[Federal Register Volume 67, Number 169 (Friday, August 30, 2002)]
[Notices]
[Pages 55890-55891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22157]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; 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, 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), the Securities and Exchange Commission 
(``Commission'') is soliciting comments on the collection of 
information summarized below. The Commission plans to submit this 
existing collection of information to the Office of Management and 
Budget (``OMB'') for extension and approval.
    Section 31(a)(1) of the Investment Company Act of 1940 (the 
``Act'') requires registered investment companies (``funds'') and 
certain principal underwriters, 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 each of 
these entities must maintain.\2\ Rule 31a-2, which was adopted on April 
17, 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:
    1. 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 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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    2. 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 vouchers, 
memoranda, correspondence, checkbooks, bank 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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    3. 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.
    4. 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

[[Page 55891]]

required to be preserved by brokers and dealers under rules adopted 
under section 17 to the extent the records are necessary or appropriate 
to record the entity's transactions with the fund.
    5. 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.
    6. 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.
    The records required to be maintained and preserved under this part 
may be maintained and preserved for the required time by, or on behalf 
of, an investment company on (i) micrographic media, including 
microfilm, microfiche, or any similar medium, or (ii) electronic 
storage media, including any digital storage medium or system that 
meets the terms of this section. The investment company, or person that 
maintains and preserves records on its behalf, must arrange and index 
the records in a way that permits easy location, access, and retrieval 
of any particular record.\6\
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    \6\ In addition, the fund, or whoever maintains the documents 
for the fund must provide promptly any of the following that the 
Commission (by its examiners or other representatives) or the 
directors of the company may request: (A) a legible, true, and 
complete copy of the record in the medium and format in which it is 
stored; (B) a legible, true, and complete printout of the record; 
and (C) means to access, view, and print the records; and separately 
store, for the time required for preservation of the original 
record, a duplicate copy of the record on any medium allowed by this 
section. In the case of records retained on electronic storage 
media, the investment company, or person that maintains and 
preserves records on its behalf, must establish and maintain 
procedures: (i) to maintain and preserve the records, so as to 
reasonably safeguard them from loss, alteration, or destruction; 
(ii) to limit access to the records to properly authorized 
personnel, the directors of the investment company, and the 
Commission (including its examiners and other representatives); and 
(iii) to reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved.
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    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. The Commission staff spends 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.
    There are approximately 4,500 active investment companies 
registered with the Commission as of April 30, 2002, all of which are 
required to comply with rule 31a-2. Based on conversations with 
representatives of the fund industry, the Commission staff estimates 
that each fund spends about 210 hours per year complying with rule 31a-
2, for a total annual burden for the fund industry of approximately 
945,000 hours.\7\
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    \7\ Commission staff surveyed several fund representatives to 
determine the current burden hour estimate. The staff found that an 
average fund spends approximately 210 hours per annum complying with 
rule 31a-2 (210 hours x 4,500 registered investment companies = 
945,000). Although the Commission did not change its collection of 
information requirements in rule 31a-2, the fund representatives' 
estimates reflect an annual increase of 182 hours per fund over the 
burden of 27.8 hours estimated in the 1998 PRA submission. The 
change in annual hours is based upon an increase in the estimated 
time each fund spends complying with the rule.
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    The Commission staff estimates the average cost of preserving books 
and records required by rule 31a-2, to be approximately $.000035 per 
$1.00 of net assets per year.\8\ With the total net assets of all funds 
at about $7 trillion,\9\ the staff estimates that compliance with rule 
31a-2 costs the fund industry approximately $245 million per year.\10\ 
The Commission staff estimates, however, based on past conversations 
with representatives of the fund industry, that funds could spend as 
much as half of this amount ($122.4 million) 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.
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    \8\ The staff estimated the annual cost of preserving the 
required books and records by identifying the annual costs for 
several funds and then relating this total cost to the average net 
assets of these funds during the year. The staff estimates that the 
annual cost of preserving records is $70,000 per fund; the funds 
queried in support of this analysis had an average asset base of 
approximately $2 billion (70,000/2 billion = .000035).
    \9\ See Investment Company Institute, 2002 Mutual Fund Fact 
Book, at 61.
    \10\ 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 
($7 trillion x .000035 = $244.7 million).
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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.
    Written comments are invited on: (a) Whether the collections of 
information are necessary for the proper performance of the functions 
of the Commission, including whether the information has practical 
utility; (b) the accuracy of the Commission's estimate of the burdens 
of the collections of information; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burdens of the collections of information on respondents, 
including through the use of automated collection techniques or other 
forms of information technology. Consideration will be given to 
comments and suggestions submitted in writing within 60 days of this 
publication.
    Please direct your written comments to Michael E. Bartell, 
Associate Executive Director, Office of Information Technology, 
Securities and Exchange Commission, Mail Stop 0-4, 450 5th Street, NW 
Washington, DC 20549.

    Dated: August 22, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22157 Filed 8-29-02; 8:45 am]
BILLING CODE 8010-01-P