORT, Item C.1.e.iii.
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    We also propose to require funds to report the amount of each
investment as of the end of the reporting period, as is currently
required under Regulation S-X.\95\ Funds would report the number of