[Federal Register Volume 67, Number 174 (Monday, September 9, 2002)]
[Proposed Rules]
[Pages 57298-57308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22658]



  Federal Register / Vol. 67, No. 174 / Monday, September 9, 2002 / 
Proposed Rules  

[[Page 57298]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 249, 270 and 274

[Release Nos. 34-46441; IC-25723; File No. S7-33-02]
RIN 3235-AI63


Certification of Management Investment Company Shareholder 
Reports and Designation of Certified Shareholder Reports as Exchange 
Act Periodic Reporting Forms

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing rule 
amendments that would require registered management investment 
companies to file certified shareholder reports with the Commission, 
and would designate these certified reports as reports that are 
required under Sections 13(a) and 15(d) of the Securities Exchange Act 
of 1934. This proposal would require each registered management 
investment company's principal executive and financial officers to 
certify the information contained in these reports in the manner 
required by Section 302 of the Sarbanes-Oxley Act of 2002. In addition, 
we are proposing an amendment to Form N-SAR, the semi-annual reporting 
form for registered investment companies, that would uniformly apply to 
all registered investment companies the requirement to include in Form 
N-SAR the certification required by Section 302 of the Sarbanes-Oxley 
Act of 2002. Finally, we are proposing a new rule to require every 
registered investment company to maintain disclosure controls and 
procedures designed to ensure that the information required in its 
disclosure documents is recorded, processed, summarized, and reported 
on a timely basis.

DATES: Comments must be received on or before October 16, 2002.

ADDRESSES: To help us process and review your comments more 
efficiently, comments should be sent by one method only.
    Comments should be submitted in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments also may be submitted 
electronically at the following electronic mail address: [email protected]. All comment letters should refer to File No. S7-33-
02; this file number should be included in the subject line if 
electronic mail is used. Comment letters will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, NW., Washington, DC 20549. Electronically submitted 
comment letters will be posted on the Commission's Internet Web site 
(http://www.sec.gov).\1\
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    \1\ We do not edit personal identifying information, such as 
names or electronic mail addresses, from electronic submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: John M. Faust, Law Clerk, Tara L. 
Royal, Attorney, or Paul G. Cellupica, Assistant Director, Office of 
Disclosure Regulation, Division of Investment Management, (202) 942-
0721, at the Securities and Exchange Commission, 450 Fifth Street, NW., 
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Washington, DC 20549-0506.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') is proposing for comment new rules 30a-3 and 30d-1 
under the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.] 
(``Investment Company Act''), and amendments to rules 8b-15 [17 CFR 
270.8b-15], 30a-1 [17 CFR 270.30a-1], 30a-2 [17 CFR 270.30a-2], 30b1-1 
[17 CFR 270.30b1-1], and 30b2-1 [17 CFR 270.30b2-1] under the 
Investment Company Act. The Commission also is proposing for comment 
amendments to Form N-SAR [17 CFR 249.330; 17 CFR 274.101] under the 
Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (``Exchange 
Act'') and the Investment Company Act, and new Form N-CSR [17 CFR 
249.331; 17 CFR 274.128] under the Exchange Act and the Investment 
Company Act.

I. Introduction and Background

    On July 30, 2002, the Sarbanes-Oxley Act of 2002 (``Sarbanes-Oxley 
Act'') was enacted.\2\ Section 302 of the Sarbanes-Oxley Act, entitled 
``Corporate Responsibility for Financial Reports,'' requires the 
Commission to adopt final rules that must be effective by August 29, 
2002, 30 days after the date of enactment, under which the principal 
executive officer or officers and the principal financial officer or 
officers, or persons performing similar functions, of an issuer each 
must certify the information contained in the issuer's quarterly and 
annual reports filed or submitted under Section 13(a) or 15(d) of the 
Exchange Act.\3\ Form N-SAR is currently the form designated for 
registered investment companies to comply with their reporting 
requirements under Sections 13(a) and 15(d) of the Exchange Act, as 
well as periodic reporting requirements under Sections 30(a) and 
30(b)(1) of the Investment Company Act.\4\
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    \2\ Pub. L. 107-204, 116 Stat. 745 (2002).
    \3\ Section 13(a) of the Exchange Act requires every issuer of a 
security registered pursuant to Section 12 of the Exchange Act to 
file with the Commission such annual reports and such quarterly 
reports as the Commission may prescribe. 15 U.S.C. 78m(a). Section 
15(d) of the Exchange Act requires each issuer that has filed a 
registration statement that has become effective pursuant to the 
Securities Act of 1933 (``Securities Act'') to file such 
supplementary and periodic information, documents, and reports as 
may be required pursuant to Section 13 of the Exchange Act in 
respect of a security registered pursuant to Section 12. 15 U.S.C. 
78o(d). The duty of an issuer to file under Section 15(d) is 
automatically suspended for any fiscal year, other than a fiscal 
year in which its registration statement becomes effective or is 
required to be updated pursuant to Section 10(a)(3) of the 
Securities Act [15 U.S.C. 77j(a)(3)], if an issuer's securities are 
held of record by less than 300 persons. 15 U.S.C. 78o(d); 17 CFR 
240.12h-3(c).
    \4\ General Instruction A to Form N-SAR; Rule 30a-1 under the 
Investment Company Act [17 CFR 270.30a-1]. See Investment Company 
Act Release No. 14299 (Jan. 4, 1985) [50 FR 1442] (release adopting 
Form N-SAR). Face-amount certificate companies, however, do not file 
reports on Form N-SAR, but rather file periodic reports on Forms 10-
K and 10-Q. See Investment Company Act Release No. 14080 (Aug. 6, 
1984) [49 FR 32370, 32372] (face-amount certificate companies are 
required to file reports on other forms prescribed under the 
Exchange Act rather than Form N-SAR).
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    In a companion release to this proposing release, the Commission is 
implementing the certification requirement of Section 302 of the 
Sarbanes-Oxley Act with respect to registered investment companies by 
adopting new rule 30a-2 under the Investment Company Act and the 
Sarbanes-Oxley Act.\5\ Rule 30a-2 requires a registered investment 
company that files periodic reports under Section 13(a) or 15(d) of the 
Exchange Act, i.e., Form N-SAR, to include the certification specified 
by Section 302 in those periodic reports.\6\
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    \5\ See Exchange Act Release No. 34-46427 (Aug. 28, 2002).
    \6\ In the companion release, we have also adopted amendments to 
Form N-SAR, to require the specified certification to be filed as an 
exhibit to Form N-SAR. Item 133 and instructions to items 77Q3, 
102P3, and 133 of Form N-SAR.
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II. Discussion of Proposed Amendments

Certified Shareholder Reports

    Although Form N-SAR is currently the form designated for registered 
investment companies to comply with their reporting requirements under 
Sections 13(a) and 15(d) of the Exchange Act, we believe that 
certification of Form N-SAR alone is not sufficient to fully implement 
the intent of the certification requirement of Section 302 of the 
Sarbanes-Oxley Act for registered management investment companies. This 
certification requirement was intended to improve the quality of the

[[Page 57299]]

disclosure that a company provides about its financial condition in its 
periodic reports to investors.\7\ For registered management investment 
companies, the required reports to shareholders, rather than Form N-
SAR, are the primary vehicle for providing financial statements to 
investors.\8\ We believe that the information in these reports to 
shareholders should be certified.
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    \7\ See, e.g., S. Rep. No. 107-205, at 2 (2002) (``The bill also 
requires steps to enhance the direct responsibility of senior 
corporate management for financial reporting and for the quality of 
financial disclosures made by public companies.''); 148 Cong. Rec. 
S7355 (July 25, 2002) (statement of Sen. Enzi) (``With respect to 
section 302, the conference recognizes that results presented in 
financial statements often necessarily require accompanying 
disclosures in order to apprise investors of the company's true 
financial condition and results of operations. The supplemental 
information contained in these additional disclosures increases 
transparency for investors. Accordingly, the relevant officers must 
certify that the financial statements together with the disclosures 
contained in the periodic report, taken as a whole, are appropriate 
and fairly represent, in all material respects, the operations and 
financial condition of the issuer.''); 148 Cong. Rec. S6760 (July 
15, 2002) (statement of Sen. Akaka) (``The legislation also requires 
additional corporate governance procedures to make Chief Executive 
Officers and Chief Financial Officers more directly responsible for 
the quality of financial reporting made to investors.'').
    \8\ Rule 30e-1 under the Investment Company Act [17 CFR 270.30e-
1].
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    Therefore, we are proposing to amend rule 30b2-1 under the 
Investment Company Act,\9\ which currently requires registered 
investment companies to file copies of reports transmitted to 
shareholders with the Commission within 10 days of their transmission 
to shareholders. Our proposed amendment would require a registered 
management investment company to file a report with the Commission on 
new Form N-CSR (``certified shareholder report'') containing (i) a copy 
of any required shareholder report, (ii) additional information 
regarding disclosure controls and procedures, and (iii) the 
certification required by the Sarbanes-Oxley Act.\10\ New Form N-CSR 
would require certified shareholder reports to contain the exact form 
of the certification prescribed by Section 302. The form of this 
certification would parallel the form of the certification we have 
prescribed for other Exchange Act forms, such as Form N-SAR and Forms 
10-K and 10-Q. In addition to the signature required on the 
certification, the report would be required to be signed by the 
registrant, and on behalf of the registrant by its principal executive 
officer or officers and its principal financial officer or 
officers.\11\
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    \9\ 17 CFR 270.30b2-1.
    \10\ Proposed rule 30b2-1(a) under the Investment Company Act; 
proposed Form N-CSR. In addition, we are proposing to amend new rule 
30a-2 to require both Forms N-CSR and N-SAR to include the 
certification required by Section 302 of the Sarbanes-Oxley Act. No 
certified shareholder report on Form N-CSR would be required with 
respect to a report to shareholders that is not required under rule 
30e-1 under the Investment Company Act [17 CFR 270.30e-1], e.g., 
voluntary quarterly reports. These reports to shareholders would 
continue to be filed with the Commission as they are presently. 
Proposed rule 30b2-1(b).
    \11\ See proposed General Instruction E to Form N-CSR.
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    We are also proposing a new rule 30d-1 under the Investment Company 
Act to designate both reports on Form N-SAR filed by management 
investment companies and unit investment trusts, and the certified 
shareholder reports on Form N-CSR that management investment companies 
would be required to file under rule 30b2-1(a), as periodic reports 
filed with the Commission under Section 13(a) or 15(d) of the Exchange 
Act.\12\ The proposed amendments would, if adopted, require a 
certification of each principal executive officer and financial officer 
of a management investment company to be included in both its certified 
shareholder reports, and in its reports on Form N-SAR. The proposed 
amendments would also apply the certification requirement to amendments 
of certified shareholder reports on Form N-CSR.\13\
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    \12\ We are also proposing a technical conforming amendment that 
would delete the language in current rule 30a-1 [17 CFR 270.30a-1] 
stating that a registered management investment company required to 
file an annual report pursuant to Section 13(a) or 15(d) of the 
Exchange Act and Section 30(a) of the Investment Company Act shall 
be deemed to have satisfied its requirement to file an annual report 
by the filing of semi-annual reports on Form N-SAR. The proposed 
amendments would rename rule 30a-1 in order to specify that it 
relates to annual reports by registered unit investment trusts, and 
would rename rule 30b1-1 [17 CFR 270.30b1-1] in order to specify 
that it relates to semi-annual reports of registered management 
investment companies.
    Form N-SAR would continue to be the only form required to 
satisfy the reporting requirements of Sections 13(a) and 15(d) of 
the Exchange Act with respect to registered unit investment trusts 
and registered small business investment companies (``SBICs''). Unit 
investment trusts, which are unmanaged, fixed portfolios of 
securities that have no corporate management structure, generally 
are not required to transmit reports to shareholders containing 
their financial statements. Similarly, registered SBICs, which are 
management investment companies, are not required under rule 30e-
1(a) [17 CFR 270.30e-1(a)] to transmit reports to shareholders 
containing their financial statements, because Form N-5 [17 CFR 
239.24; 17 CFR 274.5], the registration form for SBICs, does not 
prescribe requirements for reports to shareholders by SBICs.
    \13\ Proposed rule 8b-15 under the Investment Company Act.
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    We request comment on our proposal to require certified shareholder 
reports to be filed on Form N-CSR and to designate these reports as 
reports that are required under Sections 13(a) and 15(d) of the 
Exchange Act.
    [sbull] Should we require both the filing of certified shareholder 
reports on Form N-CSR and the certification of Form N-SAR? Should Form 
N-SAR be designated as exclusively an Investment Company Act filing and 
the certification requirement removed from Form N-SAR? If we remove the 
certification requirement from Form N-SAR, unit investment trusts and 
small business investment companies will have no certification 
requirement. Is this result appropriate or should these types of 
investment companies continue to certify Form N-SAR? Should Form N-SAR 
continue to be an Exchange Act reporting form for unit investment 
trusts and small business investment companies, even if we determine 
that it should be an Investment Company Act-only form for other 
management investment companies?
    [sbull] Instead of our proposal, should we require the 
certification required by Section 302 of the Sarbanes-Oxley Act to be 
included in Form N-SAR, but require additional information, such as the 
report to shareholders, or a portion of this report such as the 
financial statements, to be filed as an exhibit to the report on Form 
N-SAR?

Scope of Certification Requirement

    In addition to financial statements, annual reports to shareholders 
of open-end management investment companies, or mutual funds, typically 
contain Management's Discussion of Fund Performance (``MDFP''), 
although they are not required to do so.\14\ MDFP includes narrative 
disclosure of the factors that materially affected a fund's performance 
during the reporting period, a line graph comparing the fund's 
performance to that of an appropriate broad-based market index, and a 
table of average annual total returns for the fund.\15\ In addition, 
the annual report to shareholders of a management investment company 
must contain other information, including certain basic information 
about the investment company's directors.\16\ Our

[[Page 57300]]

proposed amendments would require this information and any other 
information contained in shareholder reports, whether required or 
included voluntarily, to be certified. This requirement is intended to 
fully implement the intent of Section 302, by enhancing the quality of 
all the information provided to investors in an investment company's 
reports to shareholders.
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    \14\ Item 5 of Form N-1A. Management's Discussion of Fund 
Performance must be included in a fund's prospectus unless the fund 
is a money market fund or the information in the MDFP is included in 
the fund's annual report to shareholders under rule 30e-1 [17 CFR 
270.30e-1]. A fund that includes MDFP in its annual report must 
disclose in its prospectus that its annual report contains 
additional performance information that will be made available upon 
request and without charge. Item 1(b)(1) of Form N-1A.
    \15\ Item 5 of Form N-1A.
    \16\ Item 22(b)(5) of Form N-1A; Instruction 4.e. to Item 23 of 
Form N-2; Instruction 4(v) to Item 27(a) of Form N-3.
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    We request comment on the scope of the certification requirement.
    [sbull] Should the certification requirement apply to part or all 
of the information contained within a shareholder report, including any 
information included on a voluntary basis and not required by statute 
or rule? For example, should Form N-CSR be required to contain only a 
portion of the shareholder report, such as the financial statements, 
with the remainder of the shareholder report filed with the Commission 
exclusively under the Investment Company Act?

Uniform Application of Certification Requirements

    Our proposed amendments would also amend the instructions to Form 
N-SAR to uniformly apply to all registered investment companies the 
requirement to include the certification required by Section 302 of the 
Sarbanes-Oxley Act, regardless of whether they are subject to Section 
13(a) or 15(d) of the Exchange Act.\17\ Likewise, the requirement to 
file certified shareholder reports would apply regardless of whether an 
investment company is subject to Section 13(a) or 15(d) of the Exchange 
Act.\18\ By contrast, registered investment companies that do not file 
reports under Section 13(a) or 15(d) of the Exchange Act are not 
required, by the instructions to Form N-SAR that we have adopted in our 
companion release, to comply with the certification requirement of 
Section 302 of the Sarbanes-Oxley Act.\19\ This results from the fact 
that the rules we have adopted implement Section 302, which only 
directs the Commission to adopt rules that will apply to companies 
filing periodic reports under Section 13(a) or 15(d) of the Exchange 
Act. We believe, however, that it is important for the certification 
requirement, like our other reporting rules, to apply consistently to 
all registered investment companies, regardless of whether they fall 
within the periodic reporting requirements of the Exchange Act. \20\
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    \17\ Proposed Instruction to sub-item 77Q3 of Form N-SAR. See 
supra note 3 (describing scope of coverage of Sections 13(a) and 
15(d) of the Exchange Act).
    \18\ Proposed rule 30b2-1(a).
    \19\ This exception applies principally to investment companies 
that do not file reports under Section 13(a) of the Exchange Act 
because they are not registered on a national securities exchange 
pursuant to Section 12 of the Exchange Act, and that do not file 
reports under Section 15(d) of the Exchange Act because they issue 
securities that are held of record by less than 300 persons, do not 
have a registration statement that has become effective in the 
current fiscal year, and are not required to update their 
registration statement in the current year pursuant to Section 
10(a)(3) of the Securities Act. See supra note 3.
    \20\ Cf. General Instruction A to Form N-SAR (Form N-SAR is to 
be used for semi-annual and annual reports by all registered 
investment companies that have filed a registration statement that 
has become effective pursuant to the Securities Act, with the 
exception of face amount certificate companies).
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    We request comment on our proposal to amend the instructions to 
Form N-SAR to require all registered investment companies to include 
the certification required by Section 302 of the Sarbanes-Oxley Act, 
regardless of whether they are subject to Section 13(a) or 15(d) of the 
Exchange Act. We also request comment on our proposal to require 
management investment companies to file certified shareholder reports 
on Form N-CSR regardless of whether they are subject to Section 13(a) 
or 15(d) of the Exchange Act.
    [sbull] Should the certification requirement apply uniformly to all 
registered investment companies, or should it apply only to registered 
investment companies subject to Section 13(a) or 15(d) of the Exchange 
Act?

Disclosure Controls and Procedures

    We are also proposing new rule 30a-3, which would require all 
registered investment companies to maintain, and regularly evaluate the 
effectiveness of, controls and procedures designed to ensure that the 
information required in filings under the Securities Act of 1933 
(``Securities Act''), Exchange Act, and Investment Company Act, 
including prospectuses and prospectus amendments, reports to 
shareholders, and Form N-SAR, is recorded, processed, summarized, and 
reported on a timely basis. We are also proposing a conforming 
amendment to rule 30a-2(c), to clarify that the definition of 
disclosure controls and procedures applies to all registration 
statements, reports, and other filings under these Acts.
    Investment companies filing reports under Section 13(a) or 15(d) of 
the Exchange Act will be required to maintain disclosure controls and 
procedures under new Exchange Act rules 13a-15 and 15d-15 with respect 
to Exchange Act reports.\21\ Proposed rule 30a-3 would apply this 
requirement uniformly to all registered investment companies and would 
extend it to filings under the Securities Act and the Investment 
Company Act. We believe that it is important that investment companies 
maintain effective disclosure controls and procedures with respect to 
the information required in filings under the Securities Act and the 
Investment Company Act as well as with respect to Exchange Act filings. 
Further, we believe that all registered investment companies should 
maintain effective disclosure controls and procedures, regardless of 
whether they fall within the periodic reporting requirements of the 
Exchange Act. Proposed rule 30a-3 would require an investment company, 
under the supervision and with the participation of the principal 
executive and financial officers, to conduct an evaluation of its 
disclosure controls and procedures within the 90-day period prior to 
the filing date of each report requiring certification under Investment 
Company Act rule 30a-2. We expect that this evaluation would be carried 
out in a manner that would form the basis for the certification 
required by Section 302 of the Sarbanes-Oxley Act regarding disclosure 
controls and procedures required by Investment Company Act rule 30a-
2(b)(4).
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    \21\ See Exchange Act Release No. 34-46427 (Aug. 28, 2002).
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    We request comment on our proposal to require all registered 
investment companies to maintain disclosure controls and procedures 
with respect to all filings under the Securities Act, Exchange Act, and 
Investment Company Act.
    [sbull] Should the disclosure controls and procedures requirements 
extend to filings made under all three Acts, and to all registered 
investment companies?

Compliance Date

    If we adopt the proposed amendments, we intend to require 
compliance with the proposed amendments, including the requirement to 
file certified shareholder reports on Form N-CSR and the requirements 
with respect to disclosure controls and procedures, 30 days after their 
publication in the Federal Register.
    We request comment on the anticipated compliance date.
    [sbull] Is 30 days an appropriate transition period for compliance, 
or should this be shorter or longer? Should any of the proposed 
amendments have different compliance dates?

[[Page 57301]]

III. General Request for Comment

    In addition to requesting comment on our proposal to require the 
filing of certified shareholder reports and to designate these reports 
as reports filed with the Commission pursuant to Section 13(a) or 15(d) 
of the Exchange Act and our other proposals, we request comment 
generally on whether any further changes to our rules and forms are 
necessary or appropriate to implement the objectives of our proposed 
amendments, and on other matters that might have an effect on the 
proposals contained in this release.

IV. Paperwork Reduction Act

    The new rules and rule and form amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\22\ We are submitting the proposal to 
the Office of Management and Budget (``OMB'') for review in accordance 
with the PRA.\23\ The titles for the collection of information are 
``Form N-CSR under the Investment Company Act of 1940 and Securities 
Exchange Act of 1934, Certified Shareholder Report,'' and ``Form N-SAR 
under the Investment Company Act of 1940 and Securities Exchange Act of 
1934, Semi-Annual Report for Registered Investment Companies.''
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    \22\ 44 U.S.C. 3501 et seq.
    \23\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    Form N-SAR (OMB Control No. 3235-0330) under the Exchange Act and 
the Investment Company Act [17 CFR 249.330; 17 CFR 274.101] is used by 
registered investment companies to file periodic reports with the 
Commission. The Commission is proposing a new collection of information 
on proposed Form N-CSR under the Exchange Act and the Investment 
Company Act, to be used by registered management investment companies 
filing certified shareholder reports.

A. Summary of Proposed Rules

    Proposed Form N-CSR, if adopted, would contain: (i) A copy of any 
report that is required to be transmitted to shareholders, (ii) 
additional information regarding disclosure controls and procedures, 
and (iii) the certification required by Section 302 of the Sarbanes-
Oxley Act. The proposed amendment to rule 30b2-1, if adopted, would 
require a registered management investment company to file certified 
shareholder reports with the Commission on proposed Form N-CSR. 
Proposed rule 30d-1, if adopted, would designate both reports on Form 
N-SAR and certified shareholder reports on Form N-CSR as periodic 
reports under Section 13(a) or 15(d) of the Exchange Act.\24\ The 
proposed amendments to rule 30a-2, if adopted, would require each 
certified shareholder report on Form N-CSR filed with the Commission 
under rule 30b2-1(a) to include the certification required by Section 
302, by each principal executive and financial officer of a management 
investment company.\25\ The proposed amendments to rule 8b-15, if 
adopted, would also apply the certification requirement to amendments 
of certified shareholder reports on Form N-CSR.\26\ Proposed rule 30a-
3, if adopted, would require all registered management investment 
companies to maintain, and regularly evaluate the effectiveness of, 
disclosure controls and procedures designed to ensure that the 
information required in filings under the Securities Act, Exchange Act, 
and Investment Company Act is recorded, processed, summarized, and 
reported on a timely basis. All of these proposed rules and rule 
amendments, if adopted, would become part of the collection of 
information of new Form N-CSR and Form N-SAR, because these forms would 
contain the requirement that each registered investment company filing 
reports on these forms would have to certify the contents of these 
reports.
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    \24\ We are also proposing technical conforming amendments that 
would rename rule 30a-1 in order to specify that it relates to 
annual reports by unit investment trusts, and would rename rule 
3061-1 [17 CFR 270.30b1-1] in order to specify that it relates to 
semi-annual reports of registered management investment companies. 
These technical amendments do not constitute a collection of 
information because we are not altering the legal requirements of 
these rules.
    \25\ Proposed rule 30b2-1(a) under the Investment Company Act 
would not require the filing of a certified shareholder report with 
respect to a report to shareholders not required under rule 30e-1 
under the Investment Company Act [17 CFR 270.30e-1], e.g., voluntary 
quarterly reports.
    \26\ This would not be a collection of information because the 
requirement to file certified shareholder reports on Form N-CSR is a 
requirement under rule 30b2-1 and not under rule 8b-15.
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    Compliance with the proposed rules and rule and form amendments is 
mandatory and the information provided will not be kept confidential. 
Under our rules for retention of manual signatures, registered 
investment companies would have to maintain the certifications for five 
years.\27\ The Commission may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid control number.
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    \27\ See Rule 302(b) of Regulation S-T [17 CFR 232.302(b)].
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B. Reporting and Cost Burden Estimates

    The compliance burden estimates for the proposed collection of 
information are based on several assumptions. The compliance burden for 
Form N-SAR and Form N-CSR would be the reporting burden associated with 
requiring the principal executive and financial officer to review and 
analyze each periodic report to be filed by an investment company in 
order to make the required certification. We estimate that the new 
certification requirement would result in an increase of five burden 
hours per respondent per filing in connection with the certification of 
annual and semi-annual reports on Form N-SAR and Form N-CSR. We request 
comment on this estimate.
    We estimate that the proposed rules and rule and form amendments 
would affect 3,750 respondents.\28\ Based on a burden hour estimate of 
five hours for each respondent per filing we estimate that, in the 
aggregate, all respondents will incur 37,500 burden hours \29\ to 
comply with the proposed rules and rule and form amendments.
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    \28\ 3,700 registered management investment companies filing 
certified shareholder reports on Form N-CSR + 50 additional 
registered management investment companies certifying Form N-SAR = 
3,750 respondents.
    \29\ 3,750 respondents x 2 certifications per year x 5 hours per 
certification = 37,500 total hours.
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    The total burden hours of complying with Form N-CSR is estimated to 
be 37,000 burden hours.\30\ Each registered management investment 
company would be required to file annual and semi-annual reports on 
Form N-CSR. The contents of this report will consist of (i) a copy of 
any required shareholder report, (ii) additional information regarding 
disclosure controls and procedures, and (iii) the certification 
required by Section 302 of the Sarbanes-Oxley Act. We estimate that 
respondents will incur a burden of five hours in connection with the 
review, certification, and filing of each report on Form N-CSR.
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    \30\ 3,700 registered management investment companies filing 
certified shareholder reports on Form N-CSR x 2 certifications per 
year x 5 hours per certification = 37,000 burden hours.
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    The total burden hours for Form N-SAR, revised to include the 
burden hours expected from the proposed rules and rule and form 
amendments, is estimated to be 154,950 burden hours, an increase of 500 
hours from the current annual burden of 154,450 hours.\31\
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    \31\ This increase reflects an increase of 10 hours (5 hours x 2 
N-SAR filings per year) for the 50 registered management investment 
companies that are not required to file the certification on Form N-
SAR currently.

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[[Page 57302]]

    Proposed amendments to rule 30b2-1, if adopted, would require a 
registered management investment company to file certified shareholder 
reports on Form N-CSR with the Commission. This would not constitute an 
additional collection of information because the burden required by 
these amendments is part of the collection of information on new Form 
N-CSR.
    Proposed rule 30d-1, if adopted, would require both reports on Form 
N-SAR with regard to management investment companies and unit 
investment trusts, and certified shareholder reports with regard to 
management investment companies to be deemed to be filed with the 
Commission under Section 13(a) or 15(d) of the Exchange Act. Proposed 
rule 30d-1 would not impose an additional collection of information on 
respondents because the burden required by this proposed rule is part 
of the information on Form N-SAR and Form N-CSR.
    The proposed amendments to rule 30a-2, if adopted, would require 
each report filed with the Commission under rule 30b2-1(a) to include 
the certification required by Section 302 of the Sarbanes-Oxley Act. 
Furthermore, the proposed amendments to rule 30a-2 and amendments to 
Form N-SAR would uniformly apply the requirement to include the 
certification required by Section 302 of the Sarbanes-Oxley Act on Form 
N-SAR to all registered investment companies, regardless of whether 
they are subject to Section 13(a) or 15(d) of the Exchange Act. We 
estimate that there are approximately 50 registered investment 
companies that do not currently file reports under Section 13(a) or 
15(d) of the Exchange Act. The amendments to rule 30a-2 would not be an 
additional collection of information because the burden required by 
these amendments is part of the current information collection of Form 
N-SAR.
    Proposed rule 30a-3 would apply uniformly to all investment 
companies the requirement to maintain sufficient procedures to record, 
process, summarize, and report the information required in its filings 
under the Securities Act, Exchange Act, and Investment Company Act. 
This would not be an additional collection of information because this 
requirement to maintain and evaluate disclosure controls and procedures 
would become part of the collection of information required by Form N-
SAR and Form N-CSR, because each principal executive and financial 
officer of a registered investment company would have to state in a 
required certification in Form N-SAR and Form N-CSR that he or she is 
responsible for maintaining disclosure controls and procedures, and has 
evaluated these controls and procedures.

C. Request for Comment

    We request comment in order to: (a) Evaluate whether the proposed 
information collections and amendments to our existing information 
collections are necessary for the proper performance of the functions 
of the Commission, including whether the information will have 
practical utility; (b) evaluate the accuracy of our estimate of the 
burden of the proposed rules and rule and form amendments for 
registered investment companies; (c) determine whether there are ways 
to enhance the quality, utility and clarity of the information to be 
collected; and (d) evaluate whether there are ways to minimize the 
burden of the proposals on those who respond, including through the use 
of automated collection techniques or other forms of information 
technology.\32\
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    \32\ Comments are requested pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the proposed 
collection of information requirements should direct their comments to 
the OMB, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and send a copy of the comments to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street NW, 
Washington, DC 20549-0609, with reference to File No. S7-33-02. 
Requests for materials submitted to the OMB by us with regard to this 
collection of information should be in writing, refer to File No. S7-
33-02 and be submitted to the Securities and Exchange Commission, 
Records Management, Office of Filings and Information Services, 450 
Fifth Street NW, Washington, DC 20549. Because the OMB is required to 
make a decision concerning the collections of information between 30 
and 60 days after publication, your comments are best assured of having 
their full effect if the OMB receives them within 30 days of 
publication.

V. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. Our proposed rules and rule and form amendments would 
require a registered management investment company to file certified 
shareholder reports with the Commission on Form N-CSR containing (i) a 
copy of any required report to shareholders, (ii) additional 
information regarding disclosure controls and procedures, and (iii) the 
certification required by Section 302 of the Sarbanes-Oxley Act. These 
proposals also would designate both reports on Form N-SAR, filed by 
management investment companies and unit investment trusts, and 
certified shareholder reports on Form N-CSR, filed by management 
investment companies, as periodic reports filed with the Commission 
under the Exchange Act. Therefore, these proposals, if adopted, would 
require the certification of each management investment company's 
principal executive and financial officer to be included in both its 
reports on Form N-SAR and its certified shareholder reports on Form N-
CSR. We also propose amending the instructions to Form N-SAR, the semi-
annual reporting form for registered investment companies, to uniformly 
apply to all registered investment companies the certification 
requirement of Section 302 of the Sarbanes-Oxley Act, regardless of 
whether they are subject to Section 13(a) or 15(d) of the Exchange Act. 
Finally, the proposed rules would require all registered investment 
companies to maintain, and regularly evaluate the effectiveness of, 
disclosure controls and procedures designed to ensure that the 
information required in its filings with the Commission is recorded, 
processed, summarized, and reported on a timely basis.

A. Benefits

    In proposing these rules and rule and form amendments, we intend to 
more fully implement the intent of Section 302 of the Sarbanes-Oxley 
Act, by improving the quality of the disclosure that an investment 
company provides about its financial condition in its periodic reports 
to investors. Section 302 of the Sarbanes-Oxley Act requires the 
principal executive and financial officers of an issuer to certify the 
information contained in the issuer's quarterly or annual reports filed 
under Section 13(a) or 15(d) of the Exchange Act. Requiring a 
registered investment company's principal executive and financial 
officers to file certified shareholder reports on Form N-CSR would 
require these officers to certify, in part, that the financial 
statements contained in the periodic report fairly present in all 
material respects the financial condition, results of operations, 
changes in net assets, and

[[Page 57303]]

cash flows (if the financial statements are required to include a 
statement of cash flows) of the registered investment company.
    In addition, the proposed rules should help to ensure that 
registered investment companies maintain sufficient disclosure controls 
and procedures to provide reasonable assurance that they can record, 
process, summarize, and report on a timely basis information that is 
required in reports to shareholders and other required disclosure 
documents.\33\ To the extent that registered investment companies do 
not maintain adequate procedures, the proposed rules should lead to the 
development, or enhancement and modernization, of these procedures. 
Further, the certification requirement in our proposed rules would 
require an investment company under the supervision of its management 
to conduct an evaluation of these disclosure controls and procedures 
within the 90-day period prior to the filing date of each report 
requiring certification. This would help to ensure that registered 
investment companies devote adequate resources and attention to the 
maintenance of their reporting systems. Additionally, the required 
evaluation would help to ensure the continuous, orderly, and timely 
flow of information within the registered investment company and, 
ultimately, to investors.
---------------------------------------------------------------------------

    \33\ See proposed rule 30a-3.
---------------------------------------------------------------------------

    By emphasizing the importance of the role of senior officers in the 
reporting process, the proposed rules and rule and form amendments 
would help to enhance investor confidence in the quality of the 
disclosure in registered investment companies' reports to shareholders. 
This, in turn, would help to encourage investor confidence in these 
investment companies. These benefits are difficult to quantify, but may 
be significant. We request comment on the nature and magnitude of these 
benefits.

B. Costs

    While the proposed rules and rule and form amendments may lead to 
some additional costs for registered investment companies, we believe 
that these costs should be minimal. These proposals will require each 
registered management investment company's principal executive and 
financial officer to certify the information contained in both its 
certified shareholder reports on Form N-CSR and in its reports on Form 
N-SAR, if not already required to do so. In order to provide the 
required certification, each principal executive and financial officer 
will need to review these reports. We believe that these officers 
already review these reports, so there should be no additional burden 
imposed on these companies. To the extent that these officers would 
need to spend additional time critically reviewing the overall context 
of the disclosure provided in these reports, the company would incur 
costs. For purposes of the Paperwork Reduction Act,\34\ we estimate 
that it would take approximately 37,500 hours to comply with the 
proposed rules and rule and form amendments to the extent that 
management investment companies are not already required to do so.\35\
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    \34\ See Section IV above.
    \35\ We calculated this result as follows: (3,700 registered 
management investment companies filing certified shareholder reports 
on Form N-CSR + 50 additional registered investment companies 
certifying Form N-SAR) x 2 filings per year = 7,500 filings of 
reports x five hours = 37,500 hours.
---------------------------------------------------------------------------

    The required certification of certified shareholder reports on Form 
N-CSR and Form N-SAR (to the extent not already required) by the 
principal executive and financial officers of investment companies 
would create a new legal obligation for these individuals. We believe 
that the potential, incremental cost of litigation arising from signing 
a certification is justified by the benefit to investors of knowing 
that the principal executive and financial officers have reviewed and 
analyzed the reports.
    We believe that most registered investment companies already 
maintain some form of disclosure controls and procedures for 
identifying and processing the information needed to satisfy their 
disclosure obligations to their shareholders. The proposed amendments 
do not dictate that registered investment companies follow any 
particular procedure. Alternatively, we could have required specific 
controls and procedures for all investment companies. By proposing to 
allow investment companies to determine what procedures are necessary 
to meet the obligations of the proposed rules, the Commission will be 
mitigating the costs associated with compliance. Some registered 
investment companies may need to institute appropriate procedures while 
others may need to enhance existing informal or ad hoc procedures. 
These incremental costs are difficult to quantify. We do not have data 
to quantify the cost of implementing, or upgrading and strengthening 
existing, internal reporting procedures, and we seek comments and 
supporting data on these costs.
    The requirement in the certification that disclosure controls and 
procedures be evaluated within 90 days of the filing of a report may 
result in costs for registered management investment companies. Many 
registered investment companies may already regularly monitor and 
evaluate their procedures. However, the size and scope of these 
internal systems are likely to vary among registered investment 
companies, and it is difficult to provide an accurate cost estimate. We 
request comment on the costs of these evaluation requirements.
    We note that in a companion release to this proposing release, the 
Commission is implementing the certification requirement of Section 302 
of the Sarbanes-Oxley Act with respect to registered investment 
companies that file periodic reports under Section 13(a) or 15(d) of 
the Exchange Act, i.e., Form N-SAR. Therefore, the additional cost 
involved in establishing and evaluating disclosure controls and 
procedures in order to certify the contents of certified shareholder 
reports on Form N-CSR in addition to the contents of reports on Form N-
SAR may be limited.

C. Request for Comments

    We request comment on all aspects of this cost-benefit analysis, 
including identification of any additional costs or benefits of, or 
suggested alternatives to, the proposed rules and rule and form 
amendments. In particular, we request comments on the costs and 
benefits to registered management investment companies and their 
shareholders of filing certified shareholder reports on Form N-CSR. 
Commenters are requested to provide empirical data and other factual 
support for their views to the extent possible.

VI. Consideration of Burden on Competition; Promotion of Efficiency, 
Competition, and Capital Formation

    Section 23(a)(2) of the Exchange Act requires us, when adopting 
rules under the Exchange Act, to consider the impact that any new rule 
would have on competition. Section 23(a)(2) also prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.\36\ In addition, Section 2(c) of the Investment Company Act,\37\ 
section 2(b) of the Securities Act \38\ and Section 3(f) of the 
Exchange Act \39\ require the Commission, when engaging in rulemaking 
that requires it to consider or determine whether an action is 
necessary or appropriate in the public

[[Page 57304]]

interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital 
formation.
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    \36\ 15 U.S.C. 78w(a)(2).
    \37\ 15 U.S.C. 77b(b).
    \38\ 15 U.S.C. 80a-2(c).
    \39\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The proposed rules and rule and form amendments are intended to 
more fully implement the intent of Section 302 of the Sarbanes-Oxley 
Act that we adopt rules requiring the officers of investment companies 
to certify the accuracy of their periodic reports filed pursuant to 
Section 13(a) or 15(d) of the Exchange Act. We believe that the 
proposals may benefit investors by providing them with greater 
confidence in the accuracy and completeness of the disclosure contained 
in the annual and semi-annual reports that they receive from management 
investment companies, including the financial statements. However, the 
magnitude of the effect of the proposals on efficiency, competition, 
and capital formation is difficult to quantify, particularly given that 
most investment companies will be required to comply with some 
certification requirements in other newly adopted rules.
    We request comment on whether the proposed rules and rule and form 
amendments, if adopted, would promote efficiency, competition, and 
capital formation. Commenters are requested to provide empirical data 
and other factual support for their views if possible.

VII. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis (``Analysis'') has 
been prepared in accordance with 5 U.S.C. 603, and relates to the 
Commission's proposed rules and rule and form amendments under the 
Exchange Act and the Investment Company Act that would require 
registered management investment companies to file certified 
shareholder reports on Form N-CSR with the Commission, and would 
designate these certified reports as reports that are required under 
Sections 13(a) and 15(d) of the Exchange Act. These proposed rules and 
rule and form amendments would require each registered management 
investment company's principal executive and financial officers to 
certify the information contained in these reports in the manner 
required by Section 302 of the Sarbanes-Oxley Act. In addition, these 
proposals would uniformly apply to all registered investment companies 
the requirement to include in Form N-SAR the certification required by 
Section 302 of the Sarbanes-Oxley Act. Finally, the proposals would 
require every registered investment company to maintain disclosure 
controls and procedures designed to ensure that the information 
required in its disclosure documents is recorded, processed, 
summarized, and reported on a timely basis.

A. Reasons for, and Objectives of, Proposed Amendments

    The purpose of the proposed rules and rule and form amendments is 
to more fully implement the intent of Section 302 of the Sarbanes-Oxley 
Act that we adopt rules requiring the officers of investment companies 
to certify the accuracy of their periodic reports filed pursuant to 
Section 13(a) or 15(d) of the Exchange Act. The proposals would require 
registered management investment companies to file with the Commission 
certified shareholder reports on Form N-CSR, and would designate these 
reports, in addition to reports on Form N-SAR, as filings which satisfy 
the reporting requirements of Sections 13(a) and 15(d) of the Exchange 
Act for management investment companies. We believe that by requiring 
the certification required by Section 302 of the Sarbanes-Oxley Act to 
be included in a management investment company's certified shareholder 
report on Form N-CSR, which contains financial statements, in addition 
to Form N-SAR, we are more fully implementing the intent of Section 
302, which is to improve the quality of the disclosure that companies 
provide about their financial condition in their shareholder reports.

B. Legal Basis

    The proposed rules and rule and form amendments contained in this 
release are being proposed pursuant to Sections 5, 6, 7, 17, and 19(a) 
of the Securities Act, Sections 10(b), 13, 15(d), and 23(a) of the 
Exchange Act, Sections 8, 24(a), 30, and 38 of the Investment Company 
Act, and Sections 3(a) and 302 of the Sarbanes-Oxley Act.

C. Small Entities Subject to the Rule

    The proposed rules and rule and form amendments would affect 
registered investment companies that are small entities. For purposes 
of the Regulatory Flexibility Act, an investment company is a small 
entity if it, together with other investment companies in the same 
group of related investment companies, has net assets of $50 million or 
less as of the end of its most recent fiscal year.\40\ We estimate that 
there are approximately 205 investment companies together with other 
investment companies in the same group of related investment companies 
that have net assets of $50 million or less as of the end of its most 
recent fiscal year.\41\
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    \40\ 17 CFR 270.0-10.
    \41\ This estimate is based on figures compiled by the 
Commission staff regarding investment companies registered on Form 
N-1A, Form N-2, and Form N-3. In determining whether an insurance 
company separate account is a small entity for purposes of the 
Regulatory Flexibility Act, the assets of insurance company separate 
accounts are aggregated with the assets of their sponsoring 
insurance companies. Investment Company Act rule 0-10(b) [17 CFR 
270.0-10(b)]. Currently, no insurance company separate account 
qualifies as a small entity.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed rules and rule and form amendments would require 
management investment companies to include a certification in their 
certified shareholder reports on Form N-CSR, in addition to reports on 
Form N-SAR. The form of the certification would parallel the form of 
the certification we have prescribed for Form N-SAR. The certification 
would require the management investment company's principal executive 
and financial officers to state, in part, that, based on their 
knowledge, the information in the certified shareholder report does not 
contain any untrue statement of a material fact or omit to state a 
material fact necessary to make the statements made not misleading with 
respect to the period covered by the report, and that the financial 
statements, and other financial information included in the report, 
fairly present the financial condition, results of operations, changes 
in net assets, and cash flows (if the financial statements are required 
to include a statement of cash flows) of the registrant. The 
certification also would require the signing officers to certify that 
they have established and maintained disclosure controls and procedures 
to ensure that material information relating to the registrant is made 
known to senior management, and also to certify that they have 
evaluated these procedures within 90 days of the filing date of the 
report. The proposals may increase the costs associated with compliance 
with investment companies' reporting obligations. However, this cost 
increase is expected to be limited, because most management investment 
companies are currently required to provide a similar certification 
with respect to their reports on Form N-SAR

E. Duplicative, Overlapping, or Conflicting Federal Rules

    There are no rules that duplicate, overlap, or conflict with the 
proposed rules and rule and form amendments.

[[Page 57305]]

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish our stated objectives, while 
minimizing any significant adverse impact on small issuers. In 
connection with the proposed rules and rule and form amendments, the 
Commission considered the following alternatives: (i) The establishment 
of differing compliance or reporting requirements that take into 
account the resources available to small entities; (ii) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the proposed amendments for small 
entities; and (iii) an exemption from coverage of the proposed 
amendments, or any part thereof, for small entities. The proposals are 
intended to more fully implement the intent of Section 302 of the 
Sarbanes-Oxley Act, and should help ensure that information about an 
investment company's business and financial condition, specifically its 
financial statements, is adequately reviewed by an investment company's 
senior executives, thereby enhancing investor confidence in the quality 
of its disclosure.
    The Commission believes at the present time that special compliance 
or reporting requirements for small entities, or an exemption from 
coverage for small entities, would not be appropriate or consistent 
with investor protection. The proposed designation of certified 
shareholder reports on Form N-CSR, in addition to reports on Form N-
SAR, as reporting forms that must contain the certification required by 
Section 302 of the Sarbanes-Oxley Act would improve investor confidence 
in the quality of an investment company's disclosure to investors in 
its shareholder reports, particularly the financial statements 
contained in these reports. We believe it is important that the 
benefits resulting from the certification of shareholder reports that 
would be required by the proposed rules be provided to investors in all 
management investment companies, not just investors in management 
investment companies that are not considered small entities. The 
Commission also notes that Section 302 of the Sarbanes-Oxley Act does 
not distinguish between small entities and other investment companies.

G. Solicitation of Comments

    The Commission encourages the submission of written comments with 
respect to any aspect of this Analysis. Comment is specifically 
requested on the number of small entities that would be affected by the 
proposed rules and rule and form amendments and the likely impact of 
the proposals on small entities. Commenters are asked to describe the 
nature of any impact and provide empirical data supporting the extent 
of the impact. These comments will be considered in the preparation of 
the Final Regulatory Flexibility Analysis if the proposed rules and 
rule and form amendments are adopted, and will be placed in the same 
public file as comments on the proposed amendments themselves. To help 
us process and review your comments more efficiently, comments should 
be sent by one method only. Comments should be submitted in triplicate 
to Jonathan G. Katz, Secretary, Securities and Exhange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609. Electronically submitted 
comment letters also will be posted on the Commission's Internet Web 
site (http://www.sec.gov).\42\
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    \42\ We do not edit personal, identifying information, such as 
names or e-mail addresses, from electronic submissions. Submit only 
information that you wish to make publicly available.
---------------------------------------------------------------------------

VIII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA,'') \43\ we must advise the OMB as to whether the 
proposed rules and rule and form amendments constitute a ``major'' 
rule. Under SBREFA, a rule is considered ``major'' where, if adopted, 
it results or is likely to result in:
---------------------------------------------------------------------------

    \43\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996) (codified 
in various sections of 5 U.S.C., 15 U.S.C. and as a note to 5 U.S.C. 
601).
---------------------------------------------------------------------------

    [sbull] An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
    [sbull] A major increase in costs or prices for consumers or 
individual industries; or
    [sbull] Significant adverse effects on competition, investment, or 
innovation.
    Where a rule is ``major,'' its effectiveness will generally be 
delayed for 60 days pending Congressional review. We request comment on 
the potential impact of the proposed rules and rule and form amendments 
on the economy on an annual basis. Commenters are requested to provide 
empirical data and other factual support for their views to the extent 
possible.

IX. Statutory Authority

    The rules and rule and form amendments contained in this release 
are being proposed pursuant to Sections 5, 6, 7, 17, and 19(a) of the 
Securities Act [15 U.S.C. 77e, 77f, 77g, 77q, and 77s(a)], Sections 
10(b), 13, 15(d), and 23(a) of the Exchange Act [15 U.S.C. 78j(b), 78m, 
78o(d), and 78w(a)], Sections 8, 24(a), 30, and 38 of the Investment 
Company Act [15 U.S.C. 80a-8, 80a-24(a), 80a-29, and 80a-37], and 
Sections 3(a) and 302 of the Sarbanes-Oxley Act of 2002 [Pub. L. 107-
204, 116 Stat. 745].

List of Subjects

17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Parts 270 and 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of Proposed Amendments

    In accordance with the foregoing, Title 17, Chapter II, of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    1. The authority citation for Part 249 is amended by adding the 
following citations in numerical order to read as follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.

* * * * *
    Section 249.330 is also issued under secs. 3(a) and 302, Pub. L. 
107-204, 116 Stat. 745.
    Section 249.331 is also issued under secs. 3(a) and 302, Pub. L. 
107-204, 116 Stat. 745.

    2. Section 249.331 is added to read as follows:


Sec.  249.331  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec.  270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders 
of any report that is required to be transmitted to stockholders under 
Sec.  270.30e-1 of this chapter.

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

    3. The authority citation for Part 270 is amended by revising the 
general authority citation and by adding the following citations in 
numerical order to read as follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-
39, unless otherwise noted;

* * * * *

[[Page 57306]]

    Section 270.30a-1 is also issued under 15 U.S.C. 78m, 78o(d), 
80a-8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 
Stat. 745.
* * * * *
    Section 270.30a-3 is also issued under 15 U.S.C. 78m, 78o(d), 
80a-8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 
Stat. 745.
    Section 270.30b1-1 is also issued under 15 U.S.C. 78m, 78o(d), 
80a-8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 
Stat. 745.
    Section 270.30b2-1 is also issued under 15 U.S.C. 78m, 78o(d), 
80a-8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 
Stat. 745.
    Section 270.30d-1 is also issued under 15 U.S.C. 78m, 78o(d), 
80a-8, and 80a-29, and secs. 3(a) and 302, Pub. L. 107-204, 116 
Stat. 745.
* * * * *

    4. Section 270.8b-15 is amended by adding a sentence at the end of 
the section to read as follows:


Sec.  270.8b-15  Amendments.

    * * * An amendment to any report required to include the 
certification as specified in Sec.  270.30a-2 must provide a new 
certification by each principal executive officer and principal 
financial officer of the registrant.
    5. Section 270.30a-1 is revised to read as follows:


Sec.  270.30a-1  Annual reports for unit investment trusts.

    Every registered unit investment trust shall file an annual report 
on Form N-SAR with respect to each calendar year not more than sixty 
calendar days after the close of each year. A registered unit 
investment trust that has filed a registration statement with the 
Commission registering its securities for the first time under the 
Securities Act of 1933 is relieved of this reporting obligation with 
respect to any reporting period or portion thereof prior to the date on 
which that registration statement becomes effective or is withdrawn.
    6. Section 270.30a-2 (added elsewhere in this issue of the Federal 
Register) is amended by:
    a. Revising the section heading as set forth below; and
    b. Revising paragraphs (a) and (c) to read as follows:


Sec.  270.30a-2  Certification of disclosure.

    (a) Each report, including transition reports, filed on Form N-SAR 
(Sec. Sec.  249.330 and 274.101 of this chapter) by a registered 
management investment company or unit investment trust, and each report 
filed on Form N-CSR (Sec. Sec.  249.331 and 274.128 of this chapter) by 
a registered management investment company, must include a 
certification containing the information set forth in paragraph (b) of 
this section in the form specified in the report, except that a report 
of a unit investment trust or small business investment company on Form 
N-SAR may omit paragraph (b)(3) of this section. Each principal 
executive officer or officers and principal financial officer or 
officers of the investment company, or persons performing similar 
functions, at the time of filing of the report must sign the 
certification.
* * * * *
    (c) For purposes of this section and Sec.  270.30a-3, the term 
``disclosure controls and procedures'' means controls and other 
procedures of an investment company that are designed to ensure that 
information required to be disclosed by the investment company in the 
reports, registration forms, and other filings that it files or submits 
under the Securities Act of 1933, the Securities Exchange Act of 1934, 
and the Act is recorded, processed, summarized, and reported within the 
time periods specified in the Commission's rules and forms. Disclosure 
controls and procedures include, without limitation, controls and 
procedures designed to ensure that information required to be disclosed 
by an investment company in the reports, registration forms, and other 
filings that it files or submits under the Securities Act of 1933, the 
Securities Exchange Act of 1934, and the Act is accumulated and 
communicated to the investment company's management, including its 
principal executive officer or officers and principal financial officer 
or officers, or persons performing similar functions, as appropriate to 
allow timely decisions regarding required disclosure.
* * * * *
    7. Section 270.30a-3 is added to read as follows:


Sec.  270.30a-3  Disclosure controls and procedures related to 
preparation of required filings.

    (a) Every registered investment company must maintain disclosure 
controls and procedures (as defined in Sec.  270.30a-2(c)).
    (b) Within the 90-day period prior to the filing date of each 
report requiring certification under Sec.  270.30a-2, an evaluation 
must be carried out under the supervision, and with the participation 
of, the registered investment company's management, including the 
registered investment company's principal executive officer or officers 
and principal financial officer or officers, or persons performing 
similar functions, of the effectiveness of the design and operation of 
the registered investment company's disclosure controls and procedures.
    8. Section 270.30b1-1 is revised to read as follows:


Sec.  270.30b1-1  Semi-annual report for registered management 
investment companies.

    Every registered management investment company shall file a semi-
annual report on Form N-SAR (Sec. Sec.  249.330 and 274.101 of this 
chapter) not more than sixty calendar days after the close of each 
fiscal year and fiscal second quarter. A registered management company 
that has filed a registration statement with the Commission registering 
its securities for the first time under the Securities Act of 1933 is 
relieved of this reporting obligation with respect to any reporting 
period or portion thereof prior to the date on which that registration 
statement becomes effective or is withdrawn.
    9. Section 270.30b2-1 is revised to read as follows:


Sec.  270.30b2-1  Filing of reports to stockholders.

    (a) Every registered management investment company shall file a 
report on Form N-CSR (Sec. Sec.  249.331 and 274.128 of this chapter) 
not later than 10 days after the transmission to stockholders of any 
report that is required to be transmitted to stockholders under Sec.  
270.30e-1.
    (b) A registered investment company shall file with the Commission 
a copy of every periodic or interim report or similar communication 
containing financial statements that is transmitted by or on behalf of 
such registered investment company to any class of such company's 
security holders and that is not required to be filed with the 
Commission under paragraph (a) of this section. The filing shall be 
made not later than 10 days after the transmission to security holders.
    10. Section 270.30d-1 is added to read as follows:


Sec.  270.30d-1  Designation of periodic reports under the Securities 
Exchange Act of 1934.

    A registered management investment company required to file annual 
and quarterly reports pursuant to section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall 
satisfy its requirement to file such reports by the filing, in 
accordance with the rules and procedures specified therefor, of semi-
annual reports on Form N-SAR (Sec. Sec.  249.330 and 274.101 of this 
chapter) and reports on Form N-CSR (Sec. Sec.  249.331 and 274.128 of 
this chapter). A unit investment trust required to file

[[Page 57307]]

annual and quarterly reports pursuant to section 13(a) or 15(d) of the 
Securities Exchange Act of 1934 shall satisfy its requirement to file 
such reports by the filing, in accordance with the rules and procedures 
specified therefor, of annual reports on Form N-SAR.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    11. The authority citation for Part 274 is amended by adding the 
following citations to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.

    Section 274.101 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.
    Section 274.128 is also issued under secs. 3(a) and 302, Pub. L. 
No. 107-204, 116 Stat. 745.

    12. Form N-SAR (referenced in Sec. Sec.  249.330 and 274.101) is 
amended by revising the introductory text of instruction (a) to sub-
item 77Q3 to read as follows:

    Note: The text of Form N-SAR does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-SAR

* * * * *

Instructions to Specific Items

* * * * *

Sub-Item 77Q3:

* * * * *
    (a) Include the following information:
* * * * *
    13. Section 274.128 is added to read as follows:


Sec.  274.128  Form N-CSR, certified shareholder report.

    This form shall be used by registered management investment 
companies to file reports pursuant to Sec.  270.30b2-1(a) of this 
chapter not later than 10 days after the transmission to stockholders 
of any report that is required to be transmitted to stockholders under 
Sec.  270.30e-1 of this chapter.
    14. Add Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) 
to read as follows:

    Note: The text of Form N-CSR does not, and this amendment will 
not, appear in the Code of Federal Regulations.

OMB Approval
OMB Number:
Expires:
Estimated average burden hours per response:
United States Securities and Exchange Commission, Washington, D.C. 
20549

Form N-CSR

Certified Shareholder Report of Registered Management Investment 
Companies

Investment Company Act file number-------------------------------------
-----------------------------------------------------------------------
(Exact name of registrant as specified in charter)

-----------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

-----------------------------------------------------------------------
(Name and address of agent for service)

Registrant's telephone number, including area code:--------------------
Date of fiscal year end:-----------------------------------------------
Date of reporting period:----------------------------------------------

    Form N-CSR is to be used by management investment companies to file 
reports with the Commission not later than 10 days after the 
transmission to stockholders of any report that is required to be 
transmitted to stockholders under Rule 30e-1 under the Investment 
Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the 
information provided on Form N-CSR in its regulatory, disclosure 
review, inspection, and policymaking roles.
    A registrant is required to disclose the information specified by 
Form N-CSR, and the Commission will make this information public. A 
registrant is not required to respond to the collection of information 
contained in Form N-CSR unless the Form displays a currently valid 
Office of Management and Budget (``OMB'') control number. Please direct 
comments concerning the accuracy of the information collection burden 
estimate and any suggestions for reducing the burden to Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. The OMB has reviewed this collection of information 
under the clearance requirements of 44 U.S.C. Sec.  3507.

General Instructions

A. Rule as to Use of Form N-CSR

    Form N-CSR is a combined reporting form that is to be used for 
reports of registered management investment companies under Section 
30(b)(2) of the Investment Company Act of 1940 and Section 13(a) or 
15(d) of the Securities Exchange Act of 1934, filed pursuant to Rule 
30b2-1(a) under the Investment Company Act of 1940 (17 CFR 270.30b2-
1(a)). A report on this form shall be filed within 10 days after the 
transmission to stockholders of any annual or semi-annual report that 
is required to be transmitted to stockholders pursuant to Rule 30e-1 
under the Investment Company Act of 1940 (17 CFR 270.30e-1).

B. Application of General Rules and Regulations

    The General Rules and Regulations under the Investment Company Act 
of 1940 and the Securities Exchange Act of 1934 contain certain general 
requirements that are applicable to reporting on any form under those 
Acts. 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.

C. Preparation of Report

    1. This Form is not to be used as a blank form to be filled in, but 
only as a guide in preparing the report in accordance with Rules 8b-11 
(17 CFR 270.8b-11) and 8b-12 (17 CFR 270.8b-12) under the Investment 
Company Act of 1940 and Rules 12b-11 (17 CFR 240.12b-11) and 12b-12 (17 
CFR 240.12b-12) under the Securities Exchange Act of 1934. The 
Commission does not furnish blank copies of this form to be filled in 
for filing.
    2. These general instructions are not to be filed with the report.
    3. Attention is directed to Rule 12b-20 under the Securities 
Exchange Act of 1934 (17 CFR 240.12b-20), which states: ``In addition 
to the information expressly required to be included in a statement or 
report, there shall be added such further material information, if any, 
as may be necessary to make the required statements, in the light of 
the circumstances under which they are made not misleading.''

D. Incorporation by Reference

    No items of the Form shall be answered by incorporating any 
information by reference.

E. Signature and Filing of Report

    1. If the report is filed in paper pursuant to a hardship exemption 
from electronic filing (see Item 201 et seq. of Regulation S-T (17 CFR 
232.201 et seq.)), eight complete copies of the report shall be filed 
with the Commission. At least one complete copy of the report shall be 
filed with each exchange on which any class of securities of the 
registrant is registered. At least one complete copy of the report 
filed with the Commission and one such

[[Page 57308]]

copy filed with each exchange must be manually signed. Copies not 
manually signed must bear typed or printed signatures.
    2.(a) The report must be signed by the registrant, and on behalf of 
the registrant by its principal executive officer or officers (who also 
must provide the certification required by Rule 30a-2 under the 
Investment Company Act of 1940 (17 CFR 270.30a-2) exactly as specified 
in this form) and its principal financial officer or officers (who also 
must provide the certification required by Rule 30a-2 under the 
Investment Company Act of 1940 (17 CFR 270.30a-2) exactly as specified 
in this form).
    (b) The name of each person who signs the report shall be typed or 
printed beneath his or her signature. Any person who occupies more than 
one of the specified positions shall indicate each capacity in which he 
or she signs the report. Attention is directed to Rule 12b-11 under the 
Securities Exchange Act of 1934 (17 CFR 240.12b-11) and Rule 8b-11 
under the Investment Company Act of 1940 (17 CFR 270.8b-11) concerning 
manual signatures and signatures pursuant to powers of attorney.

Item 1. Shareholder Reports

    Include a copy of the report transmitted to stockholders pursuant 
to Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-
1).

Item 2. Controls and Procedures

    (a) Disclose the conclusions of the registrant's principal 
executive officer or officers and principal financial officer or 
officers, or persons performing similar functions, about the 
effectiveness of the registrant's disclosure controls and procedures 
(as defined in Rule 30a-2(c) under the Investment Company Act of 1940 
(17 CFR 270.30a-2(c)) based on their evaluation of these controls and 
procedures as of a date within 90 days of the filing date of the report 
that includes the disclosure required by this paragraph.
    (b) Disclose whether or not there were significant changes in the 
registrant's internal controls or in other factors that could 
significantly affect these controls subsequent to the date of their 
evaluation, including any corrective actions with regard to significant 
deficiencies and material weaknesses.

Signatures

[See General Instruction E]
    Pursuant to the requirements of the Securities Exchange Act of 1934 
and the Investment Company Act of 1940, the registrant has duly caused 
this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.

(Registrant)-----------------------------------------------------------
By (Signature and Title)*----------------------------------------------
Date-------------------------------------------------------------------

    Pursuant to the requirements of the Securities Exchange Act of 1934 
and the Investment Company Act of 1940, this report has been signed 
below by the following persons on behalf of the registrant and in the 
capacities and on the dates indicated.

By (Signature and Title)*----------------------------------------------
Date-------------------------------------------------------------------
By (Signature and Title)*----------------------------------------------
Date-------------------------------------------------------------------

    *Print the name and title of each signing officer under his or her 
signature.

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have reviewed this report on Form N-CSR of [identify 
registrant];
    2. Based on my knowledge, this report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary 
to make the statements made, in light of the circumstances under which 
such statements were made, not misleading with respect to the period 
covered by this report;
    3. Based on my knowledge, the financial statements, and other 
financial information included in this report, fairly present in all 
material respects the financial condition, results of operations, 
changes in net assets, and cash flows (if the financial statements are 
required to include a statement of cash flows) of the registrant as of, 
and for, the periods presented in this report;
    4. The registrant's other certifying officers and I are responsible 
for establishing and maintaining disclosure controls and procedures (as 
defined in Rule 30a-2(c) under the Investment Company Act of 1940) for 
the registrant and have:
    (a) Designed such disclosure controls and procedures to ensure that 
material information relating to the registrant, including its 
consolidated subsidiaries, is made known to us by others within those 
entities, particularly during the period in which this report is being 
prepared;
    (b) Evaluated the effectiveness of the registrant's disclosure 
controls and procedures as of a date within 90 days prior to the filing 
date of this report (the ``Evaluation Date''); and
    (c) Presented in this report our conclusions about the 
effectiveness of the disclosure controls and procedures based on our 
evaluation as of the Evaluation Date;
    5. The registrant's other certifying officers and I have disclosed, 
based on our most recent evaluation, to the registrant's auditors and 
the audit committee of the registrant's board of directors (or persons 
performing the equivalent functions):
    (a) All significant deficiencies in the design or operation of 
internal controls which could adversely affect the registrant's ability 
to record, process, summarize, and report financial data and have 
identified for the registrant's auditors any material weaknesses in 
internal controls; and
    (b) Any fraud, whether or not material, that involves management or 
other employees who have a significant role in the registrant's 
internal controls; and
    6. The registrant's other certifying officers and I have indicated 
in this report whether or not there were significant changes in 
internal controls or in other factors that could significantly affect 
internal controls subsequent to the date of our most recent evaluation, 
including any corrective actions with regard to significant 
deficiencies and material weaknesses.

Date:------------------------------------------------------------------
-----------------------------------------------------------------------
[Signature]
[Title]

    *Provide a separate certification for each principal executive 
officer and principal financial officer of the registrant. See Rule 
30a-2 under the Investment Company Act of 1940 (17 CFR 270.30a-2). The 
required certification must be in the exact form set forth above.

    By the Commission.

    Dated: August 30, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22658 Filed 9-6-02; 8:45 am]
BILLING CODE 8010-01-P