\722\ See proposed rule 6-05.3 of Regulation S-X.
    \723\ See rule 6-05.3 of Regulation S-X.
---------------------------------------------------------------------------

    We also proposed to add new disclosure requirements that are
designed to increase transparency to investors about certain
investments and activities. First, we proposed to add new subsection
(m) to rule 6-03 that would require funds to make certain disclosures
in connection with a fund's securities lending activities and cash
collateral management in order to allow investors to better understand
the income generated from, as well as the expenses associated with,
securities lending activities.\724\ As discussed in more detail below,
after consideration of issues raised by commenters, we have determined
that it is more appropriate to require that these disclosures be made
in a fund's Statement of Additional Information (or, for closed-end
funds, reports on Form N-CSR) or in Form N-CEN, rather than to require
their inclusion in its financial statements.\725\
---------------------------------------------------------------------------

    \724\ See proposed rule 6.03(m) of Regulation S-X.
    \725\ See infra section II.F and section II.D.4.c.iii.
---------------------------------------------------------------------------

    Second, we proposed to amend rule 6-07 to require funds to make a
separate disclosure for income from non-cash dividends and payment-in-
kind interest on the statement of operations.\726\ Our proposed
amendment to rule 6-07 was intended to increase transparency for
investors in order to allow them to better understand when fund income
is earned, but not received, in the form of cash. While one commenter
generally supported disclosure for in-kind payments,\727\ many
recommended, if the Commission should adopt such a disclosure, that we
provide a disclosure threshold for non-cash income, such as one similar
to the requirement to disclose expense items that exceed 5

percent of total expenses.\728\ We agree with commenters' that a
disclosure threshold for non-cash disclosures would alleviate
unnecessary reporting burdens. We also agree with commenters that, in
order to keep all income disclosures under rule 6-07.1 consistent, a 5
percent de minimis threshold, which is the current requirement for
categories of investment income and expenses under current rule 6-07.1,
is also appropriate for our amended non-cash income disclosure under
rule 6-07.1.\729\ As a result, we are modifying the proposal by
adopting a new instruction to rule 6-07.1 clarifying that a separate
disclosure of income from payment-in-kind interest or non-cash
dividends, like other types of income under current rule 6-07.1, is
only required if all income of this type exceeds 5 percent of the
fund's investment.\730\
---------------------------------------------------------------------------

    \726\ See proposed rule 6-07.1 of Regulation S-X.
    \727\ See ICI Comment Letter (supporting disclosure of payment-
in-kind income with a 5 percent threshold).
    \728\ See State Street Comment Letter (recommending a 10%
benchmark); AICPA Comment Letter (5% threshold); MFS Comment Letter
(opposed to separate presentation of non-cash income for payment-in-
kind securities because the schedule of investments provides
adequate disclosure of securities with payment-in-kind income, but
supporting a de minimis threshold for other types of non-cash
income); PwC Comment Letter (same).
    \729\ See, e.g., PwC Comment Letter; and MFS Comment Letter.
    \730\ See rule 6-07.1 of Regulation S-X.
---------------------------------------------------------------------------

    Other commenters requested that we define ``non-cash dividends''
and ``payment-in-kind-interest earned.'' \731\ Finally, as in Form N-
PORT, some commenters noted that certain in-kind payments, such as when
a fund has the option to elect to receive either cash or in-kind
payments, do not raise the same risks as in-kind payments resulting
from a distressed issuer and should therefore be disclosed
separately.\732\ As discussed above in connection with Form N-PORT, we
agree that in-kind payments resulting from an election, rather than,
for example, issuer distress, do not involve the same risk of issuer
default. Therefore not requiring funds to report on Form N-PORT
interest paid in-kind if the fund has the option of electing in-kind
payments and has elected to be paid in-kind.\733\ However, we believe
for the statement of operations, it is important that all types of
income from in-kind payments be subject to the separate disclosure
threshold so that investors can compare this information to other
funds. Thus, we do not believe that it is appropriate or necessary to
provide prescriptive definitions of ``non-cash dividends'' and
``payment-in-kind-interest earned ''for purposes of income statement
disclosure and, unlike Form N-PORT, we are not amending Regulation S-X
to differentiate income from different types of in-kind payments.\734\
---------------------------------------------------------------------------

    \731\ See PwC Comment Letter; and AICPA Comment Letter.
    \732\ See, e.g., AICPA Comment Letter; and PwC Comment Letter;
see also supra section II.A.2.g.ii.
    \733\ See supra section II.A.2.g.ii; see also Item C.9.e of Form
N-PORT.
    \734\ See rule 6-07.1 of Regulation S-X. Commenters specifically
requested that we not require separate disclosures for amortization
and accretion as it is unnecessary because shareholders generally do
not distinguish between cash interest income and income in the form
of accretion or amortization. See, e.g., PwC Comment Letter; MFS
Comment Letter; ICI Comment Letter; AICPA Comment Letter. We agree
and are not including a separate disclosure for amortizations and
accretions.
---------------------------------------------------------------------------

    We proposed to amend rule 6-07.7(a) in order to conform statement
of operations disclosures of the net realized gains or losses from
investments to include our additional derivatives disclosures in
proposed rules 12-13A through 12-13C.\735\ Likewise, we proposed
similar changes to proposed rule 6-07.7(c) (current rule 6-07.7(d)) in
order to conform statement of operations disclosures of the net
increase or decrease in the unrealized appreciation or depreciation of
investments to include our new derivatives disclosures.\736\ We
received no comments on this proposal and are adopting both changes as
proposed.\737\
---------------------------------------------------------------------------

    \735\ See proposed rule 6-07.7(a) of Regulation S-X.
    \736\ See proposed rule 6-07.7(c) of Regulation S-X.
    \737\ See rules 6-07.7(a) and (c) of Regulation S-X.
---------------------------------------------------------------------------

    We also proposed to eliminate Regulation S-X's requirement for
specific disclosure of written options activity under current rule 6-
07.7(c).\738\ This provision was adopted prior to FASB adopting
disclosures generally applicable to derivatives, including written
options, now required by FASB ASC Topic 815.\739\ We continue to
believe that the requirement for specific disclosures for written
options activity should be removed because they are generally
duplicative of the requirements of FASB ASC Topic 815, which include
disclosure of the fair value amounts of derivative instruments, gains
and losses on derivative instruments, and information that would enable
users to understand the volume of derivative activity.\740\ Commenters
expressed support for this proposal, which we are adopting.\741\
---------------------------------------------------------------------------

    \738\ See current rule 6-07.7(c) of Regulation S-X [17 CFR
210.6-07.7(c)].
    \739\ See ASC 815 (Derivatives and Hedging).
    \740\ Id. Rule 6-07.7(c) requires disclosure in a note to the
financial statements of the number and associated dollar amounts as
to option contracts written: (i) At the beginning of the period;
(ii) during the period; (iii) expired during the period; (iv) closed
during the period; (v) exercised during the period; and (vi) balance
at end of the period. The balances at the beginning of the period
and end of the period are available in the prior period-end and
current period-end schedules of open option contracts written,
respectively. By eliminating the written options roll-forward,
investors would no longer have information regarding the number of
contracts expired, closed, or exercised during the period. However,
disclosures required by ASC 815 provide gains and losses on
derivative instruments, including written options, along with
information that would enable users to understand the volume of
derivative activity during the period.
    \741\ See, e.g., ICI Comment Letter; BlackRock Comment Letter.
---------------------------------------------------------------------------

    We proposed to eliminate the exception in Schedule II of current
rule 6-10 which does not require reporting under current rule 12-13 if
the investments, at both the beginning and end of the period, amount to
one percent or less of the value of total investments.\742\ We believe
that it is appropriate to eliminate this exception, because a fund may
have significant notional amounts in its portfolio that could be valued
at one percent or less of the value of total investments. Accordingly,
removing this exception will provide more transparency to investors
regarding a fund's derivatives activity. We received no comments on
this proposal, and we are adopting it as proposed.\743\
---------------------------------------------------------------------------

    \742\ See current rule 6-10(c)(1) Schedule II of Regulation S-X;
see also proposed rule 6-10(b)(1) Schedule II of Regulation S-X.
    \743\ We also made several technical, non-substantive changes to
the proposed rules. See rules 6-03(d) and 6-07 (moved ``business
development companies'' to after ``other than face-amount
certificates.'').
---------------------------------------------------------------------------

D. Form N-CEN and Rescission of Form N-SAR

1. Overview
    We are adopting a new framework by which registered investment
companies will report census-type information to the Commission by
rescinding Form N-SAR and replacing it with a new form--Form N-
CEN.\744\ Most commenters generally supported our proposal to replace
Form N-SAR with Form N-CEN, agreeing that Form N-CEN provides both the
Commission and the public with enhanced and updated census-type
information on a wide range of compliance, risk assessment, and policy
related matters.\745\ Form N-SAR was adopted by the Commission in

1985 and requires that funds report a variety of census-type
information to the Commission, including information relating to a
fund's organization, service providers, fees and expenses, portfolio
strategies and investments, portfolio transactions, and share
transactions. Funds generally must file reports on Form N-SAR semi-
annually, except for UITs, which file annually.\746\ By contrast, as
discussed further below, all funds will now file reports on Form N-CEN
annually.\747\
---------------------------------------------------------------------------

    \744\ We are rescinding Form N-SAR and replacing it with a new
census reporting form, Form N-CEN, rather than amending Form N-SAR
in order to avoid technical difficulties that could arise with
filing reports on an amended Form N-SAR (e.g., difficulties related
to changes to filing format and form specifications). We have
modified the numbering convention for items within Form N-CEN to be
consistent with that of the numbering conventions of other forms
(e.g., Forms N-MFP and N-PORT).
    \745\ See, e.g., SIFMA Comment Letter I; ICI Comment Letter;
Invesco Comment Letter; Morningstar Comment Letter; BlackRock
Comment Letter.
    \746\ See current rule 30b1-1 and current rule 30a-1.
    \747\ See rule 30a-1.
---------------------------------------------------------------------------

    In recent years, Commission staff has found that the utility of the
information reported on Form N-SAR has become increasingly limited. We
believe there are two primary reasons for this limited utility. First,
in the past two decades, we have not substantively updated the
information reported on the form to reflect new market developments,
products, investment practices, or risks. Second, the technology by
which funds file reports on Form N-SAR has not been updated and limits
the Commission staff's ability to extract and analyze the data
reported. We believe that by updating the content and format
requirements for census reporting through new Form N-CEN, the
Commission will be better able to carry out its regulatory functions
while at the same time reducing burdens on filers.
    Many commenters agreed that Form N-SAR is outdated and commended
the Commission's efforts to improve the relevance of information
reported to the Commission.\748\ Commenters generally supported Form N-
CEN as proposed, and we are adopting the form substantially as proposed
with some modifications to address specific issues raised by
commenters, as discussed in more detail below.
---------------------------------------------------------------------------

    \748\ See, e.g., ICI Comment Letter; SIFMA Comment Letter I;
Invesco Comment Letter; BlackRock Comment Letter.
---------------------------------------------------------------------------

    Form N-CEN gathers similar census information about the fund
industry that funds currently report on Form N-SAR, which will be able
to be aggregated and analyzed by Commission staff to better understand
industry trends, inform policy, and assist with the Commission's
examination program. To improve the quality and utility of information
reported, Form N-CEN streamlines and updates information reported to
the Commission to reflect current Commission staff information needs
and developments in the industry.\749\ Where possible, we have
endeavored to exclude items from Form N-CEN that are disclosed or
reported pursuant to other Commission forms, or are otherwise
available; however, in some limited cases, we are collecting
information on Form N-CEN that may be similarly disclosed or reported
elsewhere, but that the staff would benefit from collecting in a
structured format.
---------------------------------------------------------------------------

    \749\ We are streamlining our data collection, in part, through
the use of yes/no questions in order to flag certain information for
follow-up, if necessary, by Commission staff. See, e.g., Item B.10
and Item C.6.a of Form N-CEN. For example, staff of our Office of
Compliance Inspections and Examinations may rely on responses to
flag questions in Form N-CEN to indicate areas for follow-up
discussion or to request additional information.
---------------------------------------------------------------------------

    In order to improve the utility of the information reported to the
Commission, we are requiring that reports on Form N-CEN be structured
in an XML format.\750\ Under this format, filers will no longer be
required to use outdated technology for census reporting. Additionally,
the XML structured format will allow reported information to be more
efficiently and effectively validated, aggregated, compared, and
analyzed through automated means and, therefore, more useful to end
users.
---------------------------------------------------------------------------

    \750\ The Commission has adopted a number of other forms that
are structured in an XML format, including Form N-MFP. Reports on
Form N-SAR, by contrast, are filed using an outdated filing
application.
---------------------------------------------------------------------------

    One commenter expressed support for the XML format.\751\ As
discussed above in connection with Form N-PORT, certain others
generally advocated for XBRL, a tagged system that is based on XML and
was created specifically for the purpose of reporting financial and
business information.\752\ Another commenter noted that the Commission
should standardize the formatting requirements (i.e., ASCII/TXT, HTML,
XBRL, XML) across all fund reporting in order to ease the burden on
funds that would have to comply with different formatting
requirements.\753\
---------------------------------------------------------------------------

    \751\ Morningstar Comment Letter (noting that the format will
provide more accessible data to the public and reduce the amount of
defective reporting currently possible in Form N-SAR).
    \752\ See AICPA Comment Letter; XBRL US Comment Letter; but see
Morningstar Comment Letter (``Extensible Business Reporting Language
has had very limited success, and certain aspects of the standard
are too lenient for regular data validation.''). See also supra
footnotes 444-449 and accompanying text.
    \753\ See Schnase Comment Letter (opining that the Commission
should also ease the burdens on funds by allowing funds to input
their data through a pre-formatted web portal or web form).
---------------------------------------------------------------------------

    As discussed above in connection with Form N-PORT, based upon our
experiences with Forms N-MFP and PF, both of which require filers to
report information in an XML format, we believe that requiring funds to
report information on Form N-CEN in an XML format will provide the
information that we seek in an appropriate manner.\754\ Moreover, the
interoperability of data between Forms N-MFP, PF, N-PORT, and N-CEN
will aid the staff with cross-checking information reported to the
Commission and in monitoring the fund industry.\755\ As discussed
further below in the economic analysis, the XML format will also
improve the quality of the information disclosed by imposing
constraints on how the information will be provided and by providing a
built-in validation framework of the data in the reports.\756\ We are
therefore adopting the requirement that reports on Form N-CEN be filed
in an XML format as proposed.
---------------------------------------------------------------------------

    \754\ See supra footnotes 444-449 and accompanying text. Based
on our experience with reports on Form N-MFP and other XML-based
reports, we anticipate that the XML structured data file will be
compatible with a wide range of open source and proprietary
information management software applications. Continued advances in
structured data software, search engines, and other web-based tools
may further enhance the accessibility and usability of the data.
See, e.g., Money Market Reform 2010 Release, supra footnote 447, at
n. 341.
    \755\ See Morningstar Comment Letter.
    \756\ See infra section III.B.
---------------------------------------------------------------------------

2. Who Must File Reports on Form N-CEN
    We are adopting, as proposed, the requirement that all registered
investment companies, except face-amount certificate companies,\757\
file reports on Form N-CEN.\758\ No commenters objected to this
requirement.\759\ As proposed, funds offering multiple series will be
required to report information in Part C of the form as to each series
separately, even if some information is the same for two

or more series.\760\ One commenter opined that one report covering
multiple series would be sufficient as many questions apply to the
registrant.\761\
---------------------------------------------------------------------------

    \757\ Face-amount certificate companies are investment companies
which are engaged or propose to engage in the business of issuing
face-amount certificates of the installment type, or which have been
engaged in such businesses and have any such certificates
outstanding. See section 4(1) of the Investment Company Act. Face-
amount certificate companies currently are not required to file
reports on Form N-SAR. See General Instruction A of Form N-SAR.
Face-amount certificate companies will continue to file periodic
reports pursuant to section 13 [17 CFR 240.13a-1] or section 15(d)
of the Exchange Act [17 CFR 240.15d-1].
    \758\ See Proposing Release, supra footnote 7, at section
II.E.2. See also rule 30a-1. Consistent with Form N-SAR, BDCs, which
are not registered investment companies, will not be required to
file reports on Form N-CEN.
    \759\ See Morningstar Comment Letter (noting that the filing
requirement is appropriate, but also suggesting that the Commission
allow flexibility on how a fund chooses to report the data,
including filing at the CIK-level with separate ``nodes'' for each
series ID and designing the data base that is to house this
information using the filing data and CIK as a key for each
registrant-level data record).
    \760\ General Instruction A of Form N-CEN. Unlike Form N-PORT
where separate reports will be filed for each series, registrants
will file one report on Form N-CEN covering all series (as is
currently done with reports on Form N-SAR). We are adopting this
framework for Form N-CEN to help minimize reporting burdens, as much
of the information that will be required by Form N-CEN (for example,
the information reported pursuant to Part A and Part B) will be the
same across a fund's various series. We note that Form N-SAR's
approach to series information is slightly different than that of
Form N-CEN, in that Form N-SAR allows registrants to indicate
instances where the information is the same across all series,
rather than requiring repetitive information. See General
Instruction D(8) of Form N-SAR. Unlike Form N-SAR, however, to limit
the reporting of repetitive information, Form N-CEN is organized
such that information that is generally the same for all series is
reported in Parts A and B of the form, with Part C, the part of the
form that requires each series to respond separately, requesting
information that is more likely to differ between series.
    \761\ See State Street Comment Letter.
---------------------------------------------------------------------------

    Like Form N-SAR, the sections of Form N-CEN that a fund is required
to complete will depend on the type of registrant in order to better
tailor the reporting requirements.\762\ As was proposed, all funds will
be required to complete Parts A and B, and file any attachments
required under Part G. In addition, funds will be required to complete
the following Parts as applicable:
---------------------------------------------------------------------------

    \762\ See General Instruction A of Form N-CEN. As reflected in
General Instruction A, registrants will be required to respond to
each item in each required Part. To the extent an item in a required
Part is inapplicable to a registrant, the registrant should respond
``N/A'' to that item. Registrants will not, however, have to provide
responses to items in Parts they are not required to respond to.
---------------------------------------------------------------------------

     All management companies, other than SBICs, will complete
Part C;
     Closed-end funds and SBICs will complete Part D;
     ETFs (including those that are UITs) will complete Part E;
\763\ and
---------------------------------------------------------------------------

    \763\ See id. Certain investment products known as ``exchange-
traded managed funds'' will also be required to complete Part E of
Form N-CEN.
---------------------------------------------------------------------------

     UITs will complete Part F.\764\
---------------------------------------------------------------------------

    \764\ See id. Management companies that are registered on Form
N-3 are also required to complete certain items in Part F as
directed by Item B.6.c.i of Form N-CEN. See General Instruction A of
Form N-CEN.
---------------------------------------------------------------------------

3. Frequency of Reporting and Filing Deadline
    Management investment companies currently file reports on Form N-
SAR semi-annually,\765\ and UITs file such reports annually.\766\ To
reduce reporting burdens, we proposed that reports on Form N-CEN be
filed on an annual basis, regardless of type of filer.\767\ While one
commenter suggested semi-annual reporting on Form N-CEN if certain
additional requirements were to be included,\768\ most commenters
generally supported the annual filing requirement.\769\ Because Form N-
CEN requires census-type information, which in our experience does not
change as frequently as, for example, portfolio holdings information,
we continue to believe that an annual filing requirement will be
sufficient for purposes of review by Commission staff, as well as
investors and other market participants that might use this
information.\770\ We are, therefore, adopting as proposed the
requirement that reports on Form N-CEN be filed on an annual
basis.\771\
---------------------------------------------------------------------------

    \765\ See current rule 30b1-1.
    \766\ See current rule 30a-1.
    \767\ See Proposing Release, supra footnote 7, at 33634.
    \768\ See Morningstar Comment Letter (suggesting semi-annual
reporting as of the fund's fiscal year end should the Commission
decide to include Items 34-44, Items 47-52, Item 54, Item 72, and
Item 75 of Form N-SAR, as suggested). See infra section II.D.5
concerning these current Form N-SAR Items.
    \769\ See, e.g., Carol Singer Comment Letter; State Street
Comment Letter; Wells Fargo Comment Letter.
    \770\ As discussed above, certain items that are currently
reported on Form N-SAR that would be helpful to have updated on a
more frequent basis are included on Form N-PORT. For example, Item
28 of Form N-SAR requires the fund to provide its monthly sales and
repurchases of the Registrant's/Series' shares. In order to increase
the timeliness of the information reported to the staff for funds
flows, certain information relating to monthly flows will be
reported on Item B.6 of Form N-PORT.
    \771\ Because Form N-CEN is to be filed annually by all
registered investment companies, we are rescinding 17 CFR 270.30b1-1
and revising 17 CFR 270.30a-1 to require all registered investment
companies to file reports on Form N-CEN, as proposed. See infra
section II.G (concerning technical and conforming amendments related
to current rule 30b1-1 and current rule 30a-1). See rule 30a-1.
---------------------------------------------------------------------------

    We proposed that for all funds, the reporting period for Form N-CEN
reports would be based on the fund's fiscal year.\772\ Currently,
management companies file Form N-SAR reports on a fiscal year
basis,\773\ while UITs file Form N-SAR reports on a calendar year
basis.\774\ After further consideration, we have determined to require
that management companies and UITs include in Form N-CEN reports
information from the same time period as they currently report on Form
N-SAR because we believe that calendar-year reporting for UITs will
yield more comparable data while also reducing costs for reporting
UITs.\775\ One commenter expressed support for reporting by funds on a
fiscal year basis, as that would permit comparisons by data users
between information reported on Form N-CEN and information on Form N-
CSR.\776\ As regards management investment companies, which are
required to file reports on Form N-CSR, we agree that fiscal year
reporting could have this beneficial effect, though the same would not
be true of UITs. Therefore, under the final rule, management companies
will file reports on Form N-CEN on a fiscal year basis while UITs will
file such reports on a calendar year basis.\777\
---------------------------------------------------------------------------

    \772\ See Proposing Release, supra footnote 7, at 33634.
    \773\ See current rule 30b1-1.
    \774\ See current rule 30a-1.
    \775\ In particular, we note that the items relating to UITs in
Part F require reporting of aggregate information across all series
of the UIT (as distinct from Part C, which requires series-specific
information in the case of management companies offering multiple
series). As proposed, UITs with multiple series with different
fiscal year end dates would have been required to file more than
once per year, at least once for each unique date. Considering that
the reported information itself relates to the entire UIT and not
each individual series, we have determined, after further
consideration, that it would be less costly for UITs to report once
per year, even if their series have different fiscal years.
Moreover, we believe that the resulting data will be more useful to
the Commission and other data users because the reported information
will be as of a consistent date across UITs, and therefore more
readily compared and contrasted. Accordingly, we are requiring UITs
to file Form N-CEN reports on a calendar year basis even where the
UIT offers multiple series with different fiscal years.
    \776\ See Morningstar Comment Letter.
    \777\ See rule 30a-1.
---------------------------------------------------------------------------

    We have also added an instruction to the form to clarify that
management investment companies that offer multiple series with
different fiscal year ends must file a report as of each fiscal year
end that responds to (i) Parts A, B, and G, and (ii) Part C and, if
applicable, Part E as to only those series with the fiscal year end
covered by the report.\778\ UITs that offer multiple series will file a
single annual report covering all series as of the end of the calendar
year.
---------------------------------------------------------------------------

    \778\ See General Instruction C.1 of Form N-CEN.
---------------------------------------------------------------------------

    Additionally, we received a number of comments on the proposed 60-
day filing period. Some commenters supported this proposed filing
period.\779\ Several other commenters, however, requested that the
filing period be extended to at least a 75-day period, arguing, among
other things, that a longer time period would help stagger the filing
deadline from other end-of-month filing requirements and allow
sufficient time to address accounting-related questions.\780\
---------------------------------------------------------------------------

    \779\ See Carol Singer Comment Letter; State Street Comment
Letter.
    \780\ See, e.g., Comment Letter of The Committee of Annuity
Insurers (Aug. 11, 2015) (``CAI Comment Letter'') (75 days after
fiscal year end); ICI Comment Letter (at least 75 days); Invesco
Comment Letter (75 days after fiscal year end); MFS Comment Letter
(75 days after fiscal year end, at least for initial filing for all
funds in the fund complex); T. Rowe Price Comment Letter (75 days
after fiscal year end).

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

    We have been persuaded by these comments and are adopting a filing
period of 75 days after the fiscal year-end (for management companies)
and calendar year-end (for UITs). We believe that a 75-day filing
period appropriately balances the staff's need for timely information
against the time necessary for a fund to collect, verify, and report
the required information to the Commission. Furthermore, the census-
type information reported on Form N-CEN, in our experience, does not
change frequently, thereby reducing the risk that a longer filing
period would cause the information provided to become stale.
    Current rule 30b1-3 under the Investment Company Act requires a
fund to file a transition report on Form N-SAR when a fund's fiscal
year changes.\781\ Because reports on Form N-CEN are required to be
filed annually rather semi-annually, we believe that a rule outlining
the requirements for a transition report will no longer be necessary as
transition report filing requirements for fiscal year changes involve
less complexity in the case of reports required to be filed once a year
rather than twice a year. Consequently, we are rescinding rule 30b1-3
as proposed. We received no comments on this aspect of the proposal. To
ensure, however, that reports are filed at least annually, we are
requiring that reports on Form N-CEN not cover a period of more than 12
months as proposed.\782\ Thus, if a fund changes its fiscal year, a
report filed on Form N-CEN may cover a period shorter than 12 months,
but may not cover a period longer than 12 months or a period that
overlaps with a period covered by a previously filed report.\783\ We
received no comments on this aspect of the proposal.
---------------------------------------------------------------------------

    \781\ See current rule 30b1-3; see also infra section II.G
concerning technical and conforming amendments to current rule 30b1-
3.
    \782\ See General Instruction C.1 of Form N-CEN.
    \783\ Id.
---------------------------------------------------------------------------

    As proposed, a fund would be able to file an amendment to a
previously filed report on Form N-CEN at any time, including an
amendment to correct a mistake or error in a previously filed
report.\784\ A fund that files an amendment to a previously filed
report on the form should provide information in response to all items
of Form N-CEN, regardless of why the amendment is filed.\785\
Commenters did not object to these proposed requirements although one
commenter suggested that an amendment should not be required for any
subsequent changes to previously reported information and that, except
for any material errors, any subsequent changes should be reported in
the next filing period.\786\ We are adopting these requirements as
proposed.\787\ Although funds generally should correct a material
mistake in a Form N-CEN report by filing an amendment to that report,
Form N-CEN does not generally require registrants to file amendments in
order to update information throughout the year. Rather, changes in
information during the course of the year would be reflected in the
fund's next report on the form.
---------------------------------------------------------------------------

    \784\ See General Instruction E of proposed Form N-CEN.
    \785\ Id.
    \786\ See State Street Comment Letter.
    \787\ See General Instruction C.2 of Form N-CEN.
---------------------------------------------------------------------------

    Similar to Form N-PORT,\788\ Form N-CEN also includes general
filing instructions,\789\ as well as definitions of specific terms
referenced in the form.\790\ As discussed in connection with Form N-
PORT above, we have eliminated proposed instructions regarding the
signature and filing of reports,\791\ because we believe that the
general rules and regulations applicable under the Act provide
sufficient guidance regarding those issues.\792\ As discussed further
below, we have also revised, consistent with the changes to Form N-PORT
discussed above, the definitions of ``Exchange-Traded Fund'' and
``Exchange-Traded Managed Funds'' to clarify that the terms would apply
to a series or class of a UIT organized as an ETF or ETMF.\793\ We have
also revised, as we did in Form N-PORT, the definition of ``LEI'' to
reflect new terminology regarding LEIs.\794\
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    \788\ See supra section II.A.3 regarding Form N-PORT.
    \789\ See General Instruction C of Form N-CEN.
    \790\ See General Instruction E of Form N-CEN.
    \791\ General Instruction E of proposed Form N-CEN.
    \792\ See General Instruction B to Form N-CEN (``The General
Rules and Regulations under the Act contain certain general
requirements that are applicable to reporting on any form under the
Act. These general requirements should be carefully read and
observed in the preparation and filing of reports on this Form,
except that any provision in the Form or in these instructions shall
be controlling.'').
    \793\ General Instruction E of Form N-CEN. See supra footnotes
93-94 and accompanying text; infra footnote 896 and accompanying
text.
    \794\ See supra footnote 95 and accompanying text. Form N-CEN's
revised definition of ``LEI'' refers to the legal entity identifier
``endorsed'' by LEI ROC or ``accredited'' by GLEIF, as opposed to
``assigned or recognized'' by those two entities. General
Instruction E to Form N-CEN.
---------------------------------------------------------------------------

4. Information Required on Form N-CEN
a. Part A--General Information
    We are adopting, as proposed, Part A of Form N-CEN. We did not
receive comments on Part A. Part A, which will be completed by all
funds, will collect information about the reporting period covered by
the report. It requires funds to report the fiscal-year end date and
indicate if the report covers a period of less than 12 months.\795\
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    \795\ See Item A.1 of Form N-CEN.
---------------------------------------------------------------------------

b. Part B--Information About the Registrant
    We proposed a number of reporting items under Part B of Form N-CEN
to provide information about the registrant. Although commenters did
not raise broad objections to the reporting requirements under Part B,
many commenters raised concerns with and/or requested clarification on
specific reporting items. We are adopting Part B substantially as
proposed with some modifications in response to comments on specific
reporting items. Where we have received comments on specific reporting
requirements, we discuss them in more detail below.
    As proposed, Part B of Form N-CEN would have been required to have
been completed by all funds and would have required certain background
and other identifying information about the funds. Part B of Form N-
CEN, as proposed, would have included an instruction that required
funds offering multiple series to provide a response for each series
when the response to an item in Part B of the form differed between
series, and to label the response with the name and series
identification number of the series to which a response relates.\796\
In order to provide more clarity to filers as to when series
information is required in Part B of the form, we have removed the
proposed instruction to Part B and have instead added sub-items
requesting series information, when applicable, for certain items in
Part B of the form. We have added these sub-items to the items in Part
B where we believe identification of the particular series would be
most helpful to our monitoring efforts and general review and analysis
of the information reported on the form.\797\
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    \796\ See Instruction to Part B of proposed Form N-CEN.
    \797\ See Item B.10, Item B.11, Item B.14, Item B.19, Item B.20,
Item B.22, and Item B.23 of Form N-CEN. We note that, with respect
to those items in Part B that do not include sub-items for series
information, a registrant may still provide more than one response
to the item (where applicable), but the response will not be
required to indicate the relevant series to which it relates.
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    As proposed, Part B of the form requires certain background and
other identifying information about the fund. This background
information will allow the staff to categorize filers by fund type and
will assist with our oversight of

funds. Included in this background information is the fund's name,\798\
Investment Company Act filing number,\799\ and other identifying
information, such as its CIK \800\ and LEI,\801\ each of which we are
adopting as proposed. In addition, we are adopting as proposed the
requirement that the report include the fund's address, telephone
number, and public Web site (if any),\802\ and the location of the
fund's books and records.\803\ While the fund's name, address,
telephone number, and filing number are currently required by Form N-
SAR,\804\ some of the additional information, such as the fund's CIK,
LEI, public Web site and location of books and records are new. As
discussed in the proposal and the Form N-PORT section above,
information such as the CIK and LEI will assist the Commission and
other data users with organizing the data and allow the data reported
on Form N-CEN to be cross-referenced with data received from other
sources.\805\ For tracking purposes, Form N-CEN also requires
information relating to whether the filing is the initial or final
filing.\806\
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    \798\ Item B.1.a of Form N-CEN.
    \799\ Item B.1.b of Form N-CEN.
    \800\ Item B.1.c of Form N-CEN. Because UITs that register on
Form N-8B-2 obtain CIKs for the UIT itself as well as for series
offered by the UIT, we have made a clarifying modification to Form
N-CEN by including a requirement in Part F of the form that such
UITs also report the CIKs for each of their existing series. See
Item F.6.b of Form N-CEN.
    \801\ Item B.1.d of Form N-CEN.
    \802\ Item B.2 of Form N-CEN.
    \803\ Item B.3 of Form N-CEN; see also infra footnotes 807-809
and accompanying text.
    \804\ Item 1 and Item 2 of Form N-SAR.
    \805\ See supra section II.A.2.a (discussing additional
information such as CIK and LEI and comment letters received
regarding the use of identifiers).
    \806\ Item B.4 of Form N-CEN. As proposed, the instruction to
Item B.4--then numbered as ``Item 5''--stated that a fund should
indicate that a filing is its final filing on Form N-CEN only if the
fund has filed an application to deregister on Form N-8F ``or
otherwise.'' We believe it would be useful to filers for the
instruction to provide more context as to what should be considered
``or otherwise.'' Therefore, the final Form clarifies that a fund
should indicate that a filing on Form N-CEN is its final filing
``only if the Registrant has filed an application to deregister or
will file an application to deregister before its next required
filing on this form.'' We note that even if a fund indicates a
filing is its final filing on Form N-CEN, a fund is required to file
reports on Form N-CEN until it is deregistered.
---------------------------------------------------------------------------

    We are adopting, as proposed, the requirement that funds include
the location of their books and records in reports on Form N-CEN. We
note that books and records information is currently required by fund
registration forms; \807\ however, this information is not filed with
the Commission in a structured format. We believe that having books and
records information in a structured format will increase our efficiency
in preparing for exams and, thus, we have determined to include this
information in Form N-CEN.\808\ In addition, so as not to create
unnecessary burdens, we are adopting proposed amendments to Forms N-1A,
N-2, N-3, N-4, and N-6 to exempt funds from those forms' respective
books and records disclosure requirements if the information is
provided in a fund's most recent report on Form N-CEN.\809\
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    \807\ See Item 33 of Form N-1A; Item 32 of Form N-2; Item 36 of
Form N-3; Item 30 of Form N-4; and Item 31 of Form N-6.
    \808\ Additionally, by including books and records information
in Form N-CEN, we may receive more frequently updated books and
records information from closed-end funds. Closed-end funds do not
update their registration statements as regularly as open-end funds
and, thus, the information regarding their books and records may not
always be current.
    \809\ Funds that have not yet filed a report on Form N-CEN will
have to continue to include this information in their registration
statement filings.
---------------------------------------------------------------------------

    Similar to Form N-SAR,\810\ Form N-CEN requires information
regarding whether the fund is part of a ``family of investment
companies.'' \811\ The form, which includes a substantially similar
definition as Form N-SAR,\812\ defines a ``family of investment
companies'' to mean, except with respect to insurance company separate
accounts, any two or more registered investment companies that (i)
share the same investment adviser or principal underwriter; and (ii)
hold themselves out to investors as related companies for purposes of
investment and investor services.\813\ This item will assist Commission
staff with analyzing multiple funds across the same family of
investment companies. One commenter suggested that a broader term such
as ``fund complex'' would be a beneficial alternative to the proposed
term ``family of investment companies.'' \814\ We believe, however,
that ``fund complex,'' as such term is defined for purposes of Form N-
1A, for example, could be overly broad (e.g., could unintentionally
incorporate unaffiliated sub-advisers), and thus, we have determined to
adopt the item as proposed.\815\
---------------------------------------------------------------------------

    \810\ Item 19, Item 94, and Item 116 of Form N-SAR; see also
General Instruction H to Form N-SAR (defining ``family of investment
companies'').
    \811\ Item B.5 of Form N-CEN.
    \812\ See id.; see also Instruction 1 to Item 17 of Form N-1A.
    \813\ Instruction to Item B.5 of Form N-CEN. The instruction,
like the definition of ``family of investment companies'' in Form N-
SAR, also clarifies that insurance company separate accounts that
may not hold themselves out to investors as related companies
(products) for purposes of investment and investor services should
consider themselves part of the same family if the operational or
accounting or control systems under which these entities function
are substantially similar. See General Instruction H to Form N-SAR.
    \814\ See Morningstar Comment Letter.
    \815\ See Instruction 1(b) to Item 17 of Form N-1A (defining
``fund complex'' to mean two or more registered investment companies
that: (1) Hold themselves out to investors as related companies for
purposes of investment and investor services; or (2) have a common
investment adviser or have an investment adviser that is an
affiliated person of the investment adviser of any of the other
registered investment companies).
---------------------------------------------------------------------------

    We are adopting, as proposed, a requirement in Form N-CEN that the
fund provide its classification (e.g., open-end fund, closed-end fund),
similar to Form N-SAR.\816\ Unlike the requirements of Form N-SAR,
however, we are also adopting, as proposed, a requirement in Form N-CEN
that specifically asks whether the fund issues a class of securities
registered under the Securities Act.\817\ These questions are intended
to elicit background information on the fund, which will assist us in
our monitoring and oversight functions (for example, identifying those
funds that have not issued securities registered under the Securities
Act).
---------------------------------------------------------------------------

    \816\ Item B.6 of Form N-CEN; see also Item 5, Item 6, Item 27,
Item 58, Item 59 and Item 117 of Form N-SAR. If the registrant is an
open-end fund, Form N-CEN also requires information on the total
number of series of the registrant and, if a series of the
registrant with a fiscal year end covered by the report was
terminated during the reporting period, information regarding that
series. See Item B.6.a.i-Item B.6.a.ii of Form N-CEN. In addition,
registrants that indicate they are management companies registered
on Form N-3 are directed by Item B.6 to respond to certain
additional items in Part F of the form that relate to insurance
company separate accounts. See Item B.6.c.i of Form N-CEN.
    \817\ Item B.7 of Form N-CEN.
---------------------------------------------------------------------------

    We are also adopting, as proposed, the requirement in Form N-CEN
that a management company report information about its directors,
including each director's name, whether they are an ``interested
person'' (as defined by section 2(a)(19) of the Investment Company
Act), and the Investment Company Act file number of any other
registered investment company for which they serve as a director.\818\
Some commenters supported inclusion of such information \819\ and one
commenter suggested that the Commission request additional information
concerning individual directors (and chief compliance officers
(``CCOs'')), such as length of service, roles certain directors have on
the board, and prior experience as fund directors.\820\ Another
commenter opposed the inclusion of additional disclosure requirements
concerning the board or individual directors beyond those in the
proposed

form without a prior statement of regulatory purpose and opportunity
for public comment.\821\ We have determined to adopt these requirements
as proposed because we believe it appropriately balances the need for
director information in a structured format with efforts to minimize
the partially duplicative reporting requirements.\822\
---------------------------------------------------------------------------

    \818\ Item B.8 of Form N-CEN.
    \819\ See Franco Comment Letter; Morningstar Comment Letter.
    \820\ Morningstar Comment Letter.
    \821\ See IDC Comment Letter. It was unclear whether the
commenter intended also to express concerns about the proposed
requirements concerning directors, in addition to the concerns it
expressed about other potential requirements concerning directors.
Id. (``First, the Release asks about the information regarding fund
directors that is proposed to be included in Form N-CEN, which
includes each director's name, whether they are an ``interested
person'' and the Investment Company Act file number of any other
fund for which they serve as a director. Specifically, the Release
asks whether funds should be required to include on Form N-CEN any
additional information concerning the board or individual directors,
such as information about the length of service of directors. The
Release does not discuss why the Commission might be interested in
this or other possible director-related information or how it would
be used. Absent a clear statement of how information about directors
would assist the Commission in carrying out its regulatory
functions, and the opportunity to comment on any such information,
we do not support adding it to Form N-CEN.'') To the extent that the
commenter was commenting on the proposed requirements, we note, as
we did in the Proposing Release, that although the information is
reported in a management company's Statement of Additional
Information and provided in annual reports to shareholders,
providing this information to the Commission in a structured format
will allow the Commission and other potential data users to sort and
analyze the data more efficiently. See Proposing Release, supra
footnote 7, at 33636.
    \822\ This information (along with additional director
information) is also disclosed in a management company's Statement
of Additional Information and its annual report to shareholders,
albeit in an HTML or ASCII, rather than structured, format. See,
e.g., Item 17 and Item 27(b)(5) of Form N-1A (requiring, for
example, disclosures regarding length of service, position(s) held
with the fund, and other directorships held by the director).
---------------------------------------------------------------------------

    However, in a modification from the proposal, we have determined to
add one additional reporting requirement concerning directors. In the
Proposing Release, we solicited comment regarding whether Form N-CEN
should require any additional information concerning directors. In
response, a commenter stated that, as discussed below, the proposed
form would require funds to report CRD numbers for CCOs, as applicable,
and suggested that data users could more readily analyze particular
directors across funds and over time if a unique identifier were
reported for each director.\823\ We acknowledge that not all fund
directors have associated CRD numbers, but we are persuaded by the
commenter that, for those that do, reporting of the CRD number would
improve data comparability and help us in our risk assessment and
examination functions by making it easier for Commission staff to
identify persons and collect information across funds.\824\
---------------------------------------------------------------------------

    \823\ See Morningstar Comment Letter; infra notes 825-833 and
accompanying text.
    \824\ Item B.8.b of Form N-CEN.
---------------------------------------------------------------------------

    In addition, as proposed, a fund will be required to provide the
CCO's name, CRD number (if any), address, and phone number,\825\ as
well as indicate if the CCO has changed since the last filing.\826\ If
the fund's CCO is compensated or employed by any person other than the
fund, or an affiliated person of the fund, for providing CCO services,
the fund will also be required to report the name and IRS Employer
Identification Number of the person providing such compensation.\827\
One commenter objected to this reporting requirement stating that the
information is already provided in other Commission filings.\828\ As we
stated in the Proposing Release, we recognize that some funds provide
this information in their registration statements. However, as we also
noted, not all funds do \829\ and we believe that this requirement will
provide staff with information on all fund CCOs and will allow the
staff to contact a fund's CCO directly.
---------------------------------------------------------------------------

    \825\ Item B.9 of Form N-CEN. Because we expect that funds will
provide the CCO's direct phone number in response to this
information request, the CCO's phone number will not be made
publicly available in Form N-CEN filings on EDGAR. See General
Instruction D to Form N-CEN.
    \826\ Item B.9.i of Form N-CEN.
    \827\ Item B.9.j of Form N-CEN. We proposed to require funds
provide the name and ``Employee Identification Number'' of the
person providing compensation for CCO services (Proposing Release,
supra footnote 7, at n. 409 and accompanying text). We are adopting
a reference to ``IRS Employer Identification Number'' to conform
with Form ADV (see, e.g., Item 7 of Schedule A of Form ADV).
    \828\ See Schnase Comment Letter.
    \829\ See, e.g., Item 17 of Form N-1A (requesting information
regarding fund officers). For example, Form N-1A defines the term
``officer'' to mean ``the president, vice-president, secretary,
treasurer, controller, or any other officer who performs policy-
making functions.'' It is our understanding that in some fund
complexes, the CCO does not fit within the category of officers
covered by this definition (i.e., the CCO does not perform a policy-
making function), and therefore, information as to their CCO is not
provided pursuant to the item.
---------------------------------------------------------------------------

    One commenter suggested that the Commission require additional
information concerning CCOs, such as ``length of service and prior
experience in order to aid in assessing the caliber of a fund or a fund
company's regulatory practices.'' \830\ We believe, however, that the
reporting requirement as proposed and adopted is sufficient for our
regulatory oversight purposes and appropriately balances the benefits
of additional information for Form N-CEN data users against the burdens
imposed upon filers. Specifically, because Commission data users could
link Form N-CEN information about CCOs across filings, over time, using
the required CRD number, the reporting requirements that we are
adopting today will still allow users to inform themselves about a
CCO's length of service without adding another reporting
requirement.\831\ Another commenter expressed support for the CCO
reporting requirement but suggested that the item should also require
the fund to report the name of the investment adviser's CCO as
well.\832\ We are not adopting this suggestion because Form N-CEN is
designed to collect census-type information, including certain
corporate governance information, about funds--not similar information
about investment advisers. Investment advisers are currently required
to report the name and contact information of the adviser's CCO on Form
ADV, which facilitates the ability of the Commission to link fund and
investment adviser CCO data without imposing an additional reporting
burden on funds.\833\ Accordingly, we believe that the item requirement
as proposed is appropriate and are adopting it without any changes.
---------------------------------------------------------------------------

    \830\ Morningstar Comment Letter.
    \831\ The same commenter stated that the required CRD numbers
should be sufficiently specific to analyze the information over
time. See id.
    \832\ See Franco Comment Letter.
    \833\ See, e.g., Item 1.J of Part 1A of Form ADV.
---------------------------------------------------------------------------

    We are also adopting, substantially as proposed, the requirement in
Part B that funds report matters that have been submitted to a vote of
security holders during the relevant period.\834\ Information regarding
submissions of matters to a vote of securities holders is currently
reported in Form N-SAR by management companies in the form of an
attachment with multiple reporting requirements.\835\ In order to
alleviate the burden on filers, we are reducing the information to be
reported regarding votes of security holders to a yes/no question that
is primarily meant to allow staff to quickly identify funds with such
votes, so that they can follow up as appropriate, such as by reviewing
more detailed information required by other filings.\836\
---------------------------------------------------------------------------

    \834\ See Item B.10 of Form N-CEN. We have added an instruction
to the item to clarify that registrants registered on Forms N-3, N-4
or N-6, should respond ``yes'' to the item only if security holder
votes were solicited on contract-level matters.
    \835\ See Item 77.C of Form N-SAR; see also Instruction to
Specific Items for Item 77C of N-SAR.
    \836\ See, e.g., rule 30e-1(b) under the Investment Company Act
(requiring management companies to include in shareholder reports
certain information relating to matters submitted to a vote of
shareholders through the solicitation of proxies or otherwise) [17
CFR 270.30e-1(b)]. The information request in Form N-CEN applies to
UITs as well as management companies. The Form N-SAR requirement
applies only to management companies (see Item 77.C of Form N-SAR;
see also Instruction to Specific Items for Item 77C of Form N-SAR).
We believe it is important for the Commission to have information
for all registered investment companies on matters submitted for
security holder vote in order to assist us in our oversight and
examination functions.

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

    Form N-CEN, like Form N-SAR, will also include an item relating to
material legal proceedings during the reporting period.\837\ One
commenter suggested that the Commission define legal proceedings for
purposes of Form N-CEN.\838\ The relevant item includes an instruction
highlighting certain proceedings that should be described in response
to the item \839\ and the item itself only requests information on
``material legal proceedings, other than routine litigation incidental
to the business.'' We believe the instruction and language of the item
appropriately describes the legal proceedings funds should include when
responding to this item. Another commenter suggested that the
Commission state that derivative suits reported in response to this
item are deemed to satisfy the requirements under section 33 of the
Investment Company Act for filing pleadings and other documents in
connection with that type of lawsuit.\840\ Section 33 requires every
fund which is a party and every affiliated person of such fund who is a
party defendant to any action or claim by a fund or a security holder
thereof in a derivative capacity or representative capacity against
certain persons to file certain documents related to the action or
claim with the Commission.\841\ We do not believe that reporting
pursuant to this requirement, taken alone, would be an appropriate
alternative for a fund to use to satisfy the legal proceeding filing
requirements under section 33, as Form N-CEN requires only a brief
description of the proceeding (as well as the case or docket number (if
any) and names of the principal parties to the proceeding) and does not
itself require the filing of all materials plainly required by section
33.\842\ Moreover, for data users interested in the materials required
to be filed under section 33, the reporting required by Form N-CEN
would not be the same as, nor in many cases a suitable substitute for,
the materials themselves. Accordingly, we are adopting the reporting
item as proposed.
---------------------------------------------------------------------------

    \837\ Item B.11 of Form N-CEN. As in Item 77.E of Form N-SAR, if
there were any material legal proceedings, or if a proceeding
previously reported had been terminated, the registrant will file an
attachment as required by Part G of Form N-CEN. See Item G.1.a.i of
Form N-CEN. We note that Form N-CEN, unlike Form N-SAR, will require
UITs to respond to the information request related to material legal
proceedings. For the same reasons discussed above with respect to
matters submitted for security holder vote, we believe it is
important to have information on material legal proceedings of all
registered investment companies. See supra footnotes 834-836 and
accompanying text.
    \838\ See State Street Comment Letter.
    \839\ See Instruction to Item B.11 of Form N-CEN, which states,
``[f]or purposes of this Item, the following proceedings should be
described: (1) Any bankruptcy, receivership or similar proceeding
with respect to the Registrant or any of its significant
subsidiaries; (2) any proceeding to which any director, officer or
other affiliated person of the Registrant is a party adverse to the
Registrant or any of its subsidiaries; and (3) any proceeding
involving the revocation or suspension of the right of the
Registrant to sell securities.''
    \840\ See Schnase Comment Letter.
    \841\ Section 33 of the Investment Company Act.
    \842\ We note that the commenter did not explain how reporting
pursuant to this requirement, taken alone, would be consistent with
the requirements of section 33.
---------------------------------------------------------------------------

    Form N-SAR currently requires management companies to report a
number of data points relating to fidelity bond and errors and
omissions insurance policy coverage.\843\ As proposed, we are limiting
this request to two separate items in Form N-CEN in order to limit the
number of items to those most useful to the Commission staff and reduce
burdens on filers.
---------------------------------------------------------------------------

    \843\ Items 80-85 and Items 105-110 of Form N-SAR.
---------------------------------------------------------------------------

    One item requires funds to report if any claims were filed under
the management company's fidelity bond and the aggregate dollar amount
of any such claims.\844\ One commenter requested that we eliminate the
item requesting fidelity bond information, stating that the information
is already provided elsewhere by funds.\845\ The other item requires
registrants to report if the management company's officers or directors
are covered under any directors and officers/errors and omissions
insurance policy and, if so, whether any claims were filed under the
policy during the reporting period with respect to the registrant.\846\
The staff appreciates that some of this information may be disclosed in
other filings with the Commission, although it is not reported in a
structured data format.\847\ We continue to believe that having
responses to these questions in a structured data format will help
alert Commission staff to insurance claims made by the fund or its
officers and directors as a result of legal issues related to the fund.
Accordingly, we are adopting these reporting requirements as proposed.
---------------------------------------------------------------------------

    \844\ Item B.12 of Form N-CEN; cf. Item 83 of Form N-SAR.
    \845\ See Schnase Comment Letter (referring to fidelity bond
disclosures submitted on Edgar Form 40-17G and Form 40-17G/A (for
amendments)).
    \846\ Item B.13 of Form N-CEN; cf. Item 85 of Form N-SAR.
    \847\ For example, a fund is required to provide and maintain a
fidelity bond against larceny and embezzlement, which in general
covers each officer and employee of the fund who has access to
securities or funds. See rule 17g-1(a) under the Investment Company
Act [17 CFR 270.17g-1(a)].
---------------------------------------------------------------------------

    In order to better understand instances when funds receive
financial support from an affiliated entity, we are adopting,
substantially as proposed but with a modification that is designed to
address a commenter's suggestion, a new requirement for information
regarding the provision of such financial support.\848\ We adopted
disclosure requirements relating to fund sponsors' support of money
market funds as part of our money market reform amendments in 2014,
including a new requirement that money market funds file reports on
Form N-CR, reporting, among other things, the receipt of financial
support.\849\ As with money market funds, we believe that it is
important that the Commission understand the nature and extent to which
a fund's sponsor provides financial support to a fund. Therefore, we
are extending this requirement to all funds that will file reports on
Form N-CEN. As we stated in the Proposing Release, although we believe
it is an infrequent practice, based on staff experience, non-money
market funds have received sponsor support in the past and we believe
this item will allow Commission staff to readily identify any funds
that have received such support for further analysis and review, as
appropriate.
---------------------------------------------------------------------------

    \848\ Item B.14 of Form N-CEN.
    \849\ See Money Market Fund Reform 2014 Release, supra footnote
33.
---------------------------------------------------------------------------

    One commenter suggested that, for purposes of Form N-CEN, the
instruction concerning the definition of ``financial support'' provide
additional guidance concerning exclusions from the definition. The
proposed instruction regarding the definition of ``financial support''
provided for certain of the exclusions suggested by the commenter, such
as for routine waiver of fees or reimbursement of fund expenses and
routine inter-fund lending.\850\ We continue to think that the proposed
exclusions are appropriate, and we are adopting those exclusions
today.\851\ However, the commenter also suggested specifying that the
purchase of a defaulted or devalued security would constitute
``financial support'' only when it is intended to increase or stabilize
the value or liquidity of the fund's portfolio.\852\ We agree with the
commenter that purchases of a defaulted

or devalued security at fair value need only be characterized as
``financial support'' for purposes of Form N-CEN if they are intended
to increase or stabilize the value or liquidity of the fund's
portfolio, and, accordingly, have modified the instruction in this
manner.\853\ In addition, and as proposed, if a fund other than a money
market fund received financial support, it will also be required to
provide more detailed information in the form of an attachment as
required by Part G of Form N-CEN.\854\
---------------------------------------------------------------------------

    \850\ See Dechert Comment Letter; Instruction to Item 15 of
proposed Form N-CEN.
    \851\ See Instruction to Item B.14 of Form N-CEN.
    \852\ See Dechert Comment Letter.
    \853\ See Instruction to Item B.14 of Form N-CEN.
    \854\ Item G.1.a.ii of Form N-CEN. Money market funds currently
provide this information through reports on Form N-CR. However, all
funds, including money market funds, will be required to respond
``yes'' or ``no'' to Item B.14 of Form N-CEN.
---------------------------------------------------------------------------

    We are also adopting, as proposed, an item in Form N-CEN requiring
reporting as to whether the fund relied on orders from the Commission
granting the fund an exemption from one or more provisions of the
Investment Company Act, Securities Act or Securities Exchange Act
during the reporting period.\855\ Funds are required to identify any
such order by release number.\856\ Collecting this information in a
structured format will assist us with our oversight functions and
improve our ability to monitor fund reliance on exemptive orders.
---------------------------------------------------------------------------

    \855\ Item B.15 of Form N-CEN. If any actions were taken during
the reporting period, which were required to be reported on Form N-
1Q pursuant to an exemptive order, Form N-SAR requires that
information be reported in response to Sub-Item 77P of Form N-SAR.
See Instructions to Sub-Items 77P and 102O of Form N-SAR. Form N-CEN
requires the fund to file as an attachment any information required
to be filed pursuant to exemptive orders issued by the Commission
and relied on by the fund. Instruction 5 to Item G.1 of Form N-CEN.
    \856\ See Item B.15.a.i of Form N-CEN.
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    One commenter expressed support for this new reporting requirement,
including the reporting of release numbers applicable to such exemptive
orders.\857\ The commenter suggested, however, that in addition to
release numbers, the form include the classification or category of the
exemptive order in relation to the Commission's Investment Company Act
Notices and Orders Category Listing Web page \858\ and similar
reporting requirements for a fund's reliance on staff no-action
letters.\859\ We have determined to adopt the reporting item as
proposed. We believe that reporting requirements regarding reliance on
no-action letters may impose additional administrative costs on filers.
Therefore, we believe that the requested information as proposed
balances the Commission's need for information to monitor a fund's
regulatory compliance with the costs imposed on registrants reporting
this information.
---------------------------------------------------------------------------

    \857\ See Morningstar Comment Letter.
    \858\ Investment Company Act Notices and Orders Category Listing
Web page is available at: https://www.sec.gov/rules/icreleases.shtml.
    \859\ See Morningstar Comment Letter.
---------------------------------------------------------------------------

    As proposed, Form N-CEN, similar to Form N-SAR,\860\ will require
identifying information for the fund's principal underwriters \861\ and
independent public accountants,\862\ including, as applicable, name,
SEC file number, CRD number, PCAOB number, LEI (if any), state or
foreign country, and whether a principal underwriter was hired or
terminated or if the independent public accountant changed since the
last filing.\863\ We are adopting these requirements as proposed.
---------------------------------------------------------------------------

    \860\ Item 11, Item 13, Item 77.K, Item 91, Item 102.J, Item
114, and Item 115 of Form N-SAR.
    \861\ Item 17 of proposed Form N-CEN.
    \862\ Item 18 of proposed Form N-CEN.
    \863\ Item 17.b and Item 18.f of proposed Form N-CEN,
respectively.
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    If the independent public accountant changed since the last filing,
under the proposal, the fund would also have been required to provide a
detailed narrative attachment to Form N-CEN similar to the exhibit in
Form N-SAR reporting a change in independent registered public
accountants, along with the predecessor accountant's letter reporting
the change in independent registered public accountants also required
to be reported on Form N-SAR.\864\
---------------------------------------------------------------------------

    \864\ Item 79.a.iii of proposed Form N-CEN.
---------------------------------------------------------------------------

    Some commenters expressed concern that because Form N-CEN would be
an annual reporting form, rather than a semi-annual reporting form like
Form N-SAR, the exhibit may be filed a significant amount of time after
an accountant had changed.\865\ Commenters instead suggested that the
proposed attachment be filed by funds with their semi-annual Form N-CSR
filings.\866\ We are persuaded by these concerns, and are modifying the
requirement by moving the change in independent public accountant
attachment from Form N-CEN to Form N-CSR as a new attachment to reports
on that form.\867\ We share commenters' concerns that, as proposed, a
significant amount of time may lapse before shareholders would be
provided the letter reporting a change in independent registered public
accountants. We also believe that moving the attachment from Form N-CEN
to Form N-CSR will help ensure concurrent review and written agreement
by the predecessor accountant of the required management statement in
both annual and semi-annual reports, as reports on Form N-CSR are
required to be filed no later than 10 days after reports to
shareholders are transmitted. Thus, Form N-CEN provides a means to
track funds that change accountants in a structured data format on an
annual basis, while the accountant's letter regarding the change will
become available to the public semi-annually as an exhibit on Form N-
CSR.
---------------------------------------------------------------------------

    \865\ See AICPA Comment Letter; and PwC Comment Letter (noting
that Item 27(c)(4) of Form N-1A and Item 24, Instruction 5, of Form
N-2 both require that the management statement required under Item
4.01 of Form 8-K be presented in both semi-annual and annual
shareholder reports. Thus, for any change in accountants occurring
in the first six months of a registrant's fiscal year, management's
statement regarding a change in accountants would be required to be
issued and filed publicly in the fund's semi-annual shareholder
report while the predecessor accountant's letter reported semi-
annually on former Form N-SAR would, under the proposal, have been
filed in Form N-CEN six months later).
    \866\ See AICPA Comment Letter; and PwC Comment Letter.
    \867\ See Item 12(a)(4) of Form N-CSR.
---------------------------------------------------------------------------

    We also proposed to include for all funds several other accounting
and valuation related items that are currently required for management
companies by Form N-SAR, and that provide important information to the
Commission regarding possible accounting and valuation issues related
to a fund. Commenters generally did not object to these proposed
reporting requirements,\868\ and we are adopting them largely as
proposed, with some revisions in response to specific commenter
suggestions. These items include a question relating to material
changes in the method of valuation of the fund's assets.\869\ If there
have been material changes in the method of valuation of assets during
the reporting period, Item B.20 requires that the fund report the types
of investments involved.
---------------------------------------------------------------------------

    \868\ See, e.g., Morningstar Comment Letter.
    \869\ Item B.20 of Form N-CEN. As discussed in the Proposing
Release, valuation methodologies are approved by fund directors for
use by funds to determine, in good faith, the fair value of
portfolio securities (and other assets) for which market quotations
are not readily available. For example, valuation methodology
changes may include, but are not limited to, changing from use of
bid price to mid-price for fixed income securities or changes in the
trigger threshold for use of fair value factors on international
equity securities. Unlike Form N-SAR, this requirement will apply to
UITs as well as management investment companies. As we noted in the
Proposing Release, we believe it is important for the Commission to
have information on accounting and valuation for all registered
investment companies in order to assist us in our oversight and
examination functions.
---------------------------------------------------------------------------

    One commenter expressed support for this reporting requirement,
noting that the information would be sufficient to conduct due
diligence on pricing and valuation issues.\870\ This commenter

also suggested aligning the type of investments involved with the list
of asset types identified in Form N-PORT.\871\ After considering the
commenter's request, we have added an additional sub-item and
clarifying instructions to Item B.20 to require the applicable ``asset
type'' category specified in Item C of Form N-PORT.\872\ We believe
that requiring responses based on the categories used in Form N-PORT
will provide some measure of standardization that will generally assist
the staff in its monitoring of changes in valuation methodologies by
asset class, and will provide regulatory consistency that will assist
Commission staff in its review of information reported pursuant to both
forms.
---------------------------------------------------------------------------

    \870\ Morningstar Comment Letter.
    \871\ See id.
    \872\ See Item B.20.c of Form N-CEN and related instruction
(requiring responses to provide the applicable ``asset type''
category specified in Item C.4.a of Form N-PORT).
---------------------------------------------------------------------------

    In addition, and as proposed, funds will also be required to
provide a brief description of the types of investments involved.\873\
However, we have modified the instruction to this sub-Item from the
proposal to provide that if the change in methodology relates to a sub-
asset type included in the response to Item B.20.c, then funds should
report the sub-asset class in responding to Item B.20.d.\874\ This
modification is intended to avoid duplicative responses to Item B.20.c
and Item B.20.d by eliciting more specific information as to any sub-
asset classes contained in the broader Form N-PORT asset categories
that are impacted by the change of valuation methodologies. Unlike
reports on Form N-SAR, Form N-CEN does not require a separate
attachment detailing the circumstances surrounding a change in
valuation methods.\875\ Instead, to facilitate review of this
information in a structured format, Form N-CEN includes specific items
in the form itself, including the date of change, explanation of
change, type of investment, statutory or regulatory basis for the
change, and the fund(s) involved.\876\ Also as proposed, Form N-CEN
carries forward the requirement from Form N-SAR \877\ that the fund
identify whether there have been any changes in accounting principles
or practices, and, if any, to provide more detailed information in a
narrative attachment to the form.\878\
---------------------------------------------------------------------------

    \873\ Item B.20.d of Form N-CEN.
    \874\ See Instruction to Item B.20 of Form N-CEN. Thus, if a
fund changed its valuation methodologies with respect to municipal
securities, the fund would report ``debt' in response to Item B.20.c
and ``municipal securities'' in response to Item B.20.d.
    \875\ See Item 77.J and Item 102.I of Form N-SAR.
    \876\ Compare Item 77.J of Form N-SAR with Item B.20 of Form N-
CEN. An instruction to Item B.20 of Form N-CEN clarifies that we do
not expect responses to this item to include changes to valuation
techniques used for individual securities (e.g., changing from
market approach to income approach for a private equity security).
Form N-SAR does not contain a similar instruction, but we are
including it in Form N-CEN to provide clarity for filers and because
we believe that responding to Item B.20 of Form N-CEN for individual
securities may be overly burdensome.
    \877\ See Item 77.L and Item 102.K of Form N-SAR.
    \878\ Item B.21 and Item G.1.a.iv of Form N-CEN. Like the
information requested regarding changes in valuation methods, Form
N-SAR only requests information from management companies regarding
changes in accounting principles and practices. Unlike Form N-SAR,
Form N-CEN requires this information from UITs as well, for the same
reasons as discussed above with respect to changes in valuation
methods. See supra footnote 869.
---------------------------------------------------------------------------

    We are also adopting, largely as proposed, a requirement in Form N-
CEN that management companies other than SBICs, file a copy of their
independent public accountant's report on internal control as an
attachment to their reports on the form.\879\ To flag instances where a
report noted any material weaknesses, Form N-CEN also includes, as
proposed, a question that asks whether the report on internal control
noted any material weaknesses.\880\ In addition, as was proposed, Form
N-CEN contains a new requirement that the fund report if the certifying
accountant issued an opinion other than an unqualified opinion with
respect to its audit of the fund's financial statements.\881\ These
questions will elicit information on potential accounting issues
identified by a fund's accountant.
---------------------------------------------------------------------------

    \879\ Item G.1.a.iii of Form N-CEN. Management companies other
than SBICs are currently required to file a copy of the independent
public accountant's report on internal control with their reports on
Form N-SAR. See Item 77.B of Form N-SAR. We continue to believe that
a copy of the management company's report on internal control should
be filed with the Commission and thus are carrying over the filing
requirement to Form N-CEN.
    \880\ Item B.18 of Form N-CEN. One commenter suggested that the
word ``find'' in the text of proposed Item 19 be changed to
``note,'' stating that the term ``find'' could be misinterpreted,
creating an ``expectation gap'' over the nature of the consideration
of internal control in an audit of financial statements,
particularly for investment companies, which (except for BDCs) are
not subject to the integrated audit requirements of the Sarbanes-
Oxley Act. See PwC Comment Letter. We are persuaded by the
commenter's concern and have revised the language of the item from
``find'' to ``note'' as recommended.
    \881\ Item B.19 of Form N-CEN.
---------------------------------------------------------------------------

    We are also adopting, largely as proposed, a requirement in Form N-
CEN, not contained in Form N-SAR, to indicate whether, during the
reporting period, an open-end fund made any payments to shareholders or
reprocessed shareholder accounts as a result of an NAV error.\882\ One
commenter expressed support for additional information related to NAV
errors.\883\ Another commenter recommended that this item be omitted
from Form N-CEN, arguing that the item is not an appropriate reporting
item for a census form, would likely engender inquiries and claims from
potential litigants, and could be obtained through the Commission's
examination program.\884\ We continue to believe, however, that the
item will assist the staff's monitoring efforts and the yes/no
reporting structure of the item will be a useful means to flag the
occurrence of NAV corrections whereby Commission staff can request
further information in connection with staff examinations and other
inquiries.\885\
---------------------------------------------------------------------------

    \882\ Item B.22 of Form N-CEN.
    \883\ Morningstar Comment Letter.
    \884\ See SIFMA Comment Letter I.
    \885\ Regarding the commenter's concerns regarding potential
increased litigation risk or inquiries based on public disclosure,
based on our experience, we understand that these types of payments
and reprocessing transactions are typically already disclosed to
investors through account statements.
---------------------------------------------------------------------------

    In addition, one commenter requested that we revise the item to
ensure that any errors that ``exceeded the registrant's threshold for
reprocessing'' were captured, even if the reprocessing was paid for by
a service provider.\886\ After consideration of the comment, we agree
that this question should capture all incidents of reprocessed
shareholder accounts regardless of the source of payment and have
revised the item to clarify that a registrant should respond
affirmatively if any payments were made to shareholders (i.e.,
regardless of the source of the payment) or if any shareholder accounts
were reprocessed as a result of an error in calculating the
registrant's NAV.\887\
---------------------------------------------------------------------------

    \886\ See BlackRock Comment Letter.
    \887\ Item B.22.a of Form N-CEN.
---------------------------------------------------------------------------

    As proposed, Form N-CEN also requires information from management
companies regarding payments of dividends or distributions that
required a written statement pursuant to section 19(a) of the
Investment Company Act and rule 19a-1 thereunder.\888\ These questions
will assist the staff in monitoring valuation of fund assets and the
calculation of the fund's NAV, as well as compliance with distribution

requirements under section 19(a) and rule 19a-1. One commenter stated
that there is not currently a consistent method used across funds to
determine whether a rule 19a-1 notice is required, and that this
inconsistency could limit comparability of the reported data.\889\ The
commenter suggested that the Commission could increase comparability of
the reported data by clarifying the method that should be used to
determine whether a 19a-1 notice is required.\890\ Although we
recognize, as the commenter suggests, that different substantive
practices relating to 19a-1 notices could affect the comparability of
the reported data, revising the substantive provisions of rule 19a-1 is
beyond the intended scope of the requirements of Form N-CEN.
---------------------------------------------------------------------------

    \888\ Item B.23 of Form N-CEN. Section 19(a) of the Investment
Company Act generally prohibits a fund from making a distribution
from any source other than the fund's net income, unless that
payment is accompanied by a written statement that adequately
discloses the source or sources of the payment. See 15 U.S.C. 80a-
19(a). Rule 19a-1 under the Investment Company Act specifies the
information required to be disclosed in the written statement. [17
CFR 270.19a-1]; see also Shareholder Notices of the Sources of Fund
Distributions--Electronic Delivery, IM Guidance Update No. 2013-11
(Nov. 2013), available at http://www.sec.gov/divisions/investment/guidance/im-guidance-2013-11.pdf.
    \889\ See State Street Comment Letter.
    \890\ Id.
---------------------------------------------------------------------------

c. Part C--Items Relating to Management Investment Companies
i. Background and Classification of Funds
    We proposed a number of reporting items under Part C of Form N-CEN
to provide the Commission and its staff with background information on
the fund industry and to assist us in meeting our legal and regulatory
requirements, such as requirements under the Paperwork Reduction Act.
Additionally, certain demographic information in Part C will allow the
Commission to better identify particular types of management companies
for monitoring and analysis if, for example, an issue arose with
respect to a particular fund type. We are adopting those reporting
items substantially as proposed with some modifications in response to
comments. Where we have received comments on specific reporting
requirements, we discuss them in more detail below.
    Part C will be completed by management investment companies other
than SBICs. As in the proposal, for management companies offering
multiple series, the required information will be reported separately
as to each series.\891\
---------------------------------------------------------------------------

    \891\ General Instruction A to Form N-CEN.
---------------------------------------------------------------------------

    Similar to Form N-SAR and as proposed, Form N-CEN includes general
identifying information on management companies and any series thereof,
including the full name of the fund, the fund's series identification
number and LEI, and whether it is the fund's first time filing the
form.\892\ Unlike Form N-SAR, specific information on the classes of
open-end management companies, including information relating to the
number of classes authorized, added, and terminated during the relevant
period are required under Form N-CEN.\893\ In addition, Form N-CEN
includes a requirement (unlike Form N-SAR) to specifically provide
identifying information for each share class outstanding, including the
name of the class, the class identification number, and ticker
symbol.\894\
---------------------------------------------------------------------------

    \892\ Item C.1 of Form N-CEN; see also supra section II.A.2.a
(discussing the use of LEIs for purposes of Form N-PORT and related
comments received regarding the use of LEIs). The requirements
relating to the name of the fund and if this is the first filing
with respect to the fund are currently required by Form N-SAR. See
Item 3 and Item 7.C of Form N-SAR.
    \893\ Item C.2.a-Item C.2.c of Form N-CEN.
    \894\ Item C.2.d of Form N-CEN.
---------------------------------------------------------------------------

    Form N-CEN also requires--substantially as proposed with some
modifications in response to public comment--management companies to
identify if they are any of the following types of funds: \895\ ETF or
exchange-traded managed fund (``ETMF''); \896\ index fund; \897\ fund
seeking to achieve performance results that are a multiple of an index
or other benchmark, the inverse of an index or other benchmark, or a
multiple of the inverse of an index or other benchmark; \898\ interval
fund; \899\ fund of funds; \900\ master-feeder fund; \901\ money market
fund; \902\ target date fund; \903\ and underlying fund to a variable
annuity or variable life insurance contract.
---------------------------------------------------------------------------

    \895\ Item C.3 of Form N-CEN. As discussed herein, many of the
types of funds listed in Item C.3 are defined in Form N-CEN. With
the exception of ``index fund'' and ``money market fund,'' these
terms are not currently defined in Form N-SAR. See General
Instruction H and Item 69 of Form N-SAR.
    \896\ Item C.3.a of Form N-CEN. As discussed above, we have
revised, consistent with the changes to Form N-PORT discussed above,
the definitions of ``Exchange-Traded Fund'' and ``Exchange-Traded
Managed Funds'' to clarify that the definitions would apply to a
class or series of a UIT organized as an ETF or ETMF. See supra
footnote 793 and accompanying text. Consequently, for purposes of
reporting on Form N-CEN, ``exchange-traded fund'' is defined as an
open-end management investment company (or series or class thereof)
or UIT (or series thereof), the shares of which are listed and
traded on a national securities exchange at market prices, and that
has formed and operates under an exemptive order under the
Investment Company Act granted by the Commission or in reliance on
an exemptive rule under the Act adopted by the Commission.
Similarly, ``exchange-traded managed fund'' is defined as an open-
end management investment company (or series or class thereof) or
UIT (or series thereof), the shares of which are listed and traded
on a national securities exchange at NAV-based prices, and that has
formed and operates under an exemptive order under the Investment
Company Act granted by the Commission or in reliance on an exemptive
rule under the Act adopted by the Commission. See General
Instruction E of Form N-CEN. These definitions are substantially
identical to the definitions we proposed, however, we have added a
parenthetical to each definition to clarify that an ETF or exchange-
traded managed fund would include a series of a UIT that meets the
rest of the applicable definition. We believe that these are
appropriate definitions as they are similar to the one used for
determining the applicability of ETF registration statement
disclosure requirements for open-end funds. See General Instruction
A of Form N-1A. Currently, all ETFs and exchange-traded managed
funds rely on relief from certain provisions of the Investment
Company Act that is granted by Commission order. See ETF Proposing
Release, supra footnote 5; Eaton Vance Management, et al.,
Investment Company Act Release No. 31333 (Nov. 6, 2014) [79 FR 67471
(Nov. 13, 2014)] (Notice); Eaton Vance Management, et al.,
Investment Company Act Release No. 31361 (Dec. 2, 2014) (Order). The
Commission, however, proposed in 2008 to codify the exemptive relief
previously granted to ETFs by order. See ETF Proposing Release,
supra footnote 5 (proposing rule 6c-11).
    \897\ Item C.3.b of Form N-CEN.
    \898\ Item C.3.c of Form N-CEN. This item is being modified from
the proposed requirement, which would have required a fund to
indicate if it seeks to achieve performance results that are a
multiple of a benchmark, the inverse of a benchmark, or a multiple
of the inverse of a benchmark. The modifications clarify that the
benchmark may be an index.
    \899\ Item C.3.d of Form N-CEN.
    \900\ Item C.3.e of Form N-CEN.
    \901\ Item C.3.f of Form N-CEN.
    \902\ Item C.3.g of Form N-CEN.
    \903\ Item C.3.h of Form N-CEN. As in the proposal, for purposes
of reporting on Form N-CEN, ``target date fund'' is defined as an
investment company that has an investment objective or strategy of
providing varying degrees of long-term appreciation and capital
preservation through a mix of equity and fixed income exposures that
changes over time based on an investor's age, target retirement
date, or life expectancy. See Instruction 5 to Item C.3.b of Form N-
CEN. This is the same definition as was proposed by the Commission
in our 2010 proposing release relating to target date funds. See
Investment Company Advertising Release, supra footnote 6. We note
that one commenter suggested that target-date funds should also
self-identify whether their glide path is ``to'' or ``through''
retirement. See Morningstar Comment Letter. We have not made any
changes in response to this comment because we believe that the
identifying information requested by the form with respect to
target-date funds is sufficient for the Commission's purposes.
---------------------------------------------------------------------------

    For purposes of reporting on Form N-CEN, as proposed, ``index
fund'' is defined as an investment company, including an ETF, which
seeks to track the performance of a specified index.\904\ The
definition is largely similar to the definition of ``index fund'' in
rule 2a19-3 under the Investment Company Act, but will capture both
broad-based and affiliated indexes.\905\ Additionally, we note that the
definition is substantially similar to the definition of ``index fund''
in Form N-SAR, but also takes into account the emergence of ETFs.\906\
One commenter expressed support for the proposed definition of index
fund, but

strongly encouraged that funds using indexes constructed by affiliated
service providers be disclosed clearly and that funds disclose whether
the index tracked by the fund is exclusively constructed for the
fund.\907\ We agree with the commenter and are requiring index funds to
indicate whether the index whose performance the fund tracks is
constructed by an affiliated person of the fund and whether the index
is exclusively constructed for the fund.\908\ We believe this
information will further assist Commission staff in monitoring trends
in funds that track these indexes, which often use more complex
methodologies that choose constituents by weighing factors other than
market capitalization. It also will assist staff in monitoring
conflicts of interest that could exist when an index is constructed by
an affiliated person of the fund or is exclusively constructed for the
fund.
---------------------------------------------------------------------------

    \904\ See Instruction 2 to Item C.3 of Form N-CEN.
    \905\ See rule 2a19-3 under the Investment Company Act [17 CFR
270.2a19-3] (referring to an index fund for purposes of the rule as
a fund that has ``an investment objective to replicate the
performance of one or more broad-based securities indices . . .'').
    \906\ See Instruction to Item 69 of Form N-SAR.
    \907\ Morningstar Comment Letter.
    \908\ Item C.3.b.i of Form N-CEN.
---------------------------------------------------------------------------

    As proposed, ``interval fund'' is defined as a closed-end
management company that makes periodic repurchases of its shares
pursuant to rule 23c-3 under the Investment Company Act.\909\ One
commenter suggested that the definition of interval fund should not be
limited to closed-end funds, but rather, expanded to other investment
companies.\910\ We believe, however, that the definition is appropriate
as proposed because the term ``interval fund'' is commonly used to
refer to funds that rely on rule 23c-3.\911\
---------------------------------------------------------------------------

    \909\ See Instruction 3 to Item C.3 of Form N-CEN.
    \910\ Morningstar Comment Letter (noting that there is one
investment company registered on Form N-1A whose redemption
parameters are largely similar to an interval fund pursuant to
exemptive relief and suggesting that the definition of interval fund
be expanded to other investment companies in light of the existence
of this fund).
    \911\ See rule 23c-3 under the Investment Company Act [17 CFR
270.23c-3]. We believe that it is more appropriate to maintain the
definition of interval fund as a closed-end fund that makes periodic
purchases of its shares pursuant to rule 23c-3 as proposed, rather
than expand the definition to capture funds that share some similar
characteristics with interval funds but operate outside the context
of rule 23c-3. For example, we believe that reports on Form N-CEN
will appropriately capture an open-end fund that operates with
redemption procedures similar to an interval fund pursuant to
exemptive relief in response to Item B.15 of Form N-CEN.
---------------------------------------------------------------------------

    For purposes of reporting on Form N-CEN, we also proposed to define
``fund of funds'' as a fund that acquires securities issued by another
investment company in excess of the amounts permitted under section
12(d)(1)(A) of the Investment Company Act.\912\ Some commenters
suggested that we revise the definition to exclude funds that invest in
money market funds for cash management purposes in excess of the amount
permitted under section 12(d)(1)(A) in reliance on rule 12d1-1 of the
Investment Company Act.\913\ After consideration of these comments, we
acknowledge that the definition as proposed would have included a
larger universe of funds than we intended for our regulatory purposes.
The proposed definition would have yielded data that would have impeded
identification of those funds that acquire securities issued by another
investment company in excess of the amounts permitted under section
12(d)(1)(A) other than those that do so only for short-term cash
management purposes. Therefore, we have revised the instructions to
Item C.3 to note that for purposes of the item, the term ``fund of
funds'' does not include a fund that acquires securities issued by
another investment company solely in reliance on rule 12d1-1.\914\ We
received no other comments on the other definitions for fund types.
---------------------------------------------------------------------------

    \912\ See 15 U.S.C. 80a-12(d)(1)(A); Instruction 1 to Item 27 of
proposed Form N-CEN.
    \913\ Schwab Comment Letter; ICI Comment Letter; MFS Comment
Letter.
    \914\ See Instruction 1 to Item C.3 of Form N-CEN.
---------------------------------------------------------------------------

    As proposed, ``master-feeder fund'' was defined as a two-tiered
arrangement in which one or more funds holds shares of a single fund in
accordance with section 12(d)(1)(E) of the Investment Company Act.\915\
We understand that certain interpretations of this definition could
exclude some funds that operate in a master-feeder structure and hold
themselves out as master-feeder funds, but for technical reasons must
obtain exemptive relief from the Commission rather than rely on section
12(d)(1)(E) to operate in this manner. Accordingly, we have revised the
definition of ``master-feeder fund'' to more clearly include two-tiered
arrangements in which one or more funds holds shares of a single fund
pursuant to exemptive relief granted by the Commission.\916\
---------------------------------------------------------------------------

    \915\ See Instruction 4 to Item 27 of proposed Form N-CEN.
    \916\ See Instruction 4 to Item C.3. of Form N-CEN which defines
the term ``master-feeder fund'' to mean ``a two-tiered arrangement
in which one or more funds (each a feeder fund) holds shares of a
single Fund (the master fund) in accordance with section 12(d)(1)(E)
of the Act (15 U.S.C. 80a-12(d)(1)(E)) or pursuant to exemptive
relief granted by the Commission'' (emphasis added).
---------------------------------------------------------------------------

    ETFs and ETMFs, index funds, and master-feeder funds are also
required to provide additional information under Part C.\917\ First, as
in the proposal, Form N-CEN requires a management company to further
indicate if it is an ETF or an ETMF.\918\ Second, as in the proposal,
index funds will be required to report certain standard industry
calculations of relative performance. In particular, index funds will
be required to report a measure of the difference between the index
fund's total return during the reporting period \919\ and the index's
return both before and after fees and expenses--commonly called the
``tracking difference'' \920\--and also a measure of the volatility of
the day-to-day tracking difference over the course of the reporting
period--commonly called the fund's ``tracking error.'' \921\ One
commenter suggested that tracking difference and tracking error should
be reported monthly on Form N-PORT rather than annually on Form N-CEN,
because monthly reporting would allow the Commission to receive
observations for all index funds for the same time period, and the
commenter opined that the additional information would help the
Commission be more responsive, particularly in times of market
stress.\922\ Although we recognize that there may be additional
potential benefits of monthly reporting, as the commenter suggests, we
continue to believe that annual reporting more appropriately balances
the usefulness of the reported information to the Commission and other
data users with the additional administrative costs that would be
associated with a requirement for monthly reporting and the associated
recordkeeping necessary to support it.

Moreover, we believe that the frequency and timeliness of reports on
Form N-CEN are, both generally and specifically with respect to these
reporting requirements, sufficient for collecting census-type
information, but that reporting of these particular annualized figures
on Form N-PORT would not be so timely or so frequent as to advance the
purposes the commenter suggested (viz., to respond in periods of market
stress), particularly in light of the Form N-PORT 60-day reporting
delay.
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    \917\ See Item C.3.a, Item C.3.b, and Item C.3.f of Form N-CEN.
    \918\ See Item C.3.a.i and Item C.3.a.ii of Form N-CEN.
    \919\ With respect to index funds that are ETFs, we expect a
fund to use its NAV-based total return, rather than market-based
total return, in responding to Item C.3.a.i and Item C.3.a.ii of
Form N-CEN.
    \920\ Item C.3.b.i of Form N-CEN. The tracking difference is the
return difference between the fund and the index it is following,
annualized. Morningstar ETF Research, Ben Johnson, et al., On the
Right Track: Measuring Tracking Efficiency in ETFs (Feb. 2013)
(``Morningstar Paper'') at 29, available at http://media.morningstar.com/uk/MEDIA/Research_Paper/Morningstar_Report_Measuring_Tracking_Efficiency_in_ETFs_February_2013.pdf. Thus, tracking difference = (1 + RNAV-
RINDEX) \1/N\-1, where RNAV is the total
return for the fund over the reporting period, RINDEX is
the total return for the index for the reporting period, and N is
the length of the reporting period in years. N will equal to 1 if
the reporting period is the fiscal year. Id.
    \921\ See Item C.3.b.ii of Form N-CEN. Tracking error is
commonly understood as the standard deviation of the daily
difference in return between the fund and the index it is following,
annualized. Morningstar Paper, supra footnote 920, at 29. Thus,
tracking error = std (RNAV - RINDEX) x
[radic]n, where RNAV is the daily return for the fund,
RINDEX is the daily return for the index, std([middot])
represents the standard deviation function, and n is the number of
trading days in the fiscal year. Id.
    \922\ See Morningstar Comment Letter (recommending that tracking
difference and tracking error be reported on N-PORT with trailing
one-year data rather than annually on Form N-CEN).
---------------------------------------------------------------------------

    While supporting the inclusion of tracking difference and tracking
error reporting items, a couple of commenters suggested alternatives to
the calculation methods underlying the reporting requirements,
including, for example, measuring tracking error on a weekly or monthly
basis rather than a daily basis as proposed.\923\ With respect to
tracking error, we believe that it is important to calculate tracking
error using the same observation frequency across funds and that, based
on staff experience, a daily frequency for tracking data is likely more
commonly calculated and therefore more readily available to funds than
the alternatives proposed. We also believe that daily calculations
better reflect the nature of the daily redeemability of an open-end
fund, including capturing the daily trading activities on the secondary
market for ETFs. One commenter argued that daily tracking error
calculations may contain temporary anomalies outside portfolio
management control, such as differences in holidays or pricing sources
used by the fund and/or index providers or temporary market aberrations
which may cause a higher daily tracking error.\924\ We do not believe
such differences would be uninformative. Rather, we believe receiving
information on these potential anomalies will better inform investors
and Commission staff about the behaviors of index funds and the indexes
they track and assist the Commission in our oversight responsibilities.
Overall, we do not perceive significant additional benefits in the
alternative calculation methods recommended by commenters and continue
to believe that the calculation methodologies for tracking difference
and tracking error, as proposed, are appropriate.
---------------------------------------------------------------------------

    \923\ See Invesco Comment Letter (recommending that tracking
error be based on a monthly basis rather than a daily basis and that
tracking difference be calculated pursuant to an excess return
calculation); Confluence Comment Letter (recommending that tracking
error be based on a weekly basis rather than a daily basis, arguing
that daily periodicity will show excess volatility, providing the
Commission and investors with a skewed picture of tracking error).
    \924\ See Invesco Comment Letter.
---------------------------------------------------------------------------

    Specifically, tracking difference will be calculated as the
annualized difference between the index fund's total return during the
reporting period and the index's return during the reporting period,
and tracking error will be calculated as the annualized standard
deviation of the daily difference between the index fund's total return
and the index's return during the reporting period.\925\ Reporting of
these measures will help data users, including the Commission,
investors, and other potential users, evaluate the degree to which
particular index funds replicate the performance of the target
index.\926\ In addition, tracking difference and tracking error before
fees and expenses \927\ will allow data users to better understand the
effect of factors other than fees and expenses on the degree to which
the index fund replicates the performance of the target index.\928\
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    \925\ See Proposing Release, supra footnote 7, at 33639-40. See
also Morningstar Paper, supra footnote 920, at 29.
    \926\ See Morningstar Paper, supra footnote 920, at 5. We
believe that this information will help data users understand which
funds are best tracking their target indexes and could highlight
outlier funds.
    \927\ See Item C.3.b.ii.1 and Item C.3.b.iii.1 of Form N-CEN.
    \928\ See Morningstar Paper, supra footnote 920, at 9.
---------------------------------------------------------------------------

    Finally, as proposed, master funds will be required to provide
identifying information with respect to each feeder fund, including
information on unregistered feeder funds (i.e., feeder funds not
registered as investment companies with the Commission), such as
offshore feeder funds.\929\ Similarly, a feeder fund will be required
to provide identifying information of its master fund.\930\
---------------------------------------------------------------------------

    \929\ Item C.3.f.ii of Form N-CEN.
    \930\ Item C.3.f.i of Form N-CEN.
---------------------------------------------------------------------------

    We are also adopting, as proposed, the requirement in Form N-CEN
that a management company report if it seeks to operate as a non-
diversified company, as defined in section 5(b)(2) of the Investment
Company Act.\931\ Form N-SAR, in contrast, asks if the management
company was a diversified investment company at any time during the
period or at the end of the reporting period.\932\ The item in Form N-
CEN is forward looking rather than backward looking as in Form N-SAR
and is intended to include as part of the universe of non-diversified
funds those funds that seek to operate as non-diversified companies
even if they should happen to meet the definition of a ``diversified
company'' as of the end of a particular reporting period.\933\ We
believe this item will allow our staff to more accurately ascertain the
universe of non-diversified funds and, thus, better assist us in our
analysis and inspection functions. One commenter suggested that this
reporting requirement also consider the identification of funds that
intended to operate as non-diversified at some point during the
reporting period but have since changed to diversified status.\934\ We
believe that the reporting requirement as proposed is appropriate for
our purpose of being able to efficiently identify non-diversified
companies.
---------------------------------------------------------------------------

    \931\ Item C.4 of Form N-CEN.
    \932\ See Item 60 of Form N-SAR.
    \933\ For example, if a fund generally operates as a non-
diversified fund, but as a result of market conditions or other
reasons, happens to meet the definition of ``diversified fund'' as
of the end of the reporting period, it will still be required to
indicate that it was a non-diversified fund for purposes of this
item.
    \934\ See Schnase Comment Letter.
---------------------------------------------------------------------------

ii. Investments in Certain Foreign Corporations
    Form N-CEN requires, as proposed, that a management company
identify if it invests in a CFC for the purpose of investing in certain
types of instruments, such as commodities.\935\ If it does, it must
include the name and LEI of such corporation, if any.\936\ As discussed
above in section II.A.2.b, some funds use CFCs for making certain
investments, particularly in commodities and commodity-linked
derivatives, often for tax purposes. Information regarding assets
invested in a CFC for the purpose of investing in certain types of
instruments will provide investors greater insight into CFCs that may
have certain legal, tax, and country-specific risks associated with
them. Combined with the information that we are collecting in Form N-
PORT, Commission staff will use this information to better understand
the use of CFCs, which could allow for more efficient collaboration
with foreign financial regulatory authorities to the extent the
Commission may need books and records or other information for specific
funds or general inquiries related to CFCs.
---------------------------------------------------------------------------

    \935\ Item C.5.a of Form N-CEN. As in the proposal, an
instruction to the item defines ``controlled foreign corporation''
as having the meaning provided in section 957 of the Internal
Revenue Code.
    \936\ Id.
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iii. Securities Lending
    As discussed above, we are adopting requirements that funds provide
certain

securities lending information in reports on Form N-PORT to help inform
the Commission, investors and other market participants about the scale
of securities lending activity by funds and their related cash
collateral reinvestments.\937\ Additionally, we are adopting
requirements that funds include in their statements of additional
information \938\ certain information concerning their income and
expenses associated with securities lending activities in order to
increase the transparency of this information to investors and other
potential users.\939\
---------------------------------------------------------------------------

    \937\ See supra sections II.A.2.d and II.A.2.g.v.
    \938\ ``Statement of additional information'' means the
statement of additional information required by Part B of the
registration form applicable to the fund.
    \939\ See discussion infra section II.F regarding securities
lending disclosures in the Statement of Additional Information and
Form N-CSR; see also supra footnote 192.
---------------------------------------------------------------------------

    We proposed, and continue to believe it is appropriate, that some
important information concerning securities lending activity by funds
should be reported in a structured format, but on a less frequent basis
than reports on Form N-PORT. In this regard, we believe that the
proposed annual reporting requirement on Form N-CEN yields sufficiently
timely data and more appropriately balances the requirements' benefits
with their associated costs than would additional monthly reporting
requirements on Form N-PORT. Some commenters expressed general support
for reporting securities lending information on Form N-CEN.\940\ One
commenter suggested that the Commission require even more detailed
reporting requirements concerning services provided by securities
lending agents, including, for example, information about how
securities are selected for loan, contending that the public
availability of the information may assist a fund board in
understanding fees and services and drawing conclusions concerning
their comparability.\941\
---------------------------------------------------------------------------

    \940\ See, e.g., BlackRock Comment Letter; Blackrock Directors
Comment Letter; CFA Comment Letter; EY Comment Letter (suggesting,
however, that securities lending disclosures proposed in Regulation
S-X would be more appropriate in Form N-CEN than on Form N-PORT);
Fidelity Comment Letter (recommending, however, that information
concerning third-party lending agent arrangements should be non-
public); Morningstar Comment Letter; RMA Comment Letter; SIFMA
Comment Letter I; State Street Comment Letter.
    \941\ See Blackrock Directors Comment Letter (recommending that
the Commission specifically require disclosures on whether qualified
dividend income management is provided by lending agents, the client
fund, or other third parties; whether securities for loan are
selected by the lending agent, the client fund, or other third
parties; and whether the lender's securities lending program
includes ``specials'' only (and, if so, how ``specials'' are
defined) or general collateral as well).
---------------------------------------------------------------------------

    We acknowledge that the commenter's recommended additions could
yield information that may be useful to the Commission as well as to
some data users, and recognize that a fund board's consideration of
securities lending services may rightfully include consideration of how
securities are selected for loan and the other matters raised by the
commenter. However, the information required by Form N-CEN is intended
primarily for Commission regulatory purposes, and--balancing those
purposes against the reporting costs associated with additional
requirements--we have determined that the requirements we are adopting
today are appropriate. The adopted requirements are meant to yield
census-type information that is, to the extent practicable, comparable
across reporting funds and that permits the Commission and other
potential users to follow up, as appropriate, on patterns and
idiosyncrasies in the reported data. We believe, therefore, that the
nuanced information the commenter suggests requiring is better provided
in a fund's registration statement than in reports on Form N-CEN, to
the extent required.
    We are therefore adopting, as proposed, a requirement that each
management company report annually on new Form N-CEN whether it is
authorized to engage in securities lending transactions and whether it
loaned securities during the reporting period.\942\ In addition, we are
adopting, as proposed, reporting requirements regarding information
about the fees associated with securities lending activity and
information about the management company's relationship with certain
securities-lending-related service providers.
---------------------------------------------------------------------------

    \942\ Item C.6.a-Item C.6.b of Form N-CEN.
---------------------------------------------------------------------------

    As in the proposal, management companies that loaned any securities
during the reporting period will be required to report certain
information, with some modifications in response to comments.
Specifically, those management companies will be required to report
annually whether any borrower of securities failed to return the loaned
securities by the contractual deadline with the result that the fund
(or its securities lending agent) liquidated collateral pledged to
secure the loaned securities or that the fund was otherwise adversely
impacted during the reporting period.\943\
---------------------------------------------------------------------------

    \943\ Item C.6.b.i of Form N-CEN.
---------------------------------------------------------------------------

    However, this reporting requirement has been modified from the
proposal, which would have required funds to report whether a borrower
defaulted on its obligations to return loaned securities or return them
on time in connection with a security on loan during that period. Some
commenters requested that the Commission narrow the definition of
borrower default to exclude ``technical'' defaults, citing concerns
that the item, as proposed, could be read to require that funds report
any default, including defaults that are not likely to result in
potential harm to the fund and would not appropriately represent
counterparty risk.\944\ These types of defaults may occur when loaned
securities are returned to a fund after the contractual deadline due to
operational issues related to processing or communication, which,
according to commenters, is not uncommon.\945\ Commenters recommended
various alternatives to defining borrower default, including, for
example, as any default that causes a fund to liquidate securities
lending collateral pledged in connection with the securities lending
arrangement \946\ or any default that results in losses to the
fund.\947\ Others noted that a fund can be further protected from
borrower default if it is indemnified by the securities lending agent
against loss resulting from a shortfall in pledged collateral when a
borrower has defaulted.\948\
---------------------------------------------------------------------------

    \944\ See, e.g., Fidelity Comment Letter; SIFMA Comment Letter
I; Vanguard Comment Letter.
    \945\ See ICI Comment Letter; SIFMA Comment Letter I; Vanguard
Comment Letter (recommending that the definition of borrower default
be limited to any default that causes a fund to liquidate securities
lending collateral pledged in connection with the securities lending
arrangement); RMA Comment Letter and State Street Comment Letter
(recommending that borrower default be limited to any default due to
events of insolvency or upon an agent lender otherwise formally
declaring a default by the borrower pursuant to the relevant
borrower agreement); Fidelity Comment Letter (recommending that
borrower default be limited to any default that results in losses to
the fund, which could arise when the value of collateral for loaned
securities and any reimbursement payments due to the fund are
insufficient to eliminate losses associated with the default).
    \946\ See ICI Comment Letter; Vanguard Comment Letter; SIFMA
Comment Letter I.
    \947\ See Fidelity Comment Letter. See also RMA Comment Letter
and State Street Comment Letter (generally recommending borrower
default being defined as any default due to events of insolvency or
upon an agent lender otherwise formally declaring a default by the
borrower pursuant to the relevant borrower agreement). We believe
these recommended definitions of default are too narrow because a
fund could be harmed by a borrower's failure to return loaned
securities whether or not the borrower is insolvent or the lending
agent declares an event of default.
    \948\ See, e.g., RMA Comment Letter; State Street Comment
Letter.
---------------------------------------------------------------------------

    We are persuaded by commenters and have modified the reporting
requirement regarding borrower default to focus on failures to return
loaned

securities that result in the fund (or its securities lending agent)
having to liquidate collateral pledged to secure the loaned securities
or the fund otherwise being adversely impacted.\949\ We have also added
an instruction to clarify that, for purposes of this reporting
requirement, other adverse impacts to the fund would include, for
example, (1) a loss to the fund if collateral and indemnification were
not sufficient to replace the loaned securities or their value, (2) the
fund's ineligibility to vote shares in a proxy,\950\ or (3) the fund's
ineligibility to receive a direct distribution from the issuer.\951\ We
believe that with these modifications to the proposal, the Commission
may better monitor the risks associated with borrower defaults that
have the potential to expose the fund and its shareholders to harm
without having funds account for technical defaults that do not pose
the same risks.
---------------------------------------------------------------------------

    \949\ See Item C.6.b.i of Form N-CEN.
    \950\ Proxy voting rights generally transfer with loaned
securities. See Concept Release on the U.S. Proxy System, Investment
Company Act Release No. 29340 (July 14, 2010) [75 FR 42982 (July 22,
2010)] at 42994-95.
    \951\ See Instruction to Item C.6.b.i.2 of Form N-CEN.
---------------------------------------------------------------------------

    We are also adopting, as proposed, a requirement that management
companies report whether a securities lending agent or any other entity
indemnifies the fund against borrower default on loans administered by
the agent and certain identifying information about the entity
providing indemnification if not the securities lending agent.\952\ In
addition, in a modification from the proposal, we are now including a
requirement that management companies report whether the fund exercised
its indemnification rights during the reporting period.\953\ A
commenter recommended that the Commission require funds to report
whether they exercised their indemnification rights to, in part,
provide information about defaults and the extent to which counterparty