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01 Jan 2023

Unveiling SEC Form N-SAR: A Comprehensive Guide to Disclosure Requirements for Investment Management Companies

Categories Sarbanes–Oxley Act

SEC Form N-SAR: Understanding the Filing and Its Evolution

SEC Form N-SAR was a crucial filing for registered investment management companies to disclose essential financial information, including sales of shares and portfolio turnover rates. However, this form was phased out in 2018 and replaced by SEC Form N-CEN, which now serves as the primary method for reporting annual data or census-type information.

Key Takeaways:

  • SEC Form N-SAR: A filing specific to registered investment management companies, disclosing financial information in shareholder reports.
  • Sarbanes-Oxley Act of 2002: Prior to this act, Form N-SAR was required to be filed under Sections 13 and 15(d) of the Securities Exchange Act of 1934, but it underwent significant changes with the enactment of Sarbanes-Oxley.
  • Replacement with Form N-CEN: As of June 1, 2018, SEC Form N-CEN replaced N-SAR, requiring registered funds to report annual data within 75 days of the fund’s fiscal year-end.

Form N-CEN: A Streamlined and Updated Reporting Tool Form N-CEN retained many elements from Form N-SAR but also introduced relevant updates and streamlining to meet current needs regarding securities lending and exchange-traded funds. The new form eliminated redundant information reported to the SEC on other forms.

SEC Form N-SAR vs. Other SEC Filings Apart from Form N-SAR and its replacement N-CEN, there are several other critical SEC forms that investors and managers should be familiar with when conducting business in the financial services industry:

  1. SEC Form ADV: Investment advisors use this form to register with both the SEC and state securities authorities, providing details about their business, clients, fees, disciplinary actions, and more.
    • Part One: Includes information about the investment advisor’s business, ownership, clients, employees, affiliations, and disciplinary events.
    • Part Two: Contains requirements for brochure and brochure supplements, detailing advisory services, fee schedules, disciplinary information, conflicts of interest, and background of management and key advisory personnel.
    • Part Three: Pertains to investment advisors with retail clients, mandating certain disclosures written in plain English, including services offered, fees, conflicts of interest, legal and disciplinary history, and code of conduct.
  2. SEC Forms S-1 and S-1/A: Significant for initial registration of new securities of current or pending public companies. These forms are essential for companies seeking to list their shares on a national exchange.
    • Companies enlist the help of an investment bank or syndicate to draft and file Form S-1, which includes detailed information on the use of proceeds, business model, competition, offering price methodology, and dilution.

The replacement of Form N-SAR with Form N-CEN and the existence of other essential SEC filings highlight the importance of complying with regulatory requirements and ensuring transparent reporting in the financial services industry.

Websites and Online Resources:

  1. U.S. Securities and Exchange Commission (SEC) – Forms and Filings – The SEC’s official website provides access to various forms, including SEC Form N-SAR, offering detailed information and instructions.
  2. Investment Company Institute (ICI) – Form N-SAR Overview – ICI offers an overview of SEC Form N-SAR, explaining its purpose, filing requirements, and relevant updates.

Books:

  1. “Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law” by Clifford E. Kirsch – This comprehensive guide covers various aspects of investment adviser regulation, including SEC forms and filing requirements.
  2. “Securities Operations: A Guide to Trade and Position Management” by Michael Simmons – This book provides insights into the operational aspects of securities trading, including regulatory requirements and reporting obligations.

Academic Journals and Research Papers:

  1. “The Sarbanes-Oxley Act and Corporate Fraud: Impact on Analysts’ Recommendations and Investors’ Confidence” by Tony Kang, Narayan Y. Naik, and Madhu Veeraraghavan – This research paper examines the impact of the Sarbanes-Oxley Act on analysts’ recommendations and investor confidence in the context of corporate fraud.
  2. “Regulatory Oversight and Auditor Market Share” by John M. Donovan and Jacqueline L. Reck – This study explores the relationship between regulatory oversight, auditor market share, and the financial reporting quality of investment management companies.

Reports and Studies:

  1. “Investment Company Fact Book” by Investment Company Institute (ICI) – This annual report provides comprehensive data and statistics on the investment company industry, offering insights into trends, regulatory landscape, and forms like Form N-SAR.
  2. “SEC Enforcement Activity: Public Companies and Subsidiaries, Fiscal Year 2020” by U.S. Securities and Exchange Commission (SEC) – This report highlights SEC’s enforcement activities related to public companies and subsidiaries, providing insights into regulatory compliance and disclosure requirements.

Professional Organizations and Associations:

  1. Investment Company Institute (ICI) – ICI is a leading association representing regulated funds, including investment management companies. Their website offers industry research, resources, and updates on regulatory matters.
  2. North American Securities Administrators Association (NASAA) – NASAA is an organization of state and provincial securities regulators, offering investor education materials, regulatory guidance, and resources related to securities laws and compliance.