[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52077-52078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-21114]



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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Investor Education and Advocacy, Washington, DC 
20549-0213.

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 et seq.), the Securities and Exchange 
Commission (the ``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 for extension and approval.
    Section 31(a)(1) of the Investment Company Act of 1940 (the 
``Act'') (15 U.S.C. 80a-30(a)(1)) requires registered investment 
companies (``funds'') and certain underwriters, broker-dealers, 
investment advisers, and depositors to maintain and preserve records as 
prescribed by Commission rules. Rule 31a-1 under the Act (17 CFR 
270.31a-1) specifies the books and records that each of these entities 
must maintain. Rule 31a-2 under the Act (17 CFR 270.31a-2), which was 
adopted on April 17, 1944, specifies the time periods that entities 
must retain certain books and records, including those required to be 
maintained under rule 31a-1.
    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).\1\
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    \1\ These include, among other records, journals detailing daily 
purchases and sales of 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, by-laws and minute books.
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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); \2\
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    \2\ These include, among other records, records of each 
brokerage order given in connection with purchases and sales of 
securities by the fund, records of all other portfolio purchases or 
sales, 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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    b. All vouchers, memoranda, correspondence, checkbooks, bank 
statements, canceled checks, cash reconciliations, canceled stock 
certificates, and all schedules evidencing and supporting each 
computation of net asset value of fund shares, and other documents 
required to be maintained by rule 31a-1(a) and not enumerated in rule 
31a-1(b);
    c. Any advertisement, pamphlet, circular, form letter or other 
sales literature addressed or intended for distribution to prospective 
investors;
    d. Any record of the initial determination that a director is not 
an interested person of the fund, and each subsequent determination 
that the director is not an interested person of the fund, including 
any questionnaire and any other document used to determine that a 
director is not an interested person of the company;
    e. Any materials used by the disinterested directors of a fund to 
determine that a person who is acting as legal counsel to those 
directors is an independent legal counsel; and
    f. Any documents or other written information considered by the 
directors of the fund pursuant to section 15(c) of the Act (15 U.S.C. 
80a-15(c)) in approving the terms or renewal of a contract or agreement 
between the fund and an investment advisor.\3\
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    \3\ Section 15 of the Act requires that fund directors, 
including a majority of independent directors, annually approve the 
fund's advisory contract and that the directors first obtain from 
the adviser the information reasonably necessary to evaluate the 
contract. The information request requirement in section 15 provides 
fund directors, including independent directors, a tool for 
obtaining the information they need to represent shareholder 
interests.
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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 of 1934 (15 U.S.C. 78q) (``section 17'') for 
the periods established in those rules.
    4. Every depositor of a fund, and every principal underwriter of a 
fund (other than a closed-end fund), must preserve for at least six 
years records required to be maintained 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 preserved by investment 
advisers under rules adopted under section 204 of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-4) (``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, a fund 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 rule 31a-2(f). 
The fund, 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.\4\
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    \4\ In addition, the fund, or person who maintains and preserves 
records for the fund, must provide promptly any of the following 
that the Commission (by its examiners or other representatives) or 
the directors of the fund 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 must 
separately store, for the time required for preservation of the 
original record, a duplicate copy of the record on any medium 
allowed by rule 31a-2(f). In the case of records retained on 
electronic storage media, the fund, 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 fund, 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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    We periodically inspect the operations of all funds to ensure their 
compliance with the provisions of the Act and the rules under the Act. 
Our staff spends a significant portion of its 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 3,484 funds currently operating as of March 31, 2012, all 
of which are required to comply with rule 31a-2. Based on conversations 
with representatives of the fund industry and past estimates, our staff 
estimates that each fund currently spends 220 total hours per year 
complying with rule 31a-2. Our staff estimates that the 220 hours spent 
by a typical fund would be split evenly between administrative and

[[Page 52078]]

computer operation personnel,\5\ with 110 hours spent by a general 
clerk and 110 hours spent by a senior computer operator. Based on these 
estimates, our staff estimates that the total annual burden for all 
funds to comply with rule 31a-2 is 766,480 hours.\6\
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    \5\ However, the hour burden may be incurred by a variety of 
fund staff, and the type of staff position used for compliance with 
the rule may vary widely from fund to fund.
    \6\ This estimate is based on the following calculations: 3,484 
funds x 220 hours = 766,480 total hours.
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    The hour burden estimates for retaining records under rule 31a-2 
are based on our experience with registrants and our experience with 
similar requirements under the Act and the rules under the Act. The 
number of burden hours may vary depending on, among other things, the 
complexity of the fund, the issues faced by the fund, and the number of 
series and classes of the fund.
    Based on conversations with representatives of the fund industry 
and past estimates, our staff estimates that the average cost of 
preserving books and records required by rule 31a-2 is approximately 
$70,000 annually per fund. As discussed previously, there are 3,484 
funds currently operating, for a total cost of preserving records as 
required by rule 31a-2 of approximately $243,880,000 per year.\7\ Our 
staff understands, however, based on previous conversations with 
representatives of the fund industry, that funds would already spend 
approximately half of this amount ($121,940,000) to preserve these same 
books and records, as they are also necessary to prepare financial 
statements, meet various state reporting requirements, and prepare 
their annual federal and state income tax returns. Therefore, we 
estimate that the total annual cost burden for all funds as a result of 
compliance with rule 31a-2 is approximately $121,940,000 per year.
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    \7\ This estimate is based on the following calculation: 3,484 
funds x $70,000 = $243,880,000.
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    The estimate of average burden hours is made solely for the 
purposes of the Paperwork Reduction Act, and is not derived from a 
comprehensive or even a representative survey or study of the costs of 
Commission rules and forms.
    The collection of information under rule 31a-2 is mandatory for all 
funds. 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 control number.
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information will 
have practical utility; (b) the accuracy of the Commission's estimate 
of the burden of the collection of information; (c) ways to enhance the 
quality, utility, and clarity of the information collected; and (d) 
ways to minimize the burden of the collection 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 Thomas Bayer, Director/Chief 
Information Officer, Securities and Exchange Commission, c/o Remi 
Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312; or send an 
email to: [email protected].

    Dated: August 22, 2012.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21114 Filed 8-27-12; 8:45 am]
BILLING CODE 8011-01-P