Release No. 33-6591 

Release No. 34-22194

Release No. IC-14606

July 1, 1985

Withdrawal of quarterly reporting forms and filing obligations of certain registered investment companies; incorporation of quarterly reporting obligations in Form N-SAR; adoption of conforming amendments to registration forms; related rule amendments.

ACTION: Withdrawal of forms and rescission of rules; adoption of amendments to investment company registration statement forms; rule amendments.

SUMMARY: The Commission is rescinding the quarterly reporting obligations of certain registered investment companies and incorporating them into form N-SAR, the semi-annual reporting form for such companies. The Commission is also adopting amendments to the instructions of the registration statement forms for open-end and closed-end investment companies which change the way in which registrants calculate their portfolio turnover rate to conform to the method used in calculating that rate in their semi-annual reports. In addition, the Commission is adopting certain technical amendments to delete references to the quarterly reporting obligations of certain registered investment companies and to provide references to form N-SAR where appropriate.

EFFECTIVE DATE: (30 days after publication in the Federal Register.)

FOR FURTHER INFORMATION CONTACT: William C. Gibbs, Attorney, Office of Regulatory Policy, (202) 272-2048; or Elizabeth M. Knoblock, Special Counsel, Office of Regulatory Policy, (202) 272-2048.

SUPPLEMENTARY INFORMATION: The Commission is incorporating the contents of form N-1Q 17 CFR 274.106, the quarterly report form for registered investment companies, into form N-SAR 17 CFR 274.101, the semi-annual report form for registered investment companies, as items 77 and 102 and withdrawing form N-1Q. The Commission is also withdrawing form N-27D-2 17 CFR 274.127d-2, the quarterly report form for issuers of periodic payment plan certificates. In addition, the Commission is rescinding rules 13a-12 17 CFR 240.13a-12 and 15d-12 17 CFR 240.15d-12 under the Securities Exchange Act of 1934 15 U.S.C. 78a et seq. ("1934 Act"), and rules 27d-3 17 CFR 270.27d-3, 30b1-1 17 CFR 270.30b1-1 and 30b1-2 17 CFR 270.30b1-2 under the Investment Company Act of 1940 15 U.S.C. 80a-1 et seq. ("1940 Act"), which require the filing of forms N-1Q or N-27D-2. Temporary rules 30b-15(T) 17 CFR 270.30b1-5(T) and 27d-4(T) 17 CFR 270.27d-4(T) under the 1940 Act, which temporarily suspended those quarterly reporting obligations, are also rescinded and rules 30b1-3 17 CFR 270.30b1-3 and 30b1-4 17 CFR 270.30b1-4, which require the filing of semi-annual reports, are redesignated as rules 30b1-1 and 30b1-2. Rules 2a-7 17 CFR 270.2a-7 and 10f-3 17 CFR 270.10f-3 under the 1940 Act are amended to replace references to form N-1Q with references to form N-SAR. Similarly, rules 13a-11 17 CFR 240.13a-11, 13a-13 17 CFR 240.13a-13, 13a-16 17 CFR 240.13a-16, 15d-11 17 CFR 240.15d-11 15d-13 17 CFR 240.15d-13 and 15d-16 17 CFR 240.15d-16 under the 1934 Act are revised to eliminate references to the withdrawn reporting form.

The Commission is also adopting amendments to instruction 12 to item 3 of form N-1A 17 CFR 239.15A, the registration statement of open-end management investment companies and instruction 12 to item 3 of form N-2 17 CFR 239.14, the registration statement for closed-end management investment companies. The amendments to forms N-1A and N-2 are intended to conform the manner in which registrants are required to calculate their portfolio turnover rate to the manner prescribed in the instructions to item 71 of form N-SAR. Although the standardized calculation of portfolio turnover rate will not be required until thirty days after publication, investment companies filing forms N-1A and N-2 in the interim may use that method.

DISCUSSION

The Commission recently adopted form N-SAR, ¹ a new semi-annual reporting form for registered investment companies. Upon consideration of a commentators suggestion, ² the Commission temporarily incorporated the contents of form N-1Q, the quarterly report form of registered management investment companies, into items 77 and 102 of form N-SAR and proposed for public comment the withdrawal of form N-1Q. The Commission also temporarily suspended the obligation of investment companies to file quarterly reports on forms N-1Q and N-27D-2 by adopting two temporary rules. Rule 30b1-5(T) suspended the obligation to file form N-1Q. Similarly, rule 27d-4(T) suspended the reporting requirements of form N-27D-2. The Commission also proposed the withdrawal of form N-27D-2, the quarterly report form for certain face-amount certificate companies.

In a separate release, the Commission also proposed amending the instructions for calculating portfolio turnover rate in item 3 of forms N-1A and N-2 to conform to the manner in which it is calculated in form N-SAR. ³ In response to the two proposals, the Commission received three comment letters: one favoring the incorporation of form N-1Q into form N-SAR, the other two discussing the conforming amendments. This release addresses the two proposals and the comments received thereon separately, first addressing the proposed incorporation of form N-1Q into form N-SAR.

Incorporation of form N-1Q into form N-SAR.

The Commission has decided to incorporate form N-1Q as set forth in items 77 and 102 and the accompanying instructions in form N-SAR, permanently. The one commentator which commented on the incorporation of form N-1Q into form N-SAR supported such incorporation and stated that it would relieve investment companies of an unnecessary and duplicative filing requirement. ⁴ The Commission has also added to items 77 and 102 three sub-items with accompanying instructions. Those sub-items require reporting of any transactions to be reported pursuant to rule 2a-7 17 CFR 270.2a-7 (items 77N and 102M), transactions effected pursuant to rule 10f-3 17 CFR 270.10f-3 (sub-items 77O and 102N), and any information required to be filed pursuant to an exemptive order (items 77P and 102O). ⁵

The Commission is also withdrawing forms N-1Q and N-27D-2. As a result of withdrawing those forms, the Commission is rescinding rules 27d-3, 30b1-1, 30b1-2, 30b1-5(T) and 27d-4(T) under the 1940 Act relating to the quarterly reporting requirements for registered investment companies and redesignating rules 30b1-3 and 30b1-4 under the 1940 Act as rules 30b1-1 and 30b1-2. The Commission is also rescinding rules 13a-12 and 15d-12 under the 1934 Act which prescribed the duty to file such quarterly reports. In addition, rules 2a-7 and 10f-3 under the 1940 Act are amended to insert references to form N-SAR in place of existing references to form N-1Q and rules 13a-11, 13a-13, 13a-16, 15d-11, 15d-13 and 15d-16 under the 1934 Act are revised to eliminate references to the withdrawn reporting forms.

Conforming the calculation of portfolio turnover rate in forms N-1A and N-2 with form N-SAR.

The Commission proposed amendments to the instructions for forms N-1A and N-2, the registration statements for open-end and closed-end investment companies, to conform the method of calculating a registrants portfolio turnover rate with the method prescribed in form N-SAR. Two comments were received on that proposal.

One commentator supported the Commissions action, stating that it will reduce the administrative burden on investment companies and provide more coherent reporting to investors. However, the commentator noted that certain per share tables required by the affected item of both forms N-1A and N-2 must be presented for a period of up to ten years and that it was unclear from the proposing release whether the Commission intended to require investment companies to recalculate the portfolio turnover rate data for previous years to make the presentation of that data consistent for the entire period.

The Commission does not believe that a pro forma restatement of the portfolio turnover rate as set forth in the per share tables should be mandatory. Thus, a new subsection (e) has been added to instruction 12 of item 3 in both forms which provides that if the portfolio turnover rate for periods prior to 1985 is not calculated in the same manner as now required, a footnote to that item should so state.

The other commentator proposed an alternative method for calculating the portfolio turnover rate. ⁶ However, the Commission is adopting the method originally proposed. The calculation of the portfolio turnover rate as set forth in form N-SAR, and now adopted in forms N-1A and N-2, was developed to allow the Commission and investors to monitor the dollar value movement of investments through an investment companys portfolio. This gives the Commission and investors important information on the rate at which securities are replaced in the portfolio and the consequent dealer spreads or commissions involved in a funds purchase or sale of such securities. In addition, since all investment companies are required to report the portfolio turnover rate in the same manner on all forms filed with the Commission, investors can make a meaningful comparison of portfolio turnover rates among the various investment companies.

List of Subjects in 17 CFR Parts 239, 240, 249, 270 and 274

Investment companies, reporting and recordkeeping requirements, securities.

TEXT OF FORM AND RULE AMENDMENTS

Parts 239, 240, 249, 270 and 274 of Chapter II, Title 17 of the Code of Federal Regulations are amended as set forth below:

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

1. The authority citation for Part 239 continues to read, in part, as follows:

The Securities Exchange Act of 1933, 15 U.S.C. 77a, et seq., * * *

2. The authority citation for Part 274 continues to read, in part, as follows:

The Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq., * * *

3. By revising paragraphs b. and d. and by adding paragraph e. in instruction 12 to item 3 of form N-2 described in §§ 239.14 and 274.11a-1 to read as follows:

§239.14 --Form N-2 for closed-end management investment companies registered on Form N-8A.

§274.11a-1 --Form N-2, registration statement of closed-end management investment companies.

* * * * *

Item 3. Condensed Financial Information (Prospectus only)

(a) Furnish the following information for the Registrant, or for the Registrant and its subsidiaries consolidated as prescribed in rule 6-03 17 CFR 210.6-03 17 CFR 210.6-03 of Regulation S-X:

* * * * *

Instructions:

* * * * *

12. The portfolio turnover rate to be shown at caption 12 shall be calculated in accordance with the following instructions:

a. * * *

b. For purposes of this Item, there shall be excluded from both the numerator and denominator all securities, including options, whose maturity or expiration date at the time of acquisition were one year or less. All long-term securities, including long-term U.S. Government securities, should be included. Purchases shall include any cash paid upon the conversion of one portfolio security into another. Purchases shall also include the cost of rights or warrants purchased. Sales shall include the net proceeds from the sales of rights or warrants. Sales shall also include the net proceeds of portfolio securities which have been called, or for which payment has been made through redemption or maturity.

c. * * *

d. Short sales which the registrant intends to maintain for more than one year and put and call options where the expiration date is more than one year from the date of acquisition should be included in purchases and sales for purposes of this Item. The proceeds from a short sale should be included in the value of the portfolio securities which the registrant sold during the reporting period and the cost of covering a short sale should be included in the value of the portfolio securities which the registrant purchased during the period. The premiums paid to purchase options should be included in the value of the portfolio securities which the registrant purchased during the reporting period and the premiums received from the sale of options should be included in the value of the portfolio securities which the registrant sold during the period.

e. If periods prior to 1985 are not calculated on the same basis as that required above, a footnote to this item should so state.

* * * * *

4. By revising paragraphs b. and d. and by adding paragraph e. in instruction 12 to item 3 of form N-1A described in §§ 239.15A and 274.11A to read as follows:

§239.15A --Form N-1A, registration statement of open-end management investment companies.

§274.11A --Form N-1A, registration statement of open-end management investment companies.

* * * * *

Item 3. Condensed Financial Information

(a) Furnish the following information for the Registrant, or for the Registrant and its subsidiaries consolidated as prescribed in rule 6-03 17 CFR 210.6-03 of Regulation S-X.

* * * * *

Instructions:

* * * * *

12. The portfolio turnover rate to be shown at caption 12 shall be calculated in accordance with the following instructions:

a. * * *

b. For purposes of this Item, there shall be excluded from both the numerator and denominator all securities, including options, whose maturity or expiration date at the time of acquisition were one year or less. All long-term securities, including long-term U.S. Government securities, should be included. Purchases shall include any cash paid upon the conversion of one portfolio security into another. Purchases shall also include the cost of rights or warrants purchased. Sales shall include the net proceeds from the sale of rights or warrants. Sales shall also include the net proceeds of portfolio securities which have been called, or for which payment has been made through redemption or maturity.

c. * * *

d. Short sales which the registrant intends to maintain for more than one year and put and call options where the expiration date is more than one year from the date of acquisition are included in purchases and sales for purposes of this Item. The proceeds from a short sale should be included in the value of the portfolio securities which the registrant sold during the reporting period and the cost of covering a short sale should be included in the value of the portfolio securities which the registrant purchased during the period. The premiums paid to purchase options should be included in the value of the portfolio securities which the registrant purchased during the reporting period and the premiums received from the sale of options should be included in the value of the portfolio securities which the registrant sold during the period.

e. If periods prior to 1985 are not calculated on the same basis as that required above, a footnote to this item should so state.

* * * * *

PART 240--RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

5. The authority citation for Part 240 continues to read, in part, as follows:

Sec. 23 as amended, 15 U.S.C. 78w, * * *

6. By revising paragraph (b) of §240.13a-11 to read as follows:

§240.13a-11

* * * * *

(b) This section shall not apply to foreign governments, foreign private issuers required to make reports on Form 6-K (17 CFR 249.306) pursuant to Rule 13a-16 (17 CFR 240.13a-16), issuers of American Depositary Receipts for securities of any foreign issuer, or investment companies required to file reports pursuant to Rule 30b1-1 (17 CFR 270.30b1-1) under the Investment Company Act of 1940.

7. By removing §240.13a-12.

8. By revising paragraph (b)(1) of §240.13a-13 to read as follows:

§240.13a-13

* * * * *

(b) * * *

(1) Investment companies required to file reports pursuant to §270.30b1-1;

* * * * *

9. By revising paragraph (a)(1) of §240.13a-16 to read as follows:

§240.13a-16

(a) * * *

(1) Investment companies required to file reports pursuant to Rule 30b1-1 17 CFR 270.30b1-1;

* * * * *

10. By revising paragraph (b) of §240.15d-11 to read as follows:

§240.15d-11

* * * * *

(b) This rule shall not apply to foreign governments, foreign private issuers required to make reports on Form 6-K (17 CFR 249.306) pursuant to Rule 15d-16 (17 CFR 240.15d-16), issuers of American depositary receipts for securities of any foreign issuer, or investment companies required to file periodic reports pursuant to Rule 30b1-1 (17 CFR 270.30b1-1) under the Investment Company Act of 1940.

11. By removing §240.15d-12.

12. By revising paragraph (b)(1) of §240.15d-13 to read as follows:

§240.15d-13

* * * * *

(b) * * *

(1) Investment companies required to file reports pursuant to §270.30b1-1;

13. By revising paragraph (a)(1) of §240.15d-16 to read as follows:

§240.15d-16

(a) * * *

(1) Investment companies required to file reports pursuant to Rule 30b1-1 17 CFR 270.30b1-1;

* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

14. The authority citation for Part 249 continues to read, in part, as follows:

The Securities Exchange Act of 1934, 15 U.S.C. 78a, et seq., * * *

15. By revising form N-SAR, described in §§ 249.330 and 274.101, by redesignating items 77N and 102M and the instructions thereto as items 77Q and 102P, respectively, and by adding items 77N, 77O, 77P, 102M, 102N and 102O and corresponding instructions as follows:

§249.330--Form N-SAR, semi-annual report of registered investment companies.

§274.101--Form N-SAR, semi-annual report of registered investment companies.

* * * * *

Item 77. * * *

N. Actions required to be reported pursuant to Rule 2a-7..........

O. Transactions effected pursuant to Rule 10f-3..........

P. Information required to be filed with the registrants periodic reports pursuant to existing exemptive orders..........

Q. Exhibits..........

* * * * *

Item 102. * * *

M. Actions required to be reported pursuant to Rule 2a-7..........

N. Transactions effected pursuant to Rule 10f-3..........

O. Information required to be filed with the registrants periodic reports pursuant to existing exemptive orders..........

P. Exhibits..........

* * * * *

GENERAL INSTRUCTIONS

* * * * *

SUB-ITEM 77N: Actions required to be reported pursuant to Rule 2a-7

A Registrant relying on Rule 2a-7 17 CFR 270.2a-7 to use the amortized cost method of valuation is required by paragraph (a)(2)(vi) of that rule to report any action taken by the board of directors to eliminate or reduce any material dilution or other unfair results to investors caused by a deviation from the funds amortized cost price per share that exceeds 1/2 of 1 percent. If any such action was taken during the reporting period, this item should be checked and an exhibit attached, describing with specificity the nature and circumstances of such action.

SUB-ITEM 77O: Transactions effected pursuant to Rule 10f-3

Rule 10f-3 17 CFR 270.10f-3 provides a limited exemption from section 10(f) of the Act, provided, inter alia, that all transactions effected pursuant to the rule are reported on form N-SAR. If any such transactions were effected during the reporting period, this item should be checked and an exhibit attached setting forth from whom the securities were acquired, the identity of the underwriting syndicates members, the terms of the transaction, and the information or materials upon which the determination described in paragraph (h)(3) of rule 10f-3 was made.

SUB-ITEM 77P: Information required to be filed with the registrants periodic reports pursuant to existing exemptive orders.

If any actions were taken during the reporting period which were required to be reported on Form N-1Q pursuant to an exemptive order, that information must now be reported in this sub-item of Form N-SAR.

SUB-ITEM 77Q: Exhibits

In addition to the materials provided pursuant to sub-items 77C through 77P, if any, and subject to Rule 201.24 of the General Rules of Practice regarding incorporation by reference, the following exhibits shall be filed as part of this form, if not previously filed.

* * * * *

SUB-ITEM 102M: Information required to be reported pursuant to Rule 2a-7

See instructions to sub-item 77N.

SUB-ITEM 102N: Transactions effected pursuant to Rule 10f-3

See instructions to sub-item 77O.

SUB-ITEM 102O: Information required to be filed with the registrants periodic reports pursuant to existing exemptive orders

See instructions to sub-item 77P.

SUB-ITEM 102P: Exhibits

In addition to the materials provided pursuant to sub-items 102B through 102O, if any, and subject to Rule 201.24 of the General Rules of Practice regarding incorporation by reference, the following exhibits shall be filed as part of Form N-SAR, if not previously filed:

* * * * *

16. By removing §249.331.

Part 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

17. The authority citation for Part 270 continues to read, in part, as follows:

Secs. 38, 40; 15 U.S.C. 80a-37 * * *

18. By revising paragraph (a)(2)(vi) of §270.2a-7 to read as follows:

§270.2a-7

(a) * * *

(2) * * *

(vi) If any action was taken pursuant to paragraph (a)(2)(ii)(C) of this section, the money market fund will report such action on Form N-SAR 17 CFR 274.101 covering the period in which the action was taken and attach a statement to the form describing with specificity the nature and circumstances of such action; or

* * * * *

19. By revising paragraph (g) of §270.10f-3 to read:

* * * * *

(g) The existence of any transactions effected pursuant to this rule shall be reported on the Form N-SAR 17 CFR 274.101 of the investment company and a written record of each such transaction, setting forth from whom the securities were acquired, the identity of the underwriting syndicates members, the terms of the transaction, and the information or materials upon which the determination described in paragraph (h)(3) of rule 10f-3 was made shall be attached thereto;

* * * * *

20. By removing §§ 270.27d-3, 270.27d-4(T), 270.30b1-1, 270.30b1-2 and 270.30b1-5(T).

21. By redesignating §§ 270.30b1-3 and 270.30b1-4 as 270.30b1-1 and 30b1-2, respectively.

FINAL REGULATORY FLEXIBILITY ANALYSIS: In accordance with 5 U.S.C. 604, the Commission has prepared a Final Regulatory Flexibility Analysis with regard to the rescission of rules 27d-4(T) and 30b1-5(T) and the withdrawal of forms N-1Q and N-27D-2. A summary of the corresponding Initial Regulatory Flexibility Analysis was included in the release proposing the rule at 50 FR 1442 (January 11, 1985). Anyone who wishes to obtain a copy of the Final Regulatory Flexibility Analysis should contact William C. Gibbs in the manner specified above.

Pursuant to 5 U.S.C. 605(b), the Chairman of the Commission previously certified that the proposed amendments to forms N-2 and N-1A will not have a significant economic impact on a substantial number of small entities. No comments were received on that certification.

STATUTORY BASIS: Forms N-2 and N-1A are amended pursuant to the authority granted the Commission in sections 7, 10 and 19 of the Securities Act of 1933 15 U.S.C. 77g, 77j and 77s and sections 8, 30, and 38 of the Investment Company Act of 1940 15 U.S.C. 80a-8, 29, 37. Forms N-1Q and N-27D-2 are withdrawn, rules 13a-12, 15d-12, 27d-3, 30b1-1, 30b1-2, 30b1-5(T) and 27d-4(T) are rescinded and rules 13a-13, 13a-16, 15d-13 and 15d-16 are revised pursuant to sections 13, 15(d) and 23(a) of the Securities Exchange Act of 1934 15 U.S.C. 78m, 78o(d) and 78w(a) and sections 8, 30 and 38 of the Investment Company Act of 1940 15 U.S.C. 80a-8, 29, 37. Rules 2a-7 and 10f-3 are revised pursuant to sections 2, 10 and 38 of the Investment Company Act of 1940 15 U.S.C. 80a-2, 10, and 37.

By the Commission.

John Wheeler

Secretary

¹ Investment Company Act Release No. 14299, January 4, 1985, 50 FR 1442.

² That commentator described form N-1Q as "unwieldy," "expensive," and "time-consuming," and urged the Commission to withdraw the form and incorporate any necessary items into form N-SAR. Id. at 1445.

³ Investment Company Act Release No. 14300, January 4, 1985, 50 FR 1542.

⁴ The commentator noted, however, that the filing of reports regarding transactions effected pursuant to rule 10f-3 17 CFR 270.10f-3 under the 1940 Act had been omitted from the form.

⁵ Previously, both rules 2a-7 and 10f-3 required all transactions effected pursuant to those rules to be reported on form N-1Q. While the commentator discussed only rule 10f-3, the Commission believes all information previously required to be filed on form N-1Q, including information required to be filed by exemptive order, should be filed on form N-SAR.

⁶ The Commission adopted, in form N-SAR, a portfolio turnover rate calculation which excludes from both the numerator and the denominator all short-term securities and includes all long-term securities, even U.S. Government long-term securities. While the commentator did not object to the exclusion of short-term securities from the numerator, he believed that excluding short-term securities from the denominator was misleading and suggested using "average total assets" as the divisor. However, that figure would not measure portfolio turnover because it would include other non-portfolio data such as cash, receivables and pre-paid expenses. The Commission believes that to exclude short-term securities from the numerator and not exclude them from the denominator would result in a misleading portfolio turnover rate.