SEC Adopts Amendments to Modernize and Simplify Disclosure for Investment Companies and Investment Advisers

April 5, 2019

On March 20, 2019, the Securities and Exchange Commission (“SEC”) adopted amendments to modernize and simplify certain disclosure requirements in Regulation S-K and related rules and forms, as mandated by the 2015 Fixing America’s Surface Transportation Act (the “FAST Act).1 The amendments are intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. The SEC adopted parallel amendments to several rules and forms applicable to investment companies and investment advisers to provide for a consistent set of rules governing incorporation by reference and hyperlinking, including amendments that would require certain investment company filings to be submitted in HyperText Markup Language (“HTML”) beginning April 1, 2020.

This memorandum focuses on the amendments that affect investment companies and investment advisers. Many of the amendments are technical in nature.

Exhibit Hyperlinks and HTML Format for Investment Companies

The SEC is generally requiring investment companies filing registration statements on Forms S-6, N-14, N-5, N-1A, N-2, N-3, N-4, N-6, N-8B2, and reports on Form N-CSR, to include a hyperlink to each exhibit (other than an exhibit filed in XBRL) identified in the filing’s exhibit index. A registered investment company will be required to correct an inaccurate or nonfunctioning link or hyperlink, although the timing requirement varies by filing type.2

In connection with the exhibit hyperlinking requirements, the SEC amended Regulation S-T Rule 105 to require filings on Forms S-6, N-14, N-5, N-1A N-2, N-3, N-4, N-6, N-8B-2, and N-CSR be submitted in HTML format.

Incorporation by Reference

Consistent with its mandate under the FAST Act, the SEC adopted a number of amendments to rules and forms to simplify and modernize the rules governing incorporation by reference. To provide for a consistent set of incorporation by reference rules for investment companies and investment advisers, the SEC also adopted amendments to Rule 0-4 and a number of forms under the Investment Company Act of 1940 (the “1940 Act”), certain conforming amendments to Rule 0-6 under the Investment Advisers Act of 1940 (the “Advisers Act”), and the rescission of Rules 8b-23, 8b-24 and 8b-32 under the 1940 Act (certain provisions of which are consolidated into the amendments to Rule 0-4).3 In addition to reducing duplicative disclosure, the amendments are intended to streamline the incorporation by reference guidelines and facilitate investor access to incorporated documents through the use of hyperlinks.

Hyperlinks for Investment Company Filings. The SEC amended Rule 0-4 to require hyperlinks to information that is incorporated by reference if that information is available on EDGAR. The SEC also expanded the requirement to file documents in HTML to include filings subject to the hyperlinking requirements, as indicated above.4

Redaction of Confidential Information in Material Contract Exhibits

The SEC adopted amendments to the registration forms used by investment companies5 to allow a registrant to redact immaterial provisions or terms from exhibits filed as “other material contracts” if those provisions or terms are both (1) not material and (2) would likely cause competitive harm to the registrant if publicly disclosed.6

Additional Information Omitted from Exhibits

Schedules and Attachments to Exhibits

The SEC adopted amendments to investment company registration forms and Form N-CSR7 permitting a registrant to omit schedules (or similar attachments) to exhibits, provided such items do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the exhibit or the disclosure document.8

Personally Identifiable Information

The SEC adopted amendments to investment company registration forms and Form N-CSR9 permitting a registrant to redact information from exhibits required to be filed if disclosure of such information would constitute a clearly unwarranted invasion of privacy (e.g., disclosure of bank account numbers, social security numbers, home addresses and similar information).

Financial Statements: Incorporation by Reference and Cross-Reference of Information

The SEC adopted amendments to Rule 0-4 under the 1940 Act that prohibit financial statements from incorporating by reference, or cross-referencing, information that is contained outside of the financial statements, unless otherwise specifically permitted or required by SEC rules, U.S. Generally Accepted Accounting Principles or International Financial Reporting Standards.10

Compliance Dates

All investment company registration statement and Form N-CSR filings made on or after April 1, 2020 must be made in HTML format and comply with the rule and form amendments relating to the use of hyperlinks (early compliance is permissible).

The amendments governing redaction of confidential information in material contract exhibits became effective on April 2, 2019.11 Registrants must otherwise comply with all other amendments beginning May 2, 2019.

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If you have any questions regarding the matters covered in this memorandum, please contact Patricia A. Poglinco (212-574-1247, poglinco@sewkis.com), Paul M. Miller (202-737-8833, millerp@sewkis.com), or Lancelot A. King (202-661-7196, king@sewkis.com).

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1   See Fast Act Modernization and Simplification of Regulation S-K, SEC Release No. 33-10618 (March 20, 2019).

2   For example, in the case of a registration statement that has become effective, the filer will be required to correct an inaccurate or nonfunctioning link or hyperlink in the next post-effective amendment, if any, to the registration statement; however, in the case of a registration statement that is not yet effective, the filer will be required to file an amendment to the registration statement containing the inaccurate or nonfunctioning link or hyperlink.

3   Rule 0-4 provides general incorporation by reference rules for investment company registration statements, applications and reports filed with the SEC.  Rule 0-6 governs incorporation by reference for investment adviser applications for SEC orders under the Advisers Act other than applications for registration as an investment adviser.  Rule 8b-23 (additional incorporation by reference rules for registration statements and reports), Rule 8b-24 (rules regarding summaries or outlines of documents), and Rule 8b-32 (incorporation of exhibits by reference) provide additional incorporation by reference rules for investment company registration statements and reports.

4   Unlike the requirements for exhibit hyperlinking, a registrant is not required to correct inaccurate hyperlinks to information incorporated by reference in an effective registration statement by including a corrected hyperlink in a subsequent periodic report or a post-effective amendment. The SEC noted that the requirement in amended Rule 0-4 to describe the location of the information incorporated by reference should mitigate the impact of any inaccurate hyperlinks.

5   See new Instruction 4 to Item 28 of Form N-1A; new Instruction 6 to Item 25.2 of Form N-2; new Instruction 5 to Item 29(b) of Form N-3; new Instruction 5 to Item 24(b) of Form N-4; new Instruction 3 of Instructions as to Exhibits of Form N-5; new Instruction 3 to Item 26 of Form N 6; new Instruction 3 to Item 16 of Form N-14; new Additional Instruction 3 to the Instructions as to Exhibits of Form S-6; and new Instruction 3 to IX. Exhibits of Form N-8B-2.

6   If requested by the SEC or its staff (“Staff”), the registrant must promptly provide an unredacted copy of the exhibit on a supplemental basis.  The Staff also may request that the registrant provide its materiality and competitive harm analyses on a supplemental basis.  Upon evaluation of the registrant’s supplemental materials, the SEC or the Staff may request that the registrant amend its filing to include in the exhibit any previously redacted information that is not adequately supported by the registrant’s materiality and competitive harm analyses.

 

7   See new Instruction 2 to Item 28 of Form N-1A; new Instruction 4 to Item 25.2 of Form N-2; new Instruction 3 to Item 29(b) of Form N-3; new Instruction 3 to Item 24(b) of Form N-4; new Instruction 1 of Instructions as to Exhibits of Form N-5; new Instruction 1 to Item 26 of Form N 6; new Instruction 1 to Item 16 of Form N-14; new Additional Instruction 1 to the Instructions as to Exhibits of Form S-6; new Instruction 1 to IX. Exhibits of Form N-8B-2; and new Instruction 2 to Item 13 of Form N-CSR.

 

8   Each exhibit filed must contain a list briefly identifying the contents of all omitted schedules.  Registrants need not prepare a separate list of omitted information if such information is already included within the exhibit in a manner that conveys the subject matter of the omitted schedules and attachments.  In addition, the registrant must provide a copy of any omitted schedule to the SEC or the Staff upon request.

 

9   See new Instruction 3 to Item 28 of Form N-1A; new Instruction 5 to Item 25.2 of Form N-2; new Instruction 4 to Item 29(b) of Form N-3; new Instruction 4 to Item 24(b) of Form N-4; new Instruction 2 of Instructions as to Exhibits of Form N-5; new Instruction 2 to Item 26 of Form N 6; new Instruction 2 to Item 16 of Form N-14; new Additional Instruction 2 to the Instructions as to Exhibits of Form S-6; new Instruction 2 to IX. Exhibits of Form N-8B-2; and new Instruction 3 to Item 13 of Form N-CSR.

 

10   The SEC adopted an additional amendment to Rule 0-4, which provides that financial information required to be given in comparative form for two or more fiscal years or periods must not be incorporated by reference unless the information incorporated by reference includes the entire period for which the comparative data is given.

 

11   These amendments include new Instruction 4 to Item 28 of Form N-1A; new Instruction 6 to Item 25.2 of Form N-2; new Instruction 5 to Item 29(b) of Form N-3; new Instruction 5 to Item 24(b) of N-4; new Instruction 3 of Instructions as to Exhibits of Form N-5; new Instruction 3 to Item 26 of Form N-6; new Instruction 3 to Item 16 of Form N-14; new Additional Instruction 3 to the Instructions as to Exhibits of Form S-6; and new Instruction 3 to IX. Exhibits of Form N-8B-2.


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