29224 Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations

1Unless otherwise noted, all references to rule

31a–2 or rule 204–2, or to any paragraph of those

rules, will be to 17 CFR 270.31a–2 and 17 CFR

275.204–2, as amended by this release.

2Electronic Signatures in Global and National

Commerce Act, Pub. L. No. 106–229, 114 Stat. 464

(2000) (15 U.S.C. 7001), Preamble.

3See Electronic Recordkeeping by Investment

Companies and Investment Advisers, Investment

Company Act Release No. 24890 (Mar. 13, 2001) [66

FR 15369 (Mar. 19, 2001)] (‘‘Proposing Release’’) at

n.4 and accompanying text.

4See Oppenheimer Management Corporation,

SEC No-Action Letter (Aug. 28, 1995); DST

Systems, Inc., SEC No-Action Letter (Feb. 2, 1993).

5Proposing Release, supra note 3, at nn. 7–12 and

accompanying text.

6The comment letters are available for public

inspection and copying in the Commission’s Public

Reference Room, 450 Fifth Street, NW.,

Washington, DC (File No. S7–06–01).

7Rules 31a–2(f)(3) and 204–2(g)(3). We requested

commenters to address whether rules 31a–2 and

204–2 should require funds and advisers to

preserve records in a non-rewriteable, non-erasable

(also known as ‘‘write once, read many,’’ or

‘‘WORM’’) format. Commenters concurred in our

preliminary assessment, at the proposing stage, that

the costs of such a requirement would be likely to

outweigh the benefits (with respect to advisers and

funds). Based on our consideration of costs,

benefits, and other factors described in the

proposing release we are not adopting such a

requirement at this time. We recognize that the

standards for electronic recordkeeping we are

adopting for funds and advisers are different from

the rules that we have adopted for broker-dealers,

which require brokerage records to be preserved in

a WORM format. We have not experienced any

significant problems with funds or advisers altering

stored records. Moreover, most advisory and mutual

fund arrangements involve multiple parties (e.g.,

brokers, custodians, transfer agents), each with its

own, often parallel, recordkeeping requirement. As

a result, our compliance examiners typically have

an alternative means to verify the accuracy of

adviser and fund records. In light of these factors,

the costs of requiring funds and advisers to invest

in new electronic recordkeeping technologies may

not be justified.

(b) Copies of all ISO/IEC documents

are available from the American

National Standards Institute, 11 West

42nd Street, 13th Floor, New York, New

York 10036; phone: 212–642–4900; fax:

212–398–0023; web site: www.ansi.org.

You may inspect copies of all applicable

ISO/IEC documents at the National

Voluntary Laboratory Accreditation

Program, National Institute of Standards

and Technology, 820 West Diamond

Avenue, Room 297, Gaithersburg, MD.

[FR Doc. 01–13448 Filed 5–29–01; 8:45 am]

BILLING CODE 3510–13–M

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 270 and 275

[Release Nos. IC–24991 and IA–2945; File

No. S7–06–01]

RIN 3235–AI05

Electronic Recordkeeping by

Investment Companies and Investment

Advisers

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange

Commission is adopting amendments to

rules under the Investment Company

Act of 1940 and the Investment

Advisers Act of 1940 that permit

registered investment companies and

registered investment advisers to

preserve required records using

electronic storage media such as

magnetic disks, tape, and other digital

storage media. The amendments expand

the ability of advisers and funds to use

electronic storage media to maintain

and preserve records. This release and

these rule amendments respond to the

enactment of the Electronic Signatures

in Global and National Commerce Act,

which encourages federal agencies to

accommodate electronic recordkeeping.

EFFECTIVE DATE: May 31, 2001.

FOR FURTHER INFORMATION CONTACT:

William C. Middlebrooks, Jr., Attorney,

or Martha B. Peterson, Special Counsel,

(202) 942–0690, Office of Regulatory

Policy, Division of Investment

Management, Securities and Exchange

Commission, 450 5th Street, NW.,

Washington, DC 20549–0506.

SUPPLEMENTARY INFORMATION: The

Securities and Exchange Commission

(‘‘Commission’’) is adopting

amendments to rule 31a–2 (17 CFR

270.31a–2) under the Investment

Company Act of 1940 (15 U.S.C. 80a)

(the ‘‘Investment Company Act’’), and

rule 204–2 (17 CFR 275.204–2) under

the Investment Advisers Act of 1940 (15

U.S.C. 80b) (the ‘‘Advisers Act’’).1

Executive Summary

The Commission is adopting

amendments to rules regarding

electronic recordkeeping by registered

investment companies (‘‘funds’’) and

registered investment advisers

(‘‘advisers’’). The federal securities laws

require funds, advisers, and others to

make and keep books and records. The

recordkeeping requirements are a key

part of the Commission’s regulatory

program for funds and advisers, as they

allow us to monitor fund and adviser

operations, and to evaluate their

compliance with federal securities laws.

Last year, Congress passed the

Electronic Signatures in Global and

National Commerce Act (the ‘‘Electronic

Signatures Act,’’ ‘‘Act,’’ or ‘‘ESIGN’’) to

facilitate the use of electronic records

and signatures in interstate and foreign

commerce.2 Consistent with the

purposes and goals of the Electronic

Signatures Act, we are adopting rule

amendments that expand the

circumstances under which funds and

advisers may keep records on electronic

storage media, and clarify and update

our recordkeeping rules. We are also

interpreting rules 31a-2 and 204–2 to be

the exclusive means by which funds

and advisers can comply with the

recordkeeping provisions of the

Electronic Signatures Act.

I. Discussion

A. Amendments to Rules 31a–2 and

204–2

The Commission is amending rules

31a–2 and 204–2 to permit funds and

advisers to keep all of their records in

an electronic format. Prior to today’s

amendments, rules 31a–2 and 204–2

provided that funds and advisers could

keep records on electronic storage

media only if the records were

originally created or received in an

electronic format.3 The Commission’s

staff had issued no-action letters to

conditionally permit funds and advisers

to convert records into an electronic

format and retain them electronically.4

In March of this year we proposed rule

amendments to incorporate these noaction letters into rules 31a–2 and 204–

2, while eliminating many of the

conditions that apply only to electronic

records created from non-electronic

originals. We also proposed to clarify

the obligation of funds and advisers to

provide copies of their records to

Commission examiners, and to

incorporate terminology used in

electronic recordkeeping rules under the

Securities Exchange Act of 1934 into

rules 31a–2 and 204–2.5 We received

seven comment letters addressing the

proposal.6 Commenters supported most

of the proposed amendments, and we

are adopting them substantially as

proposed, with a few changes in

response to concerns expressed by

commenters.

Under revised rules 31a–2 and 204–2,

funds and advisers are permitted to

maintain records electronically if they

establish and maintain procedures: (i)

To safeguard the records from loss,

alteration, or destruction, (ii) to limit

access to the records to authorized

personnel, the Commission, and (in the

case of funds) fund directors, and (iii) to

ensure that electronic copies of nonelectronic originals are complete, true,

and legible.7 In response to a suggestion

of one commenter, we are expanding

rules 31a–2 and 204–2 to include all

records that are required to be

Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations 29225

8Prior to the adoption of these amendments, rule

31a–2(f)(1) was limited to records required to be

maintained and preserved under rules 31a–1(a)

through (d) and 31a–2 (a) through (c), and rule 204–

2(g)(1) was limited to records required to be

maintained under rule 204–2. Other rules under

both Acts contain additional recordkeeping

requirements. See, e.g., rule 2a–7(c)(10) [17 CFR

270.2a–7(c)(10)] (money market funds must keep a

written copy of certain procedures for not less than

six years); rule 8b–16(c) (17 CFR 270.8b–16(c))

(funds must maintain certain documents

concerning dividend reinvestment plans in

accordance with section 31 of the Investment

Company Act); rule 10f–3(b)(12)(ii) (17 CFR

270.10f–3(b)(12)(ii)) (funds must maintain and

preserve for not less than six years a written record

of certain security transactions during the existence

of an underwriting or selling syndicate); rule 11a–

3(a)(2)(i) (17 CFR 270.11a–3(a)(2)(i)) (funds must

maintain and preserve records of any determination

of the costs incurred in connection with exchange

offers for not less than six years in accordance with

section 31(b) of the Investment Company Act); rule

12b–1(f) (17 CFR 270.12b–1(f)) (funds must preserve

copies of any plan, agreement or report under this

rule for not less than six years); rule 17e–1(d)(2) (17

CFR 270.17e–1(d)(2)) (funds must maintain and

preserve for at least six years a written record of

certain brokerage transactions); rule 17j–1(f)(1) (17

CFR 270.17j–1(f)(1)) (each fund that is required to

adopt a code of ethics must make the corresponding

records available to the Commission or its

representatives for inspection); rule 203A–2(e)(4)

(17 CFR 275.203A–2(e)(4)) (advisers must maintain

a record of the States in which the adviser has

determined it would be required to register for not

less than five years); and rule 204–1(c) (17 CFR

275.204–1(c)) (advisers must maintain copies of

Part II of Form ADV and any brochure delivered to

client).

9Rules 31a–2(f)(2) and 204–2(g)(2). We have

eliminated a proposed requirement that funds and

advisers provide means to search and sort, as well

as access, view, and print records. When their

recordkeeping systems have the capacity to

automatically ‘‘search’’ and ‘‘sort’’ records, funds

and advisers typically voluntarily make those

functions available to our examination staff. We did

not intend to require funds and advisers to add

‘‘search’’ and ‘‘sort’’ functions to systems that do

not have that capability.

10See proposed rules 31a–2(f)(2)(ii) and 204–

2(g)(2)(ii).

11Rule 31a–2(a) generally requires records to be

preserved in an ‘‘easily accessible’’ place for only

the first two years of the retention period.

12See Investment Company Act; Use of Magnetic

Tape, Disk, or Other Computer Storage Medium,

Investment Company Act Release No. 15410 (Nov.

13, 1986) [51 FR 42207 (Nov. 24, 1986)].

13ESIGN section 101(d)(1).

14Under the Electronic Signatures Act, a federal

regulatory agency (like the Commission) that is

responsible for rulemaking under any other statute

(such as the Investment Company Act or the

Advisers Act) ‘‘may interpret section 101 [of the

Electronic Signatures Act] with respect to such

statute through the issuance of regulations pursuant

to a statute; or to the extent such agency is

authorized by statute to issue orders or guidance,

the issuance of orders or guidance of general

applicability that are publicly available and

published (in the Federal Register in the case of an

order or guidance issued by a Federal regulatory

agency).’’ ESIGN section 104(b).

15ESIGN section 104(b)(2)(A) and (B).

16ESIGN section 104(b)(2)(C).

17ESIGN section 104(b)(3). Such performance

standards may be specified in a manner that

imposes a requirement in violation of the general

prohibition against selecting methods that require

or accord greater legal status or effect to the

implementation or application of a specific

technology or technical specification for performing

the functions of creating, storing, generating,

receiving, communicating, or authenticating

electronic records or electronic signatures if the

requirement (i) serves an important governmental

objective and (ii) is substantially related to the

achievement of that objective.

18See supra note 8 and accompanying text.

19Proposing Release, supra note 3, at nn.13–15

and accompanying text.

maintained and preserved by any rule

under the Investment Company or

Advisers Acts (‘‘other recordkeeping

requirements’’) so that it is clear that if

funds and advisers keep records

electronically they must comply with

the conditions of these rules.8

We are also amending the rules to

clarify the obligation of funds and

advisers to provide copies of their

records to Commission examiners. The

amendments make clear that funds and

advisers may be requested to promptly

provide (i) legible, true, and complete

copies of records in the medium and

format in which they are stored, and

printouts of such records; and (ii) means

to access, view, and print the records.9

We are not adopting a proposed

amendment that would have stated that

records are to be provided in no case

more than one business day after a

request.10 Some commenters were

concerned that such an amendment

could preclude funds and advisers from

reaching an accommodation with the

examination staff to produce certain

documents immediately and other

documents, that are not immediately

accessible, on a delayed basis.11 We

agree that such arrangements when

entered into and performed in good

faith by funds or advisers can facilitate

the examination process. While the

‘‘promptly’’ standard imposes no

specific time limit, we expect that a

fund or adviser would be permitted to

delay furnishing electronically stored

records for more than 24 hours only in

unusual circumstances. At the same

time, we believe that in many cases

funds and advisers could, and therefore

will be required to, furnish records

immediately or within a few hours of

request.12

B. Electronic Signatures Act

Under the Electronic Signatures Act,

an agency’s recordkeeping requirements

may be met by retaining electronic

records that accurately reflect the

information set forth in the record, and

remain accessible to all persons who are

entitled to access, in a format that can

be accurately reproduced.13 The Act

allows us to interpret this provision

pursuant to our authority under the

Investment Company and Advisers

Acts.14 Our interpretation of the

Electronic Signatures Act must be

consistent with the Act and not add to

its requirements.15 The interpretation

must be based on findings that (i) our

interpreting regulations are substantially

justified; (ii) the methods selected to

carry out our purposes are substantially

equivalent to the requirements imposed

on records that are not electronic

records and will not impose

unreasonable costs on the acceptance

and use of electronic records; and (iii)

the methods selected to carry out our

purposes do not require, or accord

greater legal status or effect to, the

implementation or application of a

specific technology or technical

specification for performing the

functions of creating, storing,

generating, receiving, communicating,

or authenticating electronic records or

electronic signatures.16 The Electronic

Signatures Act also explicitly authorizes

agencies to interpret the Act’s electronic

recordkeeping provisions to specify

performance standards to assure

accuracy, record integrity, and

accessibility of electronically retained

records.17

We interpret the Electronic Signatures

Act with respect to the Investment

Company Act and Advisers Act to

require funds and advisers to comply

with the requirements of rules 31a–2

and 204–2 when they keep required

records on electronic storage media.

Funds and advisers, therefore, can

comply with the requirements of the

Electronic Signatures Act only by

complying with the requirements of

amended rules 31a–2 and 204–2. This

interpretation includes any records,

maintained in an electronic format, that

are required by any rule under the

Investment Company or Advisers

Acts.18 In the proposing release, we

asked for comment on whether these

interpretations were consistent with the

Electronic Signatures Act’s

requirements.19 Commenters generally

agreed that our interpretation of the

Electronic Signatures Act was

reasonable. As discussed below, our

rules and interpretation satisfy all

requirements of the Electronic

Signatures Act.

1. Consistency With Electronic

Signatures Act

Rules 31a–2 and 204–2 and the other

recordkeeping requirements are

consistent with the Electronic

Signatures Act. The Act permits

federally required records to be retained

in an electronic format, and we are

amending rules 31a–2 and 204–2 to

permit funds and advisers to maintain

all required records electronically.

29226 Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations

20ESIGN section 101(d)(1).

21The rules’ general requirements that funds and

advisers have procedures to protect electronic

records from alteration, loss, or destruction, to limit

unauthorized access, and verify the integrity of

electronic copies of hard copy originals ensure that

an electronic record is accurate from the outset, and

limit the possibility that an electronic record will

be corrupted during its retention period. The rules’

requirements regarding indexing, and the obligation

of funds and advisers to provide records to

examiners and fund directors foster the accessibility

of electronic records.

22For example, funds must keep accounts, books

and other documents that form the basis for the

fund’s financial statements, and itemized records

detailing purchases and sales of securities, receipts

and deliveries of securities, receipts and

disbursements of cash, and all other debits and

credits. See rule 31a–1. Advisers must maintain

records such as ledgers reflecting asset, liability,

reserve, capital, income, and expense accounts,

memoranda of instructions from clients, and

written communications received and sent relating

to recommendations and advice, and receipt,

disbursement or delivery of funds or securities. See

rule 204–2.

23See rules 31a–2(f)(3)(iii) and 204–2(g)(3)(iii)

(requiring procedures to ensure the quality of

electronic copies of non-electronic records); rules

31a–2(f)(2)(iii) and 204–2(g)(2)(iii) (requiring that

funds and advisers separately store duplicates of

electronic records); rules 31a–2(f)(3)(ii) and 204–

2(g)(3)(ii) (requiring funds and advisers to limit

access to electronic records); rules 31a–2(f)(3)(i) and

204–2(g)(3)(i) (requiring funds and advisers to adopt

procedures to maintain and preserve electronic

records, so as to reasonably safeguard them from

loss, alteration, or destruction).

24See rules 31a–2(f)(2)(ii)(A) and 204–

2(g)(2)(ii)(A) (requiring funds and advisers to

provide promptly a legible, true, and complete copy

of an electronically stored record upon request from

the Commission or other parties entitled to access

the records); rules 31a–2(f)(2)(i) and 204–2(g)(2)(i)

(requiring funds and advisers to arrange and index

their electronic and micrographic records in a way

that permits easy location and retrieval); and rules

31a–2(f)(2)(ii)(C) and 204–2(g)(2)(ii)(C) (requiring

funds and advisers to provide means to access,

view, and print electronic records).

25See, e.g., rule 31a–2(a)(1) (funds to preserve

required records permanently, the first two years in

an easily accessible place); and rule 204–2(a) (all

registered advisers must keep their required records

true, accurate, and current).

26For example, the requirement that funds and

advisers that keep micrographic or electronic

records provide promptly (i) a legible, true, and

complete copy of the record in the medium and

format in which it is stored, (ii) a legible, true, and

complete printout of the record, and (iii) means to

access, view, and print the records is unnecessary

for paper records, which require no special

treatment to make them readable and reproducible.

27Rules 31a–2(f)(3)(i) and 204–2(g)(3)(i).

28Rules 31a–2(f)(3)(ii) and 204–2(g)(3)(ii).

29Rules 31a–2(f)(3)(iii) and 204–2(g)(3)(iii).

30The Commission amended rules 204–2 and

31a–2, in 1985 and 1986 respectively, to permit

advisers and funds to store required records in

computer systems. See Amendment to Investment

Advisers Act Recordkeeping Rule, Investment

Advisers Act Release No. 952 (Jan. 11, 1985) [50 FR

2542 (Jan. 17, 1985)]; Investment Company Act; Use

of Magnetic Tape, Disk, or Other Computer Storage

Medium, Investment Company Act Release No.

15410 (Nov. 13, 1986) [51 FR 42207 (Nov. 24,

1986)].

31With today’s amendments to rules 31a–2 and

204–2, the conditions under which funds and

advisers may convert and store hard copy records

as electronic records will be more flexible than the

conditions of the staff no-action letters. The

conditions under which other records may be

stored electronically are unchanged. As a result, we

are confident that rules 31a–2 and 204–2, as

amended, will impose no greater burden on

electronic recordkeeping than has been imposed to

date.

32ESIGN section 104(b)(3)(A).

33ESIGN section 104(b)(3)(A).

2. No Additional Requirements

Rules 31a–2 and 204–2 and the other

recordkeeping requirements do not

impose requirements in addition to

those imposed by the Act. The

Electronic Signatures Act requires

electronic records to be stored in a

manner that ensures that they are

accurate, accessible, and capable of

being accurately reproduced for later

reference.20 The rules require funds and

advisers that maintain their records

electronically to comply with certain

conditions that are consistent with the

requirements of the Act and that are

designed to bring about fund and

adviser compliance with the Act’s

requirements.21

3. Substantial Justification

Our rules require funds and advisers

to maintain a wide variety of documents

that we use to verify compliance with

federal securities law.22 The value of

these records is entirely dependent on

their integrity and accessibility. If funds

and advisers are not required to protect

their records from inadvertent or

intentional alteration or destruction23

and provide examiners with meaningful

access to all required records,24 then the

records become unreliable, and the

examination process moot. Therefore,

we find that our interpretation of the

Electronic Signatures Act, that funds

and advisers must comply with rules

31a–2 and 204–2, is substantially

justified.

4. Requirements Equivalent to

Requirements for Other Record Formats

Rules 31a–2 and 204–2 and the other

recordkeeping requirements subject

electronic records to conditions that are

substantially equivalent to conditions

under which funds and advisers keep

paper and micrographic records. These

conditions are designed to ensure that

the records exist in a form that is

legible, authentic, complete, and

accessible. While all records, regardless

of format, must comply with certain

conditions,25 other requirements, which

would be superfluous for paper records,

apply only to electronic and

micrographic records.26

Funds and advisers that maintain

records in an electronic format must

comply with several requirements that

have no micrographic or paper

equivalent. For example, funds and

advisers must have procedures to

reasonably protect electronic records

from loss, alteration, or destruction,27 to

limit access to electronic records,28 and

to assure that electronic records that are

created from hard copy are complete,

true, and legible.29 We believe that these

additional requirements are necessary

because of the unique vulnerability of

unprotected electronic records to

undetectable alteration and falsification.

5. No Unreasonable Costs on

Acceptance and Use of Electronic

Records

We have permitted funds and advisers

to retain records electronically for over

fifteen years.30 During this period

electronic recordkeeping by funds and

advisers has become widespread.31 We

conclude that rules 31a–2 and 204–2

and the other recordkeeping

requirements have not and will not

impose unreasonable costs on the

acceptance and use of electronic

recordkeeping.

6. Specific Technology or Technical

Specification

The Electronic Signatures Act

generally prohibits us from requiring or

according greater legal status or effect to

the implementation or application of a

specific technology or technical

specification. However, the Act does

permit us to specify performance

standards to assure the accuracy,

integrity, and accessibility of required

records, even if our standards require

funds and advisers to implement or

apply a specific technology or technical

specification to their storage system.32

Rules 31a–2 and 204–2 have been

deliberately crafted to be

technologically neutral, leaving funds

and advisers free to adopt any

combination of technological and

manual protocols that meet the

requirements of the rules. In any event,

even if the rules were interpreted to

favor a specific technology or technical

specification, they would nonetheless

be a valid exercise of our interpretive

authority, as they serve the important

governmental objective of assisting us to

oversee fund and adviser compliance

with the federal securities laws, and are

substantially related to the achievement

of that objective.33 The continuing

accessibility and integrity of fund and

adviser records are critical to the

fulfillment of our oversight

responsibilities.

Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations 29227

34 5 U.S.C. 553(d)(3).

35ESIGN section 101(d)(1).

36 5 U.S.C. 553(d)(1).

C. Effective Date

The effective date for these

amendments is May 31, 2001. In most

cases, the Administrative Procedures

Act (‘‘APA’’) requires that a rule

amendment be published in the Federal

Register at least 30 days prior to its

effective date unless the promulgating

agency can show good cause for

shortening this interim period.34 The

Electronic Signatures Act becomes

effective on June 1, 2001, at which point

funds and advisers may opt to store

required records electronically, so long

as the records are accessible and

accurate.35 As described above, the

Electronic Signatures Act authorizes the

Commission to interpret these terms. A

gap between the effective dates of the

Electronic Signatures Act and our rule

amendments would needlessly create

confusion about the appropriate

standards for electronic recordkeeping.

During the period between the effective

dates, funds and advisers would be

forced to choose between maintaining

their electronic records in accordance

with the Act’s general but operative

standards, or relying instead on the

more specific, but as yet not effective,

standards set in rules 31a–2 and 204–2.

We find that there is good cause for

these amendments to become effective

on May 31, 2001.

The APA also authorizes acceleration

of the effective date of a rule that

‘‘relieves a restriction.’’ 36 The

amendments to rules 31a–2 and 204–2

allow funds and advisers to store all of

their required records electronically,

regardless of how the documents

originated or were received, thus

removing the prior restrictions placed

on storage of documents created or

received on paper.

II. Cost-Benefit Analysis

In proposing the amendments to rules

31a–2 and 204–2, we considered the

costs and benefits that the amendments

would generate. Although we

encouraged commenters to address the

proposal’s costs and benefits and to

submit their own estimates of what they

might be, we received no comment

specifically addressing this issue.

We believe the amendments will

impose few, if any, costs on funds or

advisers that are not already required.

As described above, the amended rules

allow funds and advisers to maintain

required records on electronic storage

media, regardless of whether the record

was created or received electronically.

Our rules already permit funds and

advisers to retain records electronically

if they were created or received

electronically, and these amendments

do not materially change those

requirements. The only effect will be on

funds and advisers who choose to

convert records into an electronic

format, and they must simply do so in

the same fashion as they already keep

electronically created or received

records. Electronic storage remains

optional with the adoption of these

amendments. We assume that funds and

advisers will not select the electronic

storage option provided for in the

amended rules unless doing so is less

expensive (or otherwise more efficient

and, therefore, supported by business

considerations). It remains our belief

that the amended rules will allow funds

and advisers greater flexibility to make

business decisions about recordkeeping

and, when appropriate, opt for

electronic storage with potential cost

savings and other benefits.

In addition, we are adopting minor

amendments to clarify the obligation of

funds and advisers to provide records to

our examination staff and, in the case of

funds, fund directors, and minor

technical amendments to conform the

language of rules 31a–2 and 204–2 to

the recordkeeping rules under the

Securities Exchange Act of 1934. We

anticipate few, if any, costs to funds or

advisers as a result of these

amendments.

III. Effects on Efficiency, Competition,

and Capital Formation

Section 2(c) of the Investment

Company Act requires the Commission,

when engaging in rulemaking that

requires it to consider or determine

whether an action is consistent with the

public interest, to consider, in addition

to the protection of investors, whether

the action will promote efficiency,

competition, and capital formation. We

requested comment on this issue in the

Proposing Release, and we have

considered these factors in determining

to adopt the amendments as proposed.

We did not receive any comments

directly addressing this issue.

The amendments to rules 31a–2 and

204–2 promote efficiency by giving

funds and advisers that establish

procedures to assure record soundness

the option of maintaining their

electronic records in the format most

suited to their business needs. The

rules’ standards are flexible, and permit

funds and advisers to modify their

electronic record retention practices to

take advantage of advances in electronic

storage technology.

We do not believe that the rule

amendments will have an impact on

competition. The rule amendments

apply to all advisers and funds equally

and should provide no competitive

advantage or burden to any industry

sector. The rule amendments should

also have no impact on competition

within the computer industry. The

amendments do not favor the use of any

particular form of electronic

recordkeeping. They simply require that

whatever technology a fund or adviser

chooses, the fund or adviser have

specific types of procedures to protect

the integrity and accessibility of the

electronic records.

We believe that the amendments are

unrelated to and will have little or no

effect on capital formation.

IV. Regulatory Flexibility Act

Certification

Pursuant to section 605(b) of the

Regulatory Flexibility Act (5 U.S.C.

605(b)), the Acting Chairman of the

Commission has certified that the

proposed amendments to rules 31a–2

and 204–2 will not have a significant

economic impact on a substantial

number of small entities. While the

amendments could potentially affect all

funds and advisers, including small

entities, the economic impact of the

amendments will be insignificant. The

Commission prepared an Initial

Regulatory Flexibility Analysis

(‘‘IRFA’’) in accordance with 5 U.S.C.

603 regarding amendments to rule 31a–

2 under the Investment Company Act

and rule 204–2 under the Advisers Act.

The Proposing Release summarized the

IRFA and requested commenters to

address matters discussed in the IRFA.

We received no comment on the IRFA.

The Acting Chairman’s certification is

attached to this release as Appendix A.

V. Paperwork Reduction Act

The amendments do not require a

new collection of information. They

affect only the manner in which

registrants can store information that

must be collected under rules 31a–2 and

204–2. In connection with rules 31a–2

and 204–2, the Commission previously

submitted to the Office of Management

and Budget, pursuant to the Paperwork

Reduction Act, a request for approval

and received OMB control numbers for

the rules, OMB Control Nos. 3235–0179

(rule 31a–2), and 3235–0278 (rule 204–

2).

VI. Statutory Authority

The Commission is adopting

amendments to rule 31a–2 under the

Investment Company Act pursuant to

authority set forth in sections 31 and

38(a) of the Investment Company Act

(15 U.S.C. 80a–30 and 80a–37(a)).

29228 Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations

The Commission is adopting

amendments to rule 204–2 under the

Advisers Act pursuant to authority set

forth in sections 204, 206(4), and 211 of

the Advisers Act (15 U.S.C. 80b–4, 80b–

6(4), and 80b–11).

List of Subjects

17 CFR Part 270

Investment companies; Reporting and

recordkeeping requirements; Securities.

17 CFR Part 275

Reporting and recordkeeping

requirements; Securities.

Text of Rule Amendments

For reasons set forth in the preamble,

Title 17, Chapter II of the Code of

Federal Regulations is amended as

follows:

PART 270—RULES AND

REGULATIONS, INVESTMENT

COMPANY ACT OF 1940

1. The Authority citation for Part 270

continues to read in part as follows:

Authority: 15 U.S.C. 80a–1 et seq., 80a–

34(d), 80a–37, 80a–39, unless otherwise

noted;

* * * * *

2. Section 270.31a–2 is amended by:

a. Revising paragraphs (f)(1) and (f)(2);

b. Redesignating paragraph (f)(3) as

(f)(4); and

c. Adding a new paragraph (f)(3) to

read as follows:

§ 270.31a–2 Records to be preserved by

registered investment companies, certain

majority-owned subsidiaries thereof, and

other persons having transactions with

registered investment companies.

* * * * *

(f) Micrographic and electronic

storage permitted.—(1) General. 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.

(2) General requirements. The

investment company, or person that

maintains and preserves records on its

behalf, must:

(i) Arrange and index the records in

a way that permits easy location, access,

and retrieval of any particular record;

(ii) 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

(iii) 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.

(3) Special requirements for electronic

storage media. In the case of records 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.

* * * * *

PART 275—RULES AND

REGULATIONS, INVESTMENT

ADVISERS ACT OF 1940

3. The authority citation for Part 275

continues to read in part as follows:

Authority: 15 U.S.C. 80b–2(a)(11)(F), 80b–

2(a)(17), 80b–3, 80b–4, 80b–6(4), 80b–6a,

80b–11, unless otherwise noted.

* * * * *

4. The authority citation following

§ 275.204–2 is removed.

5. Section 275.204–2 is amended by

revising paragraphs (g)(1) and (g)(2), and

by adding paragraph (g)(3), to read as

follows:

§ 275.204–2 Books and records to be

maintained by investment advisers.

* * * * *

(g) Micrographic and electronic

storage permitted.—(1) General. The

records required to be maintained and

preserved pursuant to this part may be

maintained and preserved for the

required time by an investment adviser

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.

(2) General requirements. The

investment adviser must:

(i) Arrange and index the records in

a way that permits easy location, access,

and retrieval of any particular record;

(ii) Provide promptly any of the

following that the Commission (by its

examiners or other representatives) 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

(iii) 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.

(3) Special requirements for electronic

storage media. In the case of records on

electronic storage media, the investment

adviser 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 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.

* * * * *

Dated: May 24, 2001.

By the Commission.

Margaret H. McFarland,

Secretary.

[Note: Appendix A to the Preamble will not

appear in the Code of Federal Regulations.]

Appendix A; Regulatory Flexibility Act

Certification

I, Laura S. Unger, Acting Chairman of the

Securities and Exchange Commission, hereby

certify pursuant to 5 U.S.C. 605(b) that

amendments to rule 31a–2 (17 CFR 270.31a–

2) under the Investment Company Act of

1940 (the ‘‘Investment Company Act’’) and

rule 204–2 (17 CFR 275.204–2) under the

Investment Advisers Act of 1940 (the

‘‘Advisers Act’’), as amended, would not

have a significant economic impact on a

substantial number of small entities in the

United States.

The Commission estimates that there are

approximately 3,610 active registered

investment companies, 3,010 of which are

open-end investment companies with the

remaining 600 closed-end investment

companies. Of the total number of active

registered investment companies, 203 are

small entities. There are also 762 Unit

Federal Register / Vol. 66, No. 104 / Wednesday, May 30, 2001 / Rules and Regulations 29229

37 17 CFR 270.0–10.

38 17 CFR 275.0–7.

Investment Trusts (‘‘UITs’’), about 12 of

which are small entities, as the term is

defined by the Investment Company Act.37

The Commission further estimates that

approximately 1,500 out of 8,100 SECregistered investment advisers are small

entities, as the term is defined by the

Advisers Act.38

All investment companies registered with

the Commission (including both management

investment companies and UITs) are subject

to the recordkeeping requirements of rule

31a–2, and all registered advisers are subject

to the recordkeeping requirements of rule

204–2. Electronic storage remains optional

with the adoption of these amendments.

Therefore, the amended rules will impact

only those small funds and small advisers

that choose to store required records

electronically.

Despite the universal applicability of the

rule changes on all funds and advisers that

store their records on electronic storage

media, the resulting economic impact of the

amendments on small entities will not be

significant. As funds and advisers are not

required to store required records

electronically, we anticipate that only those

entities, small or otherwise, that foresee a

financial or organizational benefit attaching

to electronic storage, will exercise the

expanded storage options found in the

amendments to rules 31a–2 and 204–2.

Accordingly, the amendments will not have

a significant economic impact on a

substantial number of small entities.

Dated: May 22, 2001.

Laura S. Unger,

Acting Chairman.

[FR Doc. 01–13526 Filed 5–29–01; 8:45 am]

BILLING CODE 8010–01–U

DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Chapter V

Blocked Persons, Specially Designated

Nationals, Specially Designated

Terrorists, Foreign Terrorist

Organizations, and Specially

Designated Narcotics Traffickers:

Additional Designations of Specially

Designated Narcotics Traffickers and

Removal of Specially Designated

National of Cuba

AGENCY: Office of Foreign Assets

Control, Treasury.

ACTION: Amendment of final rule.

SUMMARY: The Treasury Department is

amending appendix A to 31 CFR

chapter V by adding the names of

twenty-seven individuals and three

entities who have been designated as

specially designated narcotics

traffickers. The entry for one individual

previously designated as a specially

designated national of Cuba is removed

from appendix A.

EFFECTIVE DATE: May 23, 2001.

FOR FURTHER INFORMATION CONTACT:

Office of Foreign Assets Control,

Department of the Treasury,

Washington, D.C. 20220, tel.: 202/622–

2520.

SUPPLEMENTARY INFORMATION:

Electronic and Facsimile Availability

This document is available as an

electronic file on The Federal Bulletin

Board the day of publication in the

Federal Register. By modem, dial 202/

512–1387 and type ‘‘/GO FAC,’’ or call

202/512–1530 for disk or paper copies.

This file is available for downloading

without charge in ASCII and Adobe

Acrobat7 readable (*.PDF) formats. For

Internet access, the address for use with

the World Wide Web (Home Page),

Telnet, or FTP protocol is:

fedbbs.access.gpo.gov. This document

and additional information concerning

the programs of the Office of Foreign

Assets Control are available for

downloading from the Office’s Internet

Home Page: http://www.treas.gov/ofac,

or in fax form through the Office’s 24-

hour fax-on-demand service: call 202/

622–0077 using a fax machine, fax

modem, or (within the United States) a

touch-tone telephone.

Background

Appendix A to 31 CFR chapter V

contains the names of blocked persons,

specially designated nationals, specially

designated terrorists, foreign terrorist

organizations, and specially designated

narcotics traffickers designated pursuant

to the various economic sanctions

programs administered by the Office of

Foreign Assets Control (‘‘OFAC’’).

Pursuant to Executive Order 12978 of

October 21, 1995, ‘‘Blocking Assets and

Prohibiting Transactions with

Significant Narcotics Traffickers’’ (the

‘‘Order’’) and Section 536.312 of the

Narcotics Trafficking Sanctions

Regulations, 31 CFR part 536 (the

‘‘Regulations’’), the following 27

individuals and 3 entities are added to

appendix A as persons who have been

determined to play a significant role in

international narcotics trafficking

centered in Colombia, to materially

assist in or provide financial support or

technological support for, or goods or

services in support of other specially

designated narcotics traffickers, or to be

owned or controlled by, or to act for or

on behalf of, persons designated in or

pursuant to the Order (collectively

‘‘Specially Designated Narcotics

Traffickers’’ or ‘‘SDNTs’’). All real and

personal property in which the SDNTs

have any interest, including but not

limited to all accounts, that are or come

within the United States or that are or

come within the possession or control of

U.S. persons, including their overseas

branches, are blocked. All transactions

by U.S. persons or within the United

States in property or interests in

property of SDNTs are prohibited unless

licensed by the Office of Foreign Assets

Control or exempted by statute.

The Office of Foreign Assets Control

also is removing from appendix A the

entry for one individual because it has

been determined that the individual no

longer meets the criteria for designation

as a Specially Designated National of

Cuba under the Cuban Assets Control

Regulations, 31 CFR part 515. All real

and personal property of this

individual, including all accounts in

which the individual has any interest,

which had been blocked solely due to

the individual’s designation as a

Specially Designated National of Cuba,

are unblocked; and all lawful

transactions involving U.S. persons and

this individual are permissible.

Designations of foreign persons

blocked pursuant to the Order are

effective upon the date of determination

by the Director of the Office of Foreign

Assets Control, acting under authority

delegated by the Secretary of the

Treasury. Public notice of blocking is

effective upon the date of filing with the

Federal Register, or upon prior actual

notice.

Because the Regulations involve a

foreign affairs function, Executive Order

12866 and the provisions of the

Administrative Procedure Act (5 U.S.C.

553), requiring notice of proposed

rulemaking, opportunity for public

participation, and delay in effective

date, are inapplicable. Because no

notice of proposed rulemaking is

required for this rule, the Regulatory

Flexibility Act (5 U.S.C. 601–612) does

not apply.

For the reasons set forth in the

preamble, and under the authority of 3

U.S.C. 301; 50 U.S.C. 1601–1651; 50

U.S.C. 1701–1706; E.O. 12978, 60 FR

54579, 3 CFR, 1995 Comp., p. 415,

appendix A to 31 CFR chapter V is

amended as set forth below:

Appendix A [Amended]

1. Appendix A to 31 CFR chapter V

is amended by adding the following

names inserted in alphabetical order, to

read as follows:

ARMERO RIASCOS, Jose Eliecer, Carrera 5

No. 8–00, Buenaventura, Colombia; c/o

INDUSTRIA DE PESCA SOBRE EL

PACIFICO S.A., Buenaventura,