Document ID: SEC-2008-0251-0001
Agency: sec
Document Type: Proposed Rule
Title: Disclosure of Divestment by Registered Investment Companies in Accordance With Sudan Accountability and Divestment Act of 2007
Posted Date: 2008-02-15T05:00Z

[Federal Register: February 15, 2008 (Volume 73, Number 32)]
[Proposed Rules]               
[Page 8975-8982]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe08-22]                         

[[Page 8975]]

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Part III

Securities and Exchange Commission

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17 CFR Parts 249 and 274

Disclosure of Divestment by Registered Investment Companies in 
Accordance With Sudan Accountability and Divestment Act of 2007; 
Proposed Rule

[[Page 8976]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 249 and 274

[Release Nos. 34-57306; IC-28148; File No. S7-02-08]
RIN 3235-AK05

 
Disclosure of Divestment by Registered Investment Companies in 
Accordance With Sudan Accountability and Divestment Act of 2007

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing amendments 
to its forms under the Securities Exchange Act of 1934 and the 
Investment Company Act of 1940 that would require disclosure by a 
registered investment company that divests, in accordance with the 
Sudan Accountability and Divestment Act of 2007, from securities of 
issuers that the investment company determines, using credible 
information that is available to the public, conduct or have direct 
investments in certain business operations in Sudan. The Sudan 
Accountability and Divestment Act limits civil, criminal, and 
administrative actions that may be brought against a registered 
investment company that divests itself from such securities, provided 
that the investment company makes disclosures in accordance with 
regulations prescribed by the Commission.

DATES: Comments should be submitted on or before March 17, 2008.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.
);     Send an e-mail to rule-comments@sec.gov. Please include 

File Number S7-02-08 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-02-08. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 

also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Devin F. Sullivan, Attorney, Office of 
Disclosure Regulation, Division of Investment Management, at (202) 551-
6784, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-5720.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') is proposing for comment amendments to Form N-CSR \1\ 
and Form N-SAR \2\ under the Securities Exchange Act of 1934 
(``Exchange Act'') \3\ and the Investment Company Act of 1940 
(``Investment Company Act'').\4\
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    \1\ 17 CFR 294.331 and 274.128.
    \2\ 17 CFR 294.330 and 274.101.
    \3\ 15 U.S.C. 78a et seq.
    \4\ 15 U.S.C. 80a-1 et seq.
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I. Discussion

    We are proposing amendments to Form N-CSR and Form N-SAR that 
would, if adopted, require disclosure by a registered investment 
company that divests, in accordance with the Sudan Accountability and 
Divestment Act of 2007 (``Sudan Divestment Act''),\5\ from securities 
of issuers that the investment company determines conduct or directly 
invest in certain business operations in Sudan.
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    \5\ Pub. L. 110-174, 121 Stat. 2516 (2007).
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The Sudan Divestment Act

    On December 31, 2007, the President signed the Sudan Divestment Act 
into law. Among other things, the Sudan Divestment Act provides that no 
person may bring any civil, criminal, or administrative action against 
any registered investment company, or any employee, officer, director, 
or investment adviser of the investment company, based solely upon the 
investment company divesting from, or avoiding investing in, securities 
issued by persons that the investment company determines, using 
credible information that is available to the public, conduct or have 
direct investments in certain business operations in Sudan.\6\ This 
limitation on actions does not apply to a registered investment 
company, or any of its employees, officers, directors, or investment 
advisers, unless the investment company makes disclosures about the 
divestments in accordance with regulations prescribed by the 
Commission.\7\ To that end, the Sudan Divestment Act requires us to 
prescribe regulations not later than 120 days after enactment that 
require disclosure by each registered investment company that divests 
itself of securities in accordance with the Act. The Sudan Divestment 
Act states that these rules shall require this disclosure to be 
included in the next periodic report filed under Section 30 of the 
Investment Company Act following the divestment.\8\
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    \6\ Section 4(a) of the Sudan Divestment Act [to be codified at 
15 U.S.C. 80a-13(c)(1)].
    \7\ Section 4(a) of the Sudan Divestment Act [to be codified at 
15 U.S.C. 80a-13(c)(2)(B)].
    \8\ Section 4(b) of the Sudan Divestment Act.
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Proposed Amendments

    To implement the Sudan Divestment Act, we are proposing to require 
each registered investment company that divests securities in 
accordance with the Sudan Divestment Act to disclose the divestment on 
the next Form N-CSR or Form N-SAR that it files following the 
divestment. Management investment companies would provide the 
disclosure on Form N-CSR, and unit investment trusts would provide the 
disclosure on Form N-SAR.\9\ We are proposing to require disclosure of 
information that would identify the securities divested and the 
magnitude of the divestment. This would include the issuer's name; 
exchange ticker symbol; Committee on Uniform Securities Identification 
Procedures (``CUSIP'') number; total number of shares or, for debt 
securities, principal amount divested; and dates that the securities 
were divested.\10\ In addition, if the registered investment company 
continues to hold any securities of the divested issuer, it would be 
required to disclose the exchange ticker symbol; CUSIP number; and 
total number of shares or, for debt securities, principal amount of 
such securities, held on the date of filing.\11\ This requirement is

[[Page 8977]]

intended to provide information about whether or not a registered 
investment company has a continuing position in the issuer whose 
securities were divested.
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    \9\ Proposed Item 6(b) of Form N-CSR; proposed Item 133 of Form 
N-SAR.
    \10\ Proposed Item 6(b)(1)-(5) of Form N-CSR; proposed Item 
133.A.-E. of Form N-SAR. We are also proposing technical amendments 
to Form N-SAR to change cross-references to Item 132 to reflect the 
addition of Item 133.
    \11\ Proposed Item 6(b)(6) of Form N-CSR; proposed Item 133.F. 
of Form N-SAR.
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    Proposed Instructions to Form N-CSR and Form N-SAR clarify that 
while a registered investment company is not required to disclose 
divestments of securities of an issuer that conducts or has direct 
investments in certain business operations in Sudan, the limitation on 
actions provided in the Sudan Divestment Act does not apply with 
respect to a divestment that is not disclosed.\12\
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    \12\ Proposed Instruction 1. to proposed Item 6(b) of Form N-
CSR; proposed Instructions to Item 133 of Form N-SAR.
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    In addition, proposed Instructions to Form N-CSR and Form N-SAR 
state that a registered investment company that divests securities in 
accordance with the Sudan Divestment Act during the period that begins 
on the fifth business day before the date of filing a Form N-CSR or 
Form N-SAR and ends on the date of filing may disclose the divestment 
in either that filing or an amendment thereto. The amendment would be 
required to be filed not later than five business days after the date 
of filing the Form N-CSR or Form N-SAR.\13\ This flexibility is 
intended to lessen the compliance burdens associated with divestment 
transactions that occur shortly before a registered investment company 
files a Form N-CSR or Form N-SAR.
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    \13\ Proposed Instruction 2. to proposed Item 6(b) of Form N-
CSR; proposed Instructions to Item 133 of Form N-SAR.
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    Finally, the proposed Instructions provide that, for purposes of 
determining when a divestment should be reported, if a registered 
investment company divests its holdings in a particular security in a 
related series of transactions, the company may deem the divestment to 
occur at the time of the final transaction in the series.\14\ As a 
result, a registrant could choose either to report each transaction in 
the next Form N-CSR or Form N-SAR filed following the individual 
transaction or to report the entire series of transactions in the next 
Form N-CSR or Form N-SAR filed following the final transaction in the 
series. This flexibility is intended to reduce opportunities for third 
parties to exploit information about ongoing divestments through 
predatory trading practices, such as trading ahead of, or ``front-
running,'' a registered investment company's divestment. The proposed 
Instructions require a registered investment company that chooses to 
report the entire series of transactions following the final 
transaction to separately state each date on which securities were 
divested and the total number of shares or, for debt securities, 
principal amount divested, on each such date. This is intended to 
ensure that that the same information will be disclosed whether the 
series of transactions is reported in multiple filings after each 
transaction or on a single filing after the entire related series of 
transactions that comprises the divestment is complete.
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    \14\ Proposed Instruction 3. to proposed Item 6(b) of Form N-
CSR; proposed Instructions to Item 133 of Form N-SAR.
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II. Request for Comments

    The Commission requests comment on the amendments proposed in this 
release, whether any further changes to our rules or 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, including the following:
     Are Form N-CSR and Form N-SAR the appropriate locations 
for disclosure? Should registered investment companies include 
disclosure about divestments in accordance with the Sudan Divestment 
Act in reports that are provided directly to shareholders instead of, 
or in addition to, including it in Form N-CSR and Form N-SAR, which are 
filed with the Commission and publicly available but not provided 
directly to shareholders?
     What information should we require registered investment 
companies to disclose about divestments in accordance with the Sudan 
Divestment Act? Is any of the information that we propose to require 
unnecessary? Should we require disclosure of any other information?
     Should we require a registered investment company to make 
the proposed disclosures about securities of an issuer that it retains 
after divesting other securities of that issuer?
     The provisions of the Sudan Divestment Act concerning 
registered investment company divestments terminate 30 days after the 
President certifies to Congress that the Government of Sudan has 
undertaken certain actions.\15\ Should the proposed amendments to Form 
N-CSR and Form N-SAR include a similar sunset provision? Or is this 
unnecessary because, for example, following any such termination under 
the Sudan Divestment Act, there could no longer be divestments in 
accordance with the Sudan Divestment Act and therefore no disclosure 
would be called for under the proposed amendments?
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    \15\ Section 12 of the Sudan Divestment Act.
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     Should we, as proposed, permit a registered investment 
company that divests securities in accordance with the Sudan Divestment 
Act during the period that begins on the fifth business day before the 
date of filing a Form N-CSR or Form N-SAR and ends on the date of 
filing, to disclose the divestment in either that filing or an 
amendment thereto that is filed not later than five business days after 
the date of filing the Form N-CSR or Form N-SAR? Should either the 
period prior to filing a Form N-CSR or Form N-SAR or the period for 
filing an amendment be shorter or longer, such as two business days or 
10 business days?
     Should we, as proposed, permit a divestment that occurs in 
a related series of transactions to be reported after the final 
transaction? Should we define or limit this flexibility in any way, 
e.g., by defining ``related series of transactions'' or limiting the 
length of the period during which transactions may occur and be 
considered ``related?''
     Should our amendments address divestments that occur after 
the enactment of the Sudan Divestment Act and before the effective date 
of our amendments? Should we, for example, permit a registered 
investment company that makes a divestment in accordance with the Sudan 
Divestment Act between December 31, 2007, and the effective date of the 
amendments, and that files a Form N-CSR or Form N-SAR after the 
divestment but before the effective date of the amendments, to disclose 
the divestment on an amendment to that Form N-CSR or Form N-SAR filed 
no later than five business days after the effective date of the 
amendments? Should the period for filing the amendment be shorter or 
longer, such as two business days or 10 business days after the 
effective date of the amendments?

III. Paperwork Reduction Act

    The new form amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\16\ We are submitting the proposal to the Office of 
Management and Budget (``OMB'') for emergency review in accordance with 
the PRA.\17\ Because the Sudan Divestment Act mandates that the 
Commission prescribe regulations not later than 120 days after the date 
of enactment, the Commission is requesting, pursuant to 44 U.S.C. 
3507(j)(1), that OMB authorize the

[[Page 8978]]

collections of information no later than April 29, 2008, which is 120 
days after enactment. The titles for the collections 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, Semi-Annual Report for 
Registered Investment Companies.''
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    \16\ 44 U.S.C 3501 et seq.
    \17\ 44 U.S.C. 3507(j); 5 CFR 1320.13.
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    Form N-CSR (OMB Control No. 3235-0570) under the Exchange Act and 
the Investment Company Act \18\ is used by registered management 
investment companies filing certified shareholder reports. Form N-SAR 
(OMB Control No. 3235-0330) under the Exchange Act and the Investment 
Company Act \19\ is used by registered investment companies to file 
periodic reports with the Commission. 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.
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    \18\ 17 CFR 249.331 and 17 CFR 274.128.
    \19\ 17 CFR 249.330 and 17 CFR 274.101.
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A. Summary of Proposed Rules

    The Sudan Divestment Act, enacted on December 31, 2007, requires 
the Commission to prescribe regulations not later than 120 days after 
enactment that require disclosure by each registered investment company 
that divests itself of securities in accordance with the Act.\20\ The 
Sudan Divestment Act states that these rules shall require this 
disclosure to be included in the next periodic report filed under 
Section 30 of the Investment Company Act following the divestment.\21\
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    \20\ Section 4(b) of the Sudan Divestment Act.
    \21\ Id.
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    To implement the Sudan Divestment Act, we are proposing amendments 
that would, if adopted, require each registered investment company that 
divests securities in accordance with the Sudan Divestment Act to 
disclose the divestment on the next Form N-CSR or Form N-SAR that it 
files following the divestment. Management investment companies would 
provide the disclosure on Form N-CSR, and unit investment trusts would 
provide the disclosure on Form N-SAR.\22\ We are proposing to require 
disclosure of information that would identify the securities divested 
and the magnitude of the divestment. This would include the issuer's 
name; exchange ticker symbol; CUSIP number; total number of shares or, 
for debt securities, principal amount divested; and dates that the 
securities were divested.\23\ In addition, if the registered investment 
company continues to hold any securities of the divested issuer, it 
would be required to disclose the exchange ticker symbol; CUSIP number; 
and total number of shares or, for debt securities, principal amount of 
such securities, held on the date of filing.\24\ Compliance with the 
proposed form amendments would be necessary to obtain the benefit of 
the limitation on civil, criminal, and administrative actions provided 
in the Sudan Divestment Act. The information provided will not be kept 
confidential.
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    \22\ Proposed Item 6(b) of Form N-CSR; proposed Item 133 of Form 
N-SAR.
    \23\ Proposed Item 6(b)(1)-(5) of Form N-CSR; proposed Item 
133.A.-E. of Form N-SAR.
    \24\ Proposed Item 6(b)(6) of Form N-CSR; proposed Item 133.F. 
of Form N-SAR.
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B. Reporting and Cost Burden Estimates

    The compliance burden estimates for the proposed collections of 
information are based on several assumptions. The compliance burden for 
the proposed amendments to Form N-CSR and Form N-SAR would be the 
reporting burden of collecting information necessary to make the 
disclosures under new Item 6(b) of Form N-CSR and new Item 133 of Form 
N-SAR. We estimate that the new collections of information would result 
in an increase of one-half burden hour per filing. Further, we believe 
that the number of registered investment companies that hold securities 
in companies conducting or directly investing in certain business 
operations in Sudan, and that will divest from these securities in 
accordance with the Sudan Divestment Act, will be relatively small. We 
estimate that approximately 15% of all registered investment company 
portfolios have an objective of investing internationally.\25\ Based on 
a conservative assumption that each of these portfolios will make a 
divestment in accordance with the Sudan Divestment Act prior to each 
filing it makes on Form N-CSR or Form N-SAR, we estimate that 
approximately 15% of the filings on Form N-CSR and Form N-SAR will 
include disclosures of divestments in accordance with the Sudan 
Divestment Act. We request comment on these estimates.
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    \25\ This estimate is based on analysis done by the Division of 
Investment Management staff of publicly available data.
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    Based on a burden hour estimate of one-half hour per filing for 
each respondent that makes disclosures under the proposed amendments, 
we estimate that registered management investment companies filing Form 
N-CSR will incur approximately 510 annual burden hours,\26\ and unit 
investment trusts will incur approximately 10 annual burden hours,\27\ 
to comply with the proposed form amendments.
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    \26\ 6,743 annual and semi-annual filings on Form N-CSR x 15% of 
filings on Form N-CSR x \1/2\ burden hour = approximately 510 total 
burden hours (rounded to the nearest 10).
    \27\ 90 filings on Form N-SAR x 15% of filings on Form N-SAR x 
\1/2\ burden hour = approximately 10 total burden hours (rounded to 
the nearest 10).
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    The total annual burden hours for Form N-CSR, revised to include 
the burden hours expected from the proposed form amendments, are 
estimated to be 138,662.5 burden hours, an increase of 510 burden hours 
from the current annual burden of 138,152.5 hours. The total annual 
burden hours for Form N-SAR, revised to include the burden hours 
expected from the proposed form amendments, are estimated to be 107,213 
burden hours, an increase of 10 burden hours from the current annual 
burden of 107,203 hours.

C. Request for Comment

    We request comments to: (a) Evaluate whether the proposed 
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 estimates of the burden of the proposed form 
amendments; (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.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090, with reference to File No. S7-02-08. Requests for materials 
submitted to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-02-08, and be 
submitted to the Securities and Exchange Commission, Public Reference 
Room, 100 F Street, NE., Washington, DC 20549-1520. We have requested, 
pursuant to 44 U.S.C. 3507(j), that OMB authorize the collections of 
information not later than April 29, 2008.

[[Page 8979]]

IV. Cost/Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. Our proposed amendments to Form N-CSR and Form N-SAR would, 
if adopted, require each registered investment company that divests 
securities in accordance with the Sudan Divestment Act to disclose the 
divestment on the next Form N-CSR or Form N-SAR that it files following 
the divestment.

A. Benefits

    In proposing these form amendments, we intend to implement the 
Sudan Divestment Act's mandate for rulemaking by the Commission. The 
proposed amendments meet the Sudan Divestment Act's directive that the 
Commission ``prescribe regulations, in the public interest and for the 
protection of investors, to require disclosure by each registered 
investment company that divests itself of securities in accordance with 
section 13(c) of the Investment Company Act of 1940.'' \28\ Disclosure 
under the proposed form amendments would make applicable to a 
registered investment company, and its employees, officers, directors, 
and investment advisers, the limitation on actions provided by the 
Sudan Divestment Act. The proposed amendments also would make important 
information about divestments in accordance with the Sudan Divestment 
Act available to investors, including information identifying the 
securities divested, the dates of divestment, and any securities of the 
issuer that the registered investment company continues to hold.
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    \28\ Section 4(b) of the Sudan Divestment Act.
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    We request comment on these and any other potential benefits.

B. Costs

    While the proposed form amendments may lead to some additional 
costs for registered investment companies, we believe that these costs 
should be minimal. Our proposed amendments to Form N-CSR and Form N-SAR 
would, if adopted, require each registered investment company that 
divests securities in accordance with the Sudan Divestment Act to 
disclose the divestment on the next Form N-CSR or Form N-SAR that it 
files following the divestment. Registered investment companies retain 
records of securities transactions that, we believe, would permit them 
to readily identify and disclose, for divestments made in accordance 
with the Sudan Divestment Act, the securities divested, the dates of 
divestment, and any securities of the issuer retained by the investment 
company. Further, to ease the burden of information collection and 
disclosure, we have included a proposed instruction in Form N-CSR and 
Form N-SAR stating that a registered investment company that divests 
securities in accordance with the Sudan Divestment Act during the 
period that begins on the fifth business day before the date of filing 
a Form N-CSR or Form N-SAR and ends on the date of filing may disclose 
the divestment in either that filing or an amendment thereto that is 
filed not later than five business days after the date of filing the 
Form N-CSR or Form N-SAR.\29\ We believe that this flexibility may 
lessen the compliance burdens associated with reporting divestments 
that occur shortly before a registered investment company files a Form 
N-CSR or Form N-SAR.
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    \29\ Proposed Instruction 2. to proposed Item 6(b) of Form N-
CSR; proposed Instructions to Item 133 of Form N-SAR.
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    For purposes of the PRA, we estimate that it would take 
approximately 510 annual burden hours \30\ to comply with the proposed 
amendments to Form N-CSR and approximately 10 annual burden hours \31\ 
to comply with the proposed amendments to Form N-SAR, for an aggregate 
of approximately 520 total annual burden hours to comply with the 
proposed form amendments. We estimate that this additional burden would 
equal total costs of approximately $145,000 annually.\32\ We believe 
that the potential, incremental costs of disclosing divestments in 
accordance with the Sudan Divestment Act on Form N-CSR and Form N-SAR 
are justified by the fact that such disclosures would make applicable 
to a registered investment company, and its employees, officers, 
directors, and investment advisers, the limitation on actions provided 
by the Sudan Divestment Act. These disclosures also would make 
important information about divestments in accordance with the Sudan 
Divestment Act available to investors, including information 
identifying the securities divested, the dates of divestment, and any 
securities of the issuer that the registered investment company 
continues to hold.
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    \30\ See supra note 26.
    \31\ See supra note 27.
    \32\ This cost increase is estimated by multiplying the total 
annual hour burden (520 hours) by the estimated hourly wage rate of 
$279.50 and rounding to the nearest 1,000. The estimated wage figure 
is based on published rates for compliance attorneys and senior 
programmers, modified to account for an 1800-hour work-year and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead, yielding effective hourly rates of $270 and 
$289, respectively. See Securities Industry Association, Report on 
Management & Professional Earnings in the Securities Industry 2007 
(Sept. 2007). The estimated wage rate is further based on the 
estimate that attorneys and programmers would divide time equally, 
resulting in a weighted wage rate of $279.50 (($270 x .50) + ($289 x 
.50)).
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    We request comment on the magnitude of these potential costs, 
including our estimates, and whether there are any other additional 
potential costs.

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 form amendments. Commenters are 
requested to provide empirical data and other factual support for their 
views to the extent possible.

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

    Section 23(a)(2) of the Exchange Act \33\ 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. In addition, Section 2(c) of the Investment Company Act,\34\ 
Section 2(b) of the Securities Act of 1933,\35\ and Section 3(f) of the 
Exchange Act \36\ require the Commission, when engaging in rulemaking 
that requires it to consider or determine whether an action is 
necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation.
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    \33\ 15 U.S.C. 78w(a)(2).
    \34\ 15 U.S.C. 80a-2(c).
    \35\ 15 U.S.C. 77b(b).
    \36\ 15 U.S.C. 78c(f).
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    The proposed form amendments are intended to implement the Sudan 
Divestment Act's requirement that we prescribe regulations not later 
than 120 days after enactment that require disclosure by each 
registered investment company that divests itself of securities in 
accordance with the Act. Disclosure provided in response to the 
proposed amendments would make applicable to a registered investment 
company, and its employees, officers, directors, and investment 
advisers, the limitation on actions provided by the Sudan Divestment 
Act. These disclosures also would make important information about 
divestments in accordance with the Sudan Divestment Act available to 
investors, including information identifying the securities divested, 
the

[[Page 8980]]

dates of divestment, and any securities of the issuer that the 
registered investment company continues to hold.
    These proposed amendments may improve efficiency. Disclosure 
provided in response to the proposed amendments, if adopted, could 
increase efficiency at registered investment companies by making 
applicable to a registered investment company, and its employees, 
officers, directors, and investment advisers, the limitation on actions 
provided by the Sudan Divestment Act. These disclosures also could 
promote efficiency because they make important information about 
divestments in accordance with the Sudan Divestment Act available to 
investors, including information identifying the securities divested, 
the dates of divestment, and any securities of the issuer that the 
registered investment company continues to hold. Making such 
information available to investors may enable them to make more 
informed investment decisions.
    The proposed amendments may promote competition. We anticipate that 
our proposed form amendments may promote competition because they may 
make it easier for registered investment companies to choose whether or 
not to offer portfolios that include holdings in companies that conduct 
or directly invest in certain business operations in Sudan. Thus, the 
proposed form amendments may facilitate competition by making it easier 
for registered investment companies to offer different types of 
portfolios that appeal to different investors. We do not anticipate 
that the proposed amendments will impose a measurable burden on 
competition. We also do not anticipate that the proposed form 
amendments will have a significant impact on capital formation.
    We request comment on whether the proposed form amendments, if 
adopted, would promote efficiency, competition, and capital formation. 
We also request comment on whether the proposed amendments would impose 
a burden on competition. Commenters are requested to provide empirical 
data and other factual support for their views if possible.

VI. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis (``Analysis'') has 
been prepared in accordance with the Regulatory Flexibility Act.\37\ It 
relates to the Commission's proposed form amendments under the Exchange 
Act and the Investment Company Act that would require each registered 
investment company that divests securities in accordance with the Sudan 
Divestment Act to disclose the divestment on the next Form N-CSR or 
Form N-SAR that it files following the divestment.
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    \37\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, Proposed Amendments

    The purpose of the proposed form amendments is to implement the 
Sudan Divestment Act's requirement that the Commission adopt rules 
requiring disclosure of divestments made in accordance with the Act. 
Disclosure provided in response to the proposed amendments would make 
applicable to a registered investment company, and its employees, 
officers, directors, and investment advisers, the limitation on actions 
provided by the Sudan Divestment Act. These disclosures also would make 
important information about divestments in accordance with the Sudan 
Divestment Act available to investors, including information 
identifying the securities divested, the dates of divestment, and any 
securities of the issuer that the registered investment company 
continues to hold.

B. Legal Basis

    The Commission is proposing amendments to Forms N-CSR and N-SAR 
pursuant to authority set forth in Sections 10(b), 13, 15(d), 23(a), 
and 36 of the Exchange Act [15 U.S.C. 78j(b), 78m, 78o(d), 78w(a), and 
78mm] and Sections 8, 13(c), 24(a), 30, and 38 of the Investment 
Company Act [15 U.S.C. 80a-8, 80a-13(c), 80a-24(a), 80a-29, and 80a-
37].

C. Small Entities Subject to the Rule

    The proposed 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.\38\ Approximately 160 registered 
investment companies currently meet this definition.\39\
---------------------------------------------------------------------------

    \38\ 17 CFR 270.0-10.
    \39\ This estimate is based on analysis by the Division of 
Investment Management staff of publicly available data.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed amendments to Form N-CSR and Form N-SAR would, if 
adopted, require each registered investment company that divests 
securities in accordance with the Sudan Divestment Act to disclose the 
divestment on the next Form N-CSR or Form N-SAR that it files following 
the divestment.
    For purposes of the PRA, we estimate that it would take 
approximately 510 annual burden hours to comply with the proposed 
amendments to Form N-CSR and approximately 10 annual burden hours to 
comply with the proposed amendments to Form N-SAR, for an aggregate of 
approximately 520 total annual burden hours to comply with the proposed 
form amendments. We estimate that this additional burden would equal 
total costs of approximately $145,000 annually.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe that there are no rules that duplicate, overlap, or 
conflict with the proposed amendments.

F. Agency Action to Minimize the Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish our stated objective, while 
minimizing any significant adverse impact on small issuers. In 
connection with the proposed amendments, the Commission considered the 
following alternatives: (1) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities; (2) the clarification, 
consolidation, or simplification of compliance and reporting 
requirements under the proposed amendments for small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the proposed amendments, or any part thereof, for 
small entities.
    The Commission believes 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 or the requirements of the Sudan Divestment Act. Disclosure 
provided in response to the proposed amendments would make applicable 
to a registered investment company, and its employees, officers, 
directors, and investment advisers, the limitation on actions provided 
by the Sudan Divestment Act. These disclosures also would make 
important information about divestments in accordance with the Sudan 
Divestment Act available to investors, including information 
identifying the securities divested, the dates of divestment, and any 
securities of the issuer that the registered

[[Page 8981]]

investment company continues to hold. Different disclosure requirements 
or different timetables for registered investment companies that are 
small entities do not appear to be consistent with the requirements of 
the Sudan Divestment Act. Finally, in this proposed rulemaking, we do 
not consider using performance rather than design standards to be 
consistent with the statutory requirement that we adopt rules for the 
protection of investors.
    We have endeavored through the proposed amendments to minimize the 
regulatory burden on all registered investment companies, including 
small entities, while meeting the requirements of the Sudan Divestment 
Act. Small entities should benefit from the Commission's reasoned 
approach to the proposed amendments to the same degree as other 
registered investment companies.

G. Request for 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 amendments and the likely impact of the proposal 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 amendments are adopted, and will 
be placed in the same public file as comments on the proposed 
amendments themselves.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\40\ a rule is ``major'' if it results or is 
likely to result in:
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    \40\ Pub. L. No. 104-21, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether our proposal would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.

VIII. Statutory Authority

    The Commission is proposing amendments to Form N-SAR and Form N-CSR 
pursuant to authority set forth in Sections 10(b), 13, 15(d), 23(a), 
and 36 of the Exchange Act [15 U.S.C. 78j(b), 78m, 78o(d), 78w(a), and 
78mm], and Sections 8, 13(c), 24(a), 30, and 38 of the Investment 
Company Act [15 U.S.C. 80a-8, 80a-13(c), 80a-24(a), 80a-29, and 80a-
37].

List of Subjects

17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of Proposed Form Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend Title 17, Chapter II, of the Code of Federal Regulations as 
follows.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    1. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a et seq., 7202, 7233, 7241, 7262, 7264, 
and 7265; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

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

    2. The authority citation for part 274 continues to read in part 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.
* * * * *
    3. Form N-SAR (referenced in Sec. Sec.  249.330 and 274.101) is 
amended by:
    a. Revising the reference ``132'' in Item 6 to read ``133'';
    b. Adding new Item 133;
    c. Revising the reference ``132'' in the fifth paragraph of General 
Instruction A to read ``133''; and
    d. Adding an instruction to new Item 133.
    The additions read as follows:

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

Form N-SAR

* * * * *
    133. If the Registrant has divested itself of securities in 
accordance with Section 13(c) of the Investment Company Act of 1940 
following the filing of its last report on Form N-SAR and before filing 
of the current report, disclose the following information for each such 
divested security:
    A. Name of the issuer;
    B. Exchange ticker symbol;
    C. CUSIP number;
    D. Total number of shares or, for debt securities, principal amount 
divested;
    E. Date(s) that the securities were divested; and
    F. If the Registrant holds any securities of the issuer on the date 
of filing, the exchange ticker symbol; CUSIP number; and the total 
number of shares or, for debt securities, principal amount held on the 
date of filing.
* * * * *

Instructions to Specific Items

* * * * *

Item 133: Divestment of Securities in Accordance With the Sudan 
Accountability and Divestment Act of 2007

    This item may be used by a Registrant that divested itself of 
securities in accordance with Section 13(c) of the Investment Company 
Act, which was added by the Sudan Accountability and Divestment Act of 
2007. A Registrant is not required to include disclosure under this 
item; however, the limitation on civil, criminal, and administrative 
actions under Section 13(c) of the Investment Company Act does not 
apply with respect to a divestment that is not disclosed under this 
item.
    If a Registrant divests itself of securities in accordance with 
Section 13(c) of the Act during the period that begins on the fifth 
business day before the date of filing a Form N-SAR and ends on the 
date of filing, it may disclose the divestment in either the Form N-SAR 
or an amendment thereto that is filed not later than five business days 
after the date of filing the Form N-SAR.
    For purposes of determining when a divestment should be reported 
under this item, if a Registrant divests its holdings in a particular 
security in a related series of transactions, the Registrant may deem 
the divestment to occur at the time of the final transaction in the 
series. In that case, the Registrant should report each transaction in 
the series on a single Form N-SAR, but should separately state each 
date on which securities were divested and the total number of shares 
or, for debt securities, principal amount divested, on each such date.
* * * * *

[[Page 8982]]

    4. Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) is 
amended by:
    a. Revising the reference ``Schedule of Investments.'' in the 
caption to Item 6 to read ``Investments.'';
    b. Designating the undesignated paragraph in Item 6 as paragraph 
(a);
    c. Revising the reference ``Instruction.'' in Item 6 to read 
``Instruction to paragraph (a).''; and
    d. Adding new paragraph (b) and new Instructions 1, 2, and 3 to 
paragraph (b) to Item 6.
    The additions read as follows:

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

Form N-CSR

* * * * *

Item 6. Investments

    (a) * * *
    (b) If the registrant has divested itself of securities in 
accordance with Section 13(c) of the Investment Company Act of 1940 
following the filing of its last report on Form N-CSR and before filing 
of the current report, disclose the following information for each such 
divested security:
    (1) Name of the issuer;
    (2) Exchange ticker symbol;
    (3) Committee on Uniform Securities Identification Procedures 
(``CUSIP'') number;
    (4) Total number of shares or, for debt securities, principal 
amount divested;
    (5) Date(s) that the securities were divested; and
    (6) If the registrant holds any securities of the issuer on the 
date of filing, the exchange ticker symbol; CUSIP number; and the total 
number of shares or, for debt securities, principal amount held on the 
date of filing.
    Instructions to paragraph (b).
    1. This Item may be used by a registrant that divested itself of 
securities in accordance with Section 13(c) of the Investment Company 
Act, which was added by the Sudan Accountability and Divestment Act of 
2007. A registrant is not required to include disclosure under this 
Item; however, the limitation on civil, criminal, and administrative 
actions under Section 13(c) of the Investment Company Act does not 
apply with respect to a divestment that is not disclosed under this 
Item.
    2. If a registrant divests itself of securities in accordance with 
Section 13(c) of the Act during the period that begins on the fifth 
business day before the date of filing a Form N-CSR and ends on the 
date of filing, it may disclose the divestment in either the Form N-CSR 
or an amendment thereto that is filed not later than five business days 
after the date of filing the Form N-CSR.
    3. For purposes of determining when a divestment should be reported 
under this Item, if a registrant divests its holdings in a particular 
security in a related series of transactions, the registrant may deem 
the divestment to occur at the time of the final transaction in the 
series. In that case, the registrant should report each transaction in 
the series on a single Form N-CSR, but should separately state each 
date on which securities were divested and the total number of shares 
or, for debt securities, principal amount divested, on each such date.

    Dated: February 11, 2008.

    By the Commission.
Nancy M. Morris,
Secretary.
 [FR Doc. E8-2859 Filed 2-14-08; 8:45 am]

BILLING CODE 8011-01-P