[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