SUPPLEMENTARY INFORMATION:

The Commission is amending the following rules and forms:

Table of Contents

I. Discussion

A. Form N-MFP

B. Rule 482(b)(4)

C. Form N-1A

D. Form N-2

E. Form N-CSR

F. Rule 204-2(j)(4)

G. OMB Control Numbers

II. Procedural and Other matters

III. Economic Analysis

A. Form N-MFP

B. Rule 482(b)(4)

C. Other Amendments

IV. Paperwork Reduction Act

Statutory Authority

I. Discussion

The Commission is adopting amendments to correct errors in certain Commission rules and forms. Specifically, the amendments correct errors in the formula for calculating yield data reported on Form N-MFP, which requires money market funds to report portfolio and other information to the Commission each month. The amendments also make conforming changes to the risk disclosure statement in rule 482, which requires certain information to be included in mutual fund advertisements and sales literature. The amendments also conform certain provisions of Form N-1A and Form N-2, forms used by open-end management investment companies (“open-end funds”) and closed-end funds, respectively, to register under the Investment Company Act and to offer their shares under the Securities Act. These amendments reflect recent rule changes requiring open-end funds to transmit more concise annual and semi-annual reports to shareholders. Further, the amendments correct outdated cross- ( printed page 90580) references and redesignate the numbering of certain paragraphs within Form N-CSR, a reporting form used by funds to file shareholder reports under the Investment Company Act and the Exchange Act. The amendments also correct an erroneous cross-reference in rule 204-2, which prescribes recordkeeping requirements for investment advisers. Finally, the amendments insert inadvertently omitted Office of Management and Budget (“OMB”) control numbers in 17 CFR 200.800, which is a rule that displays control numbers OMB has assigned to existing information collection requirements pursuant to the Paperwork Reduction Act.

Although the amendments are effective immediately, to the extent that registrants need additional time to conform to the amendments, they may take up to 90 days after the effective date to comply.^[12] Given the nature of the amendments, a 90-day compliance period gives registrants adequate time to review these amendments and, if necessary, update their practices to reflect the corrections.

A. Form N-MFP

The Commission is adopting amendments to correct errors in Form N-MFP. Money market funds use Form N-MFP to report portfolio and other information to the Commission each month. Among the items required by Form N-MFP is the reporting of a money market fund's 7-day annualized gross and net yields. The form requires money market funds to report 7-day gross yield at the series level and 7-day net yield at the class level.^[13] These standardized metrics give investors the ability to view the yield information of a money market fund over a recent time period, allowing investors to make better informed decisions and, in the aggregate, provide the Commission with useful data for identifying and monitoring trends in the money market fund sector.

In 2023, the Commission adopted a rulemaking that changed the frequency at which funds are required to report the 7-day yield information in their monthly reports on Form N-MFP to require 7-day gross and net yield data for each business day of the month (instead of only the 7 days ended on the last day of the month).^[14]

In making this frequency-related change, the phrase “business days” was erroneously inserted into the yield calculation formula in a way that inadvertently altered the calculation period from 7 calendar days to 7 business days. A 7-business day period is internally inconsistent with the remainder of the yield calculation formula, which uses a scaling factor intended to annualize yields calculated over 7 calendar days. If used with a 7-business day period, it would result in the reporting of inflated annual yields on Form N-MFP.^[15] Based on a review of a sample of recent Form N-MFP filings, Commission staff has not observed any evidence of an increase in reported yield figures relative to yields reported in prior periods, suggesting that money market funds' yield calculations do not reflect the error.^[16] In addition, in amending Form N-MFP in 2023, the phrase “immediately preceding” was inadvertently inserted into the yield calculation formula, such that the reporting day would not be included in the calculation. The amendments correct these errors, ensuring that Form N-MFP continues to reflect the longstanding method money market funds have used to calculate and report yield figures (measured over seven calendar days) to the Commission in Form N-MFP and in other contexts, including prospectuses, advertisements, and sales literature.^[17]

B. Rule 482(b)(4)

We are amending rule 482 to correct outdated cross-references and conform the risk statements that money market funds must include in their advertisements and sales literature to the risk statements that money market funds must include in their prospectuses.^[18] Rule 482 applies to advertisements or other sales materials with respect to securities of an investment company registered under the Investment Company Act that is selling or proposing to sell its securities pursuant to a registration statement that has been filed under the Investment Company Act.^[19] This rule describes the information that is required to be included in an advertisement, including a disclosure statement that must be used on money market fund advertisements.^[20]

In the Money Market Fund Reform Adopting Release, the Commission amended the risk statements that money market funds must include in their prospectuses to align with the changes to money market fund regulations adopted in that release ( e.g., the removal of provisions allowing temporary suspensions of redemptions and changes to the liquidity fee framework). However, rule 482 was not included in the amendments and the statements that rule 482 currently requires are inconsistent with the recently amended regulatory framework for money market funds.^[21] Further, the risk statements that money market funds were required to include in prospectuses and advertisements have otherwise always been identical and the risk statements should not differ based on whether an investor is reviewing a prospectus or an advertisement.^[22]

( printed page 90581)

As a result, rule 482 includes outdated references to concepts that have been removed or significantly modified in underlying money market fund regulations ( e.g., allowing temporary suspensions of redemptions). The amendments to rule 482 would correct this error, make certain other conforming edits to further align the language of the risk statements with the risk statements that money market funds must include in their prospectuses, and correct inaccurate cross references to money market fund rules.^[23]

C. Form N-1A

We are amending a provision of Form N-1A to correct a cross reference, reflecting changes made in the Tailored Shareholder Reports Adopting Release.^[24] Specifically, we are amending Item 10(a)(1)(iii) of Form N-1A. This item requires open-end funds to include prospectus disclosure stating that a discussion regarding the basis for the board of directors approving any advisory contract of the fund is available in the fund's annual or semi-annual report to shareholders, as applicable.^[25] In the Tailored Shareholder Reports Adopting Release, however, the Commission adopted amendments requiring discussion regarding the basis for the board's approval of the advisory contract to be included on Form N-CSR rather than in the annual or semi-annual report.^[26] We are accordingly amending Item 10(a)(1)(iii) to reference that this disclosure now appears in the fund's reports on Form N-CSR.^[27] Because this change simply updates a cross reference, funds may include the updated language in their next annual prospectus update following the adoption of the amendments to Form N-1A and we anticipate funds would update this disclosure at that time. In the interim period before funds make this update, an investor who wants to review the discussion regarding the basis for the board's approval of the advisory contract would look in the fund's shareholder report (which is referenced in the current prospectus disclosure requirement).^[28] While this discussion will no longer appear in the fund's shareholder report, the report will include a link to additional information about the fund, which includes the discussion regarding the basis for the board's approval of the advisory contract.

D. Form N-2

We are amending Instruction 8.a to Item 24 of Form N-2 to correct a cross-reference to a provision of Form N-CSR that became outdated when the Commission adopted amendments to Form N-CSR in the Tailored Shareholder Reports Adopting Release. Instruction 8.a refers to Item 7 of Form N-CSR (“Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies”), which was redesignated as Item 12 (but not otherwise changed) in the Tailored Shareholder Reports Adopting Release.^[29] We are therefore amending the reference in Item 7 in Instruction 8.a to refer instead to Item 12.

E. Form N-CSR

We are amending Items 2, 16, and 19 of Form N-CSR to correct outdated cross-references, remove unnecessary instructions, and redesignate the numbering of certain paragraphs. In the Recovery of Erroneously Awarded Compensation Adopting Release, the Commission added a new Item 18 (“Recovery of Erroneously Awarded Compensation”) to Form N-CSR and redesignated then-current Item 18 (“Exhibits”) as Item 19.^[30] References in Item 2 of Form N-CSR, however, erroneously still refer to Item 18.^[31] We are therefore amending Item 2 to refer to Item 19 instead of Item 18.

In the Recovery of Erroneously Awarded Compensation Adopting Release, the Commission also added new paragraph (a)(2) to newly designated Item 19 (“Exhibits”) and redesignated paragraph (a)(2) of newly redesignated Item 19 as paragraph (a)(3). Subsequent paragraphs were not renumbered, however, resulting in two paragraphs designated (a)(3). The amendments would correct this error by redesignating existing paragraphs (a)(3) and (a)(4) of newly redesignated Item 19 as paragraphs (a)(4) and (a)(5). We are also correcting the title for the instructions to Item 19, which currently erroneously references Item 13. In addition, we are removing the instruction to paragraph (b) of Item 16 and the instruction to paragraph (a)(3) of Item 19 on Form N-CSR.^[32] These instructions were included in Form N-CSR pursuant to the 2016 investment company reporting modernization ( printed page 90582) rulemaking to address how registrants should handle certain disclosures during the transition period before all registered management investment companies were required to file Form N-PORT.^[33] These instructions are unnecessary as all registered management investment companies are currently required to file Form N-PORT ( i.e., the transition period for reporting on Form N-PORT has concluded).

F. Rule 204-2(j)(4)

We are amending rule 204-2 under the Investment Advisers Act to correct an erroneous cross reference. The corrected cross reference in rule 204-2(j)(4) will refer to 17 CFR 270.0-2(b)(2) (rule 0-2(b)(2)) for the definition of non-resident investment adviser (and not rule 0-2(d)(3) under the Investment Advisers Act, which does not exist).

G. OMB Control Numbers

Finally, we are amending 17 CFR 200.800 to display control numbers OMB has assigned to certain existing information collection requirements pursuant to the Paperwork Reduction Act that mistakenly were not previously listed in that rule.

II. Procedural and Other Matters

The Administrative Procedure Act (“APA”) generally requires an agency to publish notice of a rulemaking in the Federal Register and provide an opportunity for public comment.^[34] This requirement does not apply, however, if the agency “for good cause, finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” ^[35] Given the nature of the amendments and the associated minimal exercise of discretion, the Commission finds that notice and public comment are unnecessary and that there is good cause to implement these amendments in a final rule.

The amendments to Form N-MFP correct inadvertent errors that created an inconsistency in the yield calculation formula and represented a departure from the longstanding method money market funds have used to calculate and report yield figures to the Commission. The amendments to rule 482 conform the required risk disclosure to the recently amended regulatory framework for money market funds. The amendments to Form N-1A, Form N-2, Form N-CSR, and rule 204-2 are ministerial in nature. They update incorrect or outdated cross references, redesignate the numbering of certain paragraphs, or remove outdated information. Accordingly, we find good cause that publishing the amendments to Form N-MFP, rule 482, Form N-1A, Form N-2, Form N-CSR, and rule 204-2 for comment is unnecessary. The APA also provides that notice of proposed rulemaking is not required for “rules of agency organization, procedure, or practice.” ^[36] The amendments to 17 CFR 200.800 pertain to agency organization, procedure, or practice, and therefore are not subject to the APA's requirement for advance notice and opportunity for public comment prior to publication.

The APA generally requires publication of a rule at least 30 days before its effective date. This requirement does not apply, however, if the agency finds good cause for making the rule effective sooner.^[37] For the same reasons we are forgoing notice and comment, we find good cause to make the amendments effective upon publication in the Federal Register . This finding that notice and public comment are unnecessary also satisfies the requirements of the Congressional Review Act, allowing the amendments to become effective at such time that the Commission determines.^[38] Pursuant to the Congressional Review Act, the Office of Information and Regulatory Affairs has designated these amendments not a “major rule,” as defined by 5 U.S.C. 804(2). The amendments also do not require analysis under the Regulatory Flexibility Act.^[39]

III. Economic Analysis

As discussed above, these amendments correct errors in certain Commission rules and forms. The Commission is mindful of the economic effects, including the benefits and costs, of the adopted amendments. The analysis below addresses the likely economic effects of the amendments, including the anticipated and estimated benefits and costs of the amendments and their likely effects on efficiency, competition, and capital formation.^[40] We analyze these effects against a baseline that consists of the current regulatory framework and current market practices.

The amendments we are adopting are limited in nature.^[41] Therefore, many of the economic effects will be minimal or null. Where we are unable to quantify those economic effects that may exist, we explain why they are impracticable to quantify and we discuss them in qualitative terms. Given the nature of the benefits and the minimal costs expected to result from these amendments, we do not anticipate any changes to efficiency, competition, or capital formation will result from these amendments.

A. Form N-MFP

Baseline. Money market funds report their gross and net yields using public Form N-MFP filings.^[42] The instructions accompanying these yields' calculations were inadvertently changed in a 2023 rulemaking.^[43] The amendments to Form N-MFP correct this error.^[44]

We estimate that this amendment to Form N-MFP will apply to 291 money market funds registered with the Commission as of December 31, 2023. Commission staff have not observed evidence of reported yield changes that would be expected if money market funds had fully implemented the erroneous instructions in their calculations of 7-day annualized gross and net yields.^[45]

( printed page 90583)

Economic Effects. The amendments to Form N-MFP will correct errors and ensure that Form N-MFP continues to reflect the longstanding calculation method for money market fund yields, including consistency in calculation methods across Form N-MFP, prospectuses, advertisements, and sales literature.^[46] Investors will benefit to the extent that they would have been confused as to the performance of any money market funds that incorporate the errors into their yield calculations.^[47] The change may also provide a small benefit to money market funds to the extent that the erroneous instructions and departure from longstanding methods would otherwise complicate their completion of the form.

We expect that money market funds will not incur significant costs associated with these amendments. As mentioned above, a review of a sample of Form N-MFP filings suggests that filers' recent yield calculations do not reflect the error.^[48] If there are any money market funds that have implemented the erroneous instructions, those funds will have to make corrections to their internal processes following these amendments. However, we anticipate the one-time costs to do so will be minimal as funds are familiar with the correct method from Form N-MFP prior to the erroneous amendments going into effect, as well as from preparing their prospectuses, advertisements, and sales literature.

B. Rule 482(b)(4)

Baseline. Advertisements and other sales material for securities of a registered investment company that holds itself out to be a money market fund must include certain risk disclosures specified in paragraph (b)(4) of rule 482, as applicable to the fund.^[49] Currently, the disclosures required by rule 482(b)(4) do not reflect recent changes to 17 CFR 270.2a-7 (rule 2a-7).^[50] In addition, the required wording in these disclosures deviates from the corresponding statements that Form N-1A directs money market funds to include in their prospectuses, which historically had been aligned.^[51] The amendment to rule 482 corrects these errors by aligning the risk disclosure language in paragraph (b)(4) to exactly match the corresponding language in Form N-1A.^[52]

We estimate that the amendment to rule 482 will apply to 291 money market funds registered with the Commission as of December 2023. Money market funds will have to update their processes for preparing advertisements to incorporate the amended language in rule 482(b)(4), to the extent these processes have not already been updated. Intermediaries that prepare money market fund advertisements are also subject to rule 482(b)(4) and will also have to update their processes, if they have not already done so.

Economic Effects. The amendment will restore the consistency of the aforementioned risk disclosures presented by money market funds across various channels. This change will principally benefit certain prospective investors that may use a fund's advertisement to inform their investment decisions. Specifically, these investors will be presented with information that accurately describes certain requirements of amended rule 2a-7 applicable to the fund, thereby eliminating any confusion stemming from potential inconsistencies in risk disclosures across these channels.

Funds and intermediaries will incur a minimal cost associated with updating their processes for preparing money market fund advertisements as a result of this amendment because the wording changes are not extensive, and they may take up to 90 days to make the changes. In addition, we anticipate that funds or intermediaries generally will update any previously prepared advertisements that are actively in use, but that have not been updated to account for amended rule 2a-7.^[53] This cost will scale with the number of these money market fund advertisements maintained by a fund or intermediary, but we expect the costs to funds and intermediaries will be minimal because the wording changes are minor and precisely prescribed, and funds and intermediaries may take up to 90 days to make the changes.

C. Other Amendments

The amendments make several ministerial changes to correct missing or erroneous paragraph numbers, cross-references, and similar administrative text. These changes affect Form N-1A, Form N-CSR, Form N-2, rule 204-2(j)(4), and the OMB control numbers listed in 17 CFR 200.800.

Form N-1A contains inaccurate language, in Item 10(a)(1)(iii), about the location of a discussion regarding the basis for the fund board's approval of the fund's advisory contract: it states the basis will be in the fund's annual or semi-annual report to fund shareholders, but funds are required to include this basis in Form N-CSR filings rather than in reports.^[54] Open-end funds use Form N-1A to register with the Commission and to offer their shares; as of December 2023, there are 12,153 open-end funds registered with the Commission.

Correcting the erroneous statement in Form N-1A may benefit certain prospective investors that are inclined to review a fund board's basis for approving the fund's advisory contract. We are unaware of any data that would allow us to estimate the number of prospective investors that are inclined to seek out this information or the number of these prospective investors that would face difficulty obtaining this information in the absence of the technical amendment. However, any benefit will be small because investors can find this information despite the error.^[55] Similarly, the costs that funds will undertake to update the wording on Form N-1A to reference Form N-CSR rather than their annual or semi-annual report will be minimal because the wording changes are not extensive and because funds will not need to include the updated language until their next annual prospectus update following the adoption of the amendments to Form N-1A.^[56]

( printed page 90584)

Form N-CSR contains incorrect cross-references, paragraph numbering, and section headings.^[57] As of December 2023, there are 12,851 registered management investment companies that are registered with the Commission and required to file Form N-CSR. Correcting Form N-CSR will benefit users to the extent they may have been confused by the errors. Registered management investment companies will not incur any costs as a result of the corrections, which impose no new obligations.

Form N-2 contains an incorrect cross-reference.^[58] Closed-end funds use Form N-2 to register with the Commission and to offer their shares; as of December 2023 there are 683 closed-end funds registered with the Commission. There may be a minimal benefit to closed-end funds resulting from this change if fewer compliance resources are required to correctly complete the form. There will be no cost to closed-end funds or other registrants, as the change does not require any action.

Rule 204-2(j)(4) contains an incorrect cross-reference. Rule 204-2(j)(4) sets books and records requirements for non-resident advisers; as of December 2023, there are 15,478 advisers registered with the Commission. There may be minimal benefit to advisers from this amendment to the extent that the erroneous cross reference caused confusion to some registrants or other individuals.^[59] There will be no costs to advisers or other registrants resulting from this change, as no new actions will be required of them.

The table in 17 CFR 200.800 displays current OMB control numbers for information collection requirements codified in title 17 of the CFR, but OMB control numbers for several rules are absent from this display.^[60] This amendment may benefit the public to the extent the corrected table improves ease of reference. We expect any benefit to be small. The amendment has no costs to registrants or other market participants.

IV. Paperwork Reduction Act

Certain provisions of the rules and form amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).^[61] Specifically, the amendments to rule 482(b)(4) of the Securities Act to revise the particular wording of the risk statements that money market funds must include in their advertisements modify an existing “collection of information.” The title for the existing collection of information is “Rule 482 under the Securities Act of 1933, Advertising by an Investment Company as Satisfying Requirements of section 10” (OMB Control No. 3235-0565). This collection of information will be mandatory for money market funds and the information will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. We are submitting the proposed collections of information to the Office of Management and Budget for review in accordance with the PRA.

In our most recent PRA submission for rule 482, we estimated the annual aggregate burden to comply with the collection of information requirement of rule 482 is 577,847 burden hours with an internal cost burden of $213,133,255.^[62] Given that the amendments are one-time updates to the wording of the risk statements already required under current rule 482(b)(4), we believe that, once affected funds have made these one-time changes, the amendments to rule 482(b)(4) will only require money market funds to incur the same costs and hour burdens, per fund, on an ongoing basis as under current rule 482(b)(4).

The table below summarizes our PRA initial and ongoing annual burden estimates associated with the amendments to rule 482. Some money market funds may have already updated the risk statements in their advertisements to conform with the required risk statements in their prospectus. Accordingly, the PRA estimates likely overestimate the costs associated with the final amendments for those funds whose risk statements in their advertisements are currently in line with the risk statements that the amendments would require.

The amendments to Form N-MFP, Form N-1A, Form N-2, Form N-CSR, and rule 204-2 do not make any substantive modifications to any existing collection of information requirements or impose any new ( printed page 90585) substantive recordkeeping or information collection requirements within the meaning of the PRA. ⁶³ Accordingly, we are not revising any burden and cost estimates in connection with these amendments.

Statutory Authority

The Commission is adopting these amendments under the authority set forth in the Securities Act, particularly sections 5, 6, 7, 10, 19, and 28 thereof [15 U.S.C. 77a et seq.]; the Exchange Act, particularly section 23 thereof [15 U.S.C. 78a et seq.]; the Investment Company Act, particularly sections 8, 24, 30, and 38 thereof [15 U.S.C. 80a et seq.]; the Investment Advisers Act, particularly sections 204 and 211 thereof [15 U.S.C. 80b-1 et seq]; and 44 U.S.C. 3506, 3507.

Text of Rule and Form Amendments

For reasons set forth in the preamble, the Commission is amending title 17, chapter II of the Code of Federal Regulations as follows:

Note:

The following appendices will not appear in the Code of Federal Regulations.

Appendix A—Form N-1A

Form N-1A

Item 10. Management, Organization, and Capital Structure

(a) * * *

(1) * * *

(iii) Include a statement, adjacent to the disclosure required by paragraph (a)(1)(ii) of this Item, that a discussion regarding the basis for the board of directors approving any investment advisory contract of the Fund is available in the Fund's reports filed on Form N-CSR, and providing the period covered by the most recent Form N-CSR report that includes this discussion.

Appendix B—Form N-2

Form N-2

Item 24. Financial Statements

Instructions

8. a. When a Registrant (or financial intermediary through which shares of the Registrant may be purchased or sold) receives a request for a description of the policies and procedures that the Registrant uses to determine how to vote proxies, the Registrant (or financial intermediary) must send the information most recently disclosed in response to Item 18.16 of this Form or Item 12 of Form N-CSR within 3 business days of receipt of the request, by first-class mail or other means designed to ensure equally prompt delivery.

Appendix C—Form N-MFP

Form N-MFP

Item A.19. 7-day gross yield. For each business day, based on the 7 days ended on that business day, calculate the fund's yield by determining the net change, exclusive of capital changes and income other than investment income, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then multiplying the base period return by (365/7) with the resulting yield figure carried to at least the nearest hundredth of one percent. The 7-day gross yield should not reflect a deduction of shareholder fees and fund operating expenses. For master funds and feeder funds, report the 7-day gross yield at the master-fund level.

a. 7-day gross yield ( printed page 90592)

b. Date

Item B.8. 7-day net yield for each business day of the month reported, as calculated under Item 26(a)(1) of Form N-1A (§ 274.11A of this chapter) except based on the 7 days ended on that business day.

a. 7-day net yield

b. Date