[Federal Register Volume 64, Number 78 (Friday, April 23, 1999)]
[Notices]
[Pages 20027-20029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10194]


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SECURITIES AND EXCHANGE COMMISSION


Submission for OMB Review; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Filings and Information Services, Washington, DC 
20549

Extension:
    Rule 31a-2 [17 CFR 270.31a-2], SEC. File No. 270-174, OMB 
Control No. 3235-0179

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520) (``Paperwork Reduction Act''), the 
Securities and Exchange Commission (``Commission'') has submitted to 
the Office of Management and Budget (``OMB'') a request for extension 
and approval of the collections of information discussed below.
    Section 31(a) of the Investment Company Act of 1940 [15 U.S.C. 80a] 
(``Investment Company Act'' or ``Act'') requires registered investment 
companies (``fund'') and certain principal underwrites, broker-dealers, 
investment advisers and depositors of funds to maintain and preserve 
records as prescribed by Commission rules.\1\ Rule 31a-1 specifies the 
books and records for each of these entities must be maintained.\2\ 
Rule 31a-2, which the Commission adopted in 1944, specifies the time 
periods that entities must retain books and records required to be 
maintained under rule 31a-1.\3\
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    \1\ 15 U.S.C. 80a-30(a)(1).
    \2\ 17 CFR 270.31a-1.
    \3\ 17 CFR 270.31a-2.
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    Rule 31a-2 requires the following:

    (i) Every fund must preserve permanently, and in an easily 
accessible place for the first two years, all books and records 
required under rule 31a-1(b)(1)-(4).\4\
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    \4\ 17 CFR 270.31a-1(b)(1)-(4). These include, among other 
records, journals detailing daily purchases and sales of securities 
or contracts to purchase and sell securities, general and auxiliary 
ledgers reflecting all asset, liability, reserve, capital, income 
and expense accounts, separate ledgers or records reflecting 
separately for each portfolio security as of the trade date, all 
``long'' and ``short'' positions carried by the fund for its own 
account, and corporate charters, certificates of incorporation, and 
by-laws.
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    (ii) Every fund must preserve for at least six years, and in an 
easily accessible place for the first two years: (a) All books and 
records required under rule 31a-1(b)(5)-(12); \5\ (b) all

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vouchers, memoranda, correspondence, checkbooks, banks statements, 
canceled checks, cash reconciliations, canceled stock certificates 
and all schedules that support each computation of net asset value 
of fund shares; and (c) any advertisement, pamphlet, circular, form 
letter or other sales literature addressed or intended for 
distribution to prospective investors.
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    \5\ 17 CFR 270.31a-1(b)(5)-(12). These include, among other 
records, records of each brokerage order given in connection with 
purchases and sales of securities by the fund, all other portfolio 
purchases, records of all puts, calls, spreads, straddles or other 
options in which the fund has an interest, has granted, or has 
guaranteed, records of proof of money balances in all ledger 
accounts, files of all advisory material received from the 
investment adviser, and memoranda identifying persons, committees or 
groups authorizing the purchase or sale of securities for the fund.
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    (iii) Every underwriter, broker or dealer that is a majority-
owned subsidiary of a fund must preserve records required to be 
preserved by brokers and dealers under rules adopted under section 
17 of the Securities Exchange Act (``section 17'') for the periods 
established in those rules.
    (iv) Every depositor of any fund, and every principal 
underwriter of any fund other than a closed-end fund, must preserve 
for at least six years records required to be preserved by brokers 
and dealers under rules adopted under section 17 of the Exchange Act 
to the extent the records are necessary or appropriate to record the 
entity's transactions with the fund.
    (v) Every investment adviser that is a majority-owned subsidiary 
of a fund must preserve the records required to be maintained by 
investment advisers under rules adopted under section 204 of the 
Investment Advisers Act of 1940 (``section 204'') for the periods 
specified in those rules.
    (vi) Every investment adviser that is not a majority-owned 
subsidiary of a fund must preserve for at least six years records 
required to be maintained by registered investment advisers under 
rules adopted under section 204 to the extent the records are 
necessary or appropriate to reflect the adviser's transactions with 
the fund.

    Rule 31a-2 permits the organizations subject to the rule to 
reproduce and preserve many records on photographic film 
(``microfilm'') or on magnetic tape, disk, or other computer storage 
medium. If one of these media is used by or on behalf of a fund, the 
fund must:

    (i) Arrange the records and index and file the microfilm or 
computer storage medium in a way that will permit immediate access 
and retrieval of any particular record;
    (ii) Be prepared to provide promptly a microfilm enlargement or 
computer printout, or other copy requested by Commission 
representatives or the fund's directors;
    (iii) Store one copy separately from the original of the 
microfilm or computer record for the time required to store the 
original;
    (iv) Maintain procedures for maintaining, preserving, and 
providing access to records stored on computer medium in order to 
reasonably safeguard them from loss or destruction; and
    (v) At all times have microfilm available for examination by 
Commission representatives or fund directors, and have available 
facilities for immediate, easily readable projection and production 
of easily readable enlargements of microfilm records.

    The Commission periodically inspects the operations of all funds to 
ensure their compliance with the provisions of the Act and the rules 
under the Act. Commission staff spend a significant portion of their 
time in these inspections reviewing the information contained in the 
books and records required to be kept by rule 31a-1 and to be preserved 
by rule 31a-2.
    The retention of records, as required by the rule, is necessary to 
insure that the public has access to material business and financial 
information about issuers of securities and regulated entities. As 
noted above, the Commission periodically inspects the operations of 
funds to ensure they are in compliance with the Act and regulations 
under the Act. Due to the limits on the Commission's resources, 
however, each fund may only be inspected at intervals of several years. 
In addition, under the federal securities laws, there is no time limit 
on the prosecution of persons engaged in certain types of conduct that 
violate the securities laws. For these reasons, the Commission often 
needs information relating to events or transactions that occurred 
years ago. Without the requirement to preserve books, records and other 
documents, the Commission would have difficulty determining whether the 
fund was in compliance with the law in such areas as valuation of its 
portfolio securities, computation of the prices investors paid and, 
when purchasing and selling fund shares, types and amounts of expenses 
the fund incurred, kinds of investments the fund purchased, actions of 
affiliated persons, or whether the fund had engaged in any illegal or 
fraudulent activities.
    There are approximately 3,900 active investment companies 
registered with the Commission as of December 31, 1998, all of which 
are required to comply with rule 31a-2. Based on conversations with 
representatives of the fund industry, Commission staff estimate that 
each fund spends approximately 27.8 hours per year complying with rule 
31a-2, for a total annual burden for the fund industry of approximately 
108,420 hours.\6\
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    \6\ Commission staff surveyed several fund representatives to 
determine the current burden hour estimate. Although the Commission 
did not change its collection of information requirements in rule 
31a-2, the fund representatives' estimates reflect an annual 
increase of 12.4 hours per fund over the burden of 15.4 hours 
estimated in the 1995 PRA submission. The change in annual hours is 
based upon an increase in the time each fund spends complying with 
the rule. The burden hours associated with maintaining records under 
rules adopted under section 204 of the Investment Advisers Act for 
investment advisers and under section 17 of the Exchange Act for 
underwriters, brokers, dealers, and depositors are addressed in the 
PRA submissions relating to the rules adopted under those sections.
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    The estimates of burden hours are made solely for the purposes of 
the Paperwork Reduction Act. The estimate is not derived from a 
comprehensive or even a representative survey or study of the costs of 
Commission rules and forms.
    Commission staff estimates the average cost of preserving books and 
records required by rule 31a-2, to be approximately $.000018 per $1.00 
of net assets per year.\7\ Within the total net assets of all funds at 
about $4.5 trillion,\8\ the staff estimates compliance with rule 31a-2 
costs the fund industry approximately $81 million per year.\9\ 
Commission staff estimates, based on conversations with representatives 
of the fund industry, that funds would spend at least half of this 
amount ($40.5 million) in any case to preserve the books and records 
that are necessary to prepare financial statements, meet various state 
reporting requirements, and prepare their annual federal and state 
income tax returns.\10\
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    \7\ The staff estimated the annual cost of preserving the 
required books and records by identifying the annual costs by 
several funds and then relating this total cost to the average net 
assets of these funds during the year.
    \8\ See Investment Company Institute, 1998 Mutual Fund Fact 
Book, at 1.
    \9\ This estimate is based on the annual cost per dollar of net 
assets of the average fund as applied to the net assets of all 
funds.
    \10\ Several of the fund industry representatives surveyed 
indicated that the records required to be preserved and maintained 
by rule 31a-2 also are required for accounting, tax return and state 
reporting requirements. In the experience of two investment 
companies, the major portion of the cost, approximately 60 percent, 
is for labor related costs and approximately 40 percent is for 
storage related costs, however these companies were not able to 
allocate the percentage of costs specifically attributable to rent 
or equipment.
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    These estimates of average costs are made solely for the purposes 
of the Paperwork Reduction Act. The estimate is not derived from a 
comprehensive or even a representative survey or study of the costs of 
Commission rules. 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.
    Please direct general comments regarding the above information to 
the following persons: (i) Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Office of 
Management and Budget, 10102, New Executive Office Building, 
Washington, DC 20503; and (ii) Michael E. Bartell, Associate Executive 
Director, Office of Information Technology, Securities and

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Exchange Commission, Mail Stop 0-4, 450 5th Street, NW Washington, DC 
20549. Comments must be submitted to OMB within 30 days of this notice.

    Dated: April 16, 1999.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-10194 Filed 4-22-99; 8:45 am]
BILLING CODE 8010-01-M