Notice2023-08648
Proposed Collection; Comment Request; Extension: Rule 482
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 25, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 79 (Tuesday, April 25, 2023)</title>
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[Federal Register Volume 88, Number 79 (Tuesday, April 25, 2023)]
[Notices]
[Pages 25041-25043]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08648]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-508, OMB Control No. 3235-0565]
Proposed Collection; Comment Request; Extension: Rule 482
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.) (``Paperwork Reduction Act''), 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 (``OMB'') for extension and
approval.
Like most issuers of securities, when an investment company
(``fund'') \1\ offers its shares to the public, its promotional efforts
become subject to the advertising restrictions of the Securities Act of
1933 (15 U.S.C. 77) (the ``Securities Act''). In recognition of the
particular problems faced by funds that continually offer securities
and wish to advertise their securities, the Commission has previously
adopted advertising safe harbor rules. The most important of these is
rule 482 (17 CFR 230.482) under the Securities Act, which, under
certain circumstances, permits funds to advertise investment
performance data, as well as other information. Rule 482 advertisements
are deemed to be ``prospectuses'' under Section 10(b) of the Securities
Act (15 U.S.C. 77j(b)).
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\1\ ``Investment company'' refers to both investment companies
registered under the Investment Company Act of 1940 (``Investment
Company Act'') (15 U.S.C. 80a-1 et seq.) and business development
companies.
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Rule 482 contains certain requirements regarding the disclosure
that funds are required to provide in qualifying advertisements. These
requirements are intended to encourage the provision to investors of
information that is balanced and informative, particularly in the area
of investment performance. For example, a fund is required to include
disclosure advising investors to consider the fund's investment
objectives, risks, charges and expenses, and other information
described in the fund's prospectus, and highlighting the availability
of the fund's prospectus. In addition, rule 482 advertisements that
include performance data of open-end funds or insurance company
separate accounts offering variable annuity contracts are required to
include certain standardized performance information, information about
any sales loads or other nonrecurring fees, and a legend warning that
past performance does not guarantee future results. Such funds
including performance information in rule 482 advertisements are also
required to make available to investors month-end performance figures
via website disclosure or by a toll-free telephone number, and to
disclose the availability of the month-end performance data in the
advertisement. The rule also sets forth requirements regarding the
prominence of certain disclosures, requirements regarding
advertisements that make tax representations, requirements regarding
advertisements used prior to the effectiveness of the fund's
registration statement, requirements regarding the timeliness of
performance data. In addition, rule 482(b) describes the information
that is required to be included in an advertisement, including a
cautionary statement under rule 482(b)(4) disclosing the particular
risks associated with investing in a money market fund.
On October 26, 2022, the Commission adopted rule and form
amendments that modernize the requirements for annual and semi-annual
shareholder reports provided by open-end management investment
companies.\2\ The Commission also adopted amendments to the advertising
rules for registered investment companies and business development
companies to promote more transparent and balanced statements about
investment costs. The advertising rule amendments require that
investment company advertisements providing fee and expense figures
include: (1) the maximum amount of any sales load or any other
nonrecurring fee; and (2) the total annual expenses without any fee
waiver or expense reimbursement arrangement. Under the amendments to
rule 482, investment company fee and
[[Page 25042]]
expense presentations in advertisements must include timely and
prominent information about a fund's maximum sales load (or any other
nonrecurring fee) and gross total annual expenses, based on the methods
of computation that the company's Investment Company Act or Securities
Act registration statement form prescribes for a prospectus.
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\2\ Tailored Shareholder Reports for Mutual Funds and Exchange-
Traded Funds; Fee Information in Investment Company Advertisements,
Investment Company Act Release No. 34731 (Oct. 26, 2022), 87 FR
72758 (Nov. 25, 2022) (the ``Adopting Release'').
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Rule 482 advertisements must be filed with the Commission or, in
the alternative, with the Financial Industry Regulatory Authority
(``FINRA'').\3\ This information collection differs from many other
federal information collections that are primarily for the use and
benefit of the collecting agency.
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\3\ See note to rule 482(h) under the Securities Act, which
states that ``these advertisements, unless filed with [FINRA], are
required to be filed in accordance with the requirements of Sec.
230.497.'' See also rule 24b-3 under the Investment Company Act (17
CFR 270.24b-3), which provides that any sales material, including
rule 482 advertisements, shall be deemed filed with the Commission
for purposes of Section 24(b) of the Investment Company Act upon
filing with FINRA.
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Rule 482 contains requirements that are intended to encourage the
provision to investors of information that is balanced and informative,
particularly in the area of investment performance. The Commission is
concerned that in the absence of such provisions fund investors may be
misled by deceptive rule 482 advertisements and may rely on less-than-
adequate information when determining in which funds they should invest
money. As a result, the Commission believes it is beneficial for funds
to provide investors with balanced information in fund advertisements
in order to allow investors to make better-informed decisions.
The table below summarizes our estimates associated with the
amendments to rule 482 that the Adopting Release addresses:
Rule 482 PRA Estimates
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Internal
initial hour Internal annual burden \1\ Wage rate \2\ Internal time costs
burdens
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FINAL ESTIMATES FOR RULE 482
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New general requirements re: fee and 9 hours 6 hours \3\...................... $381 (blended rate for $2,286
expense figure disclosure. compliance attorney and
senior programmer).
Number of responses to rule 482 that x 36,492 \4\ responses........... x 36,492 responses
include fee/expense figure disclosure.
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Total burden of new requirements .............. 218,952 hours.................... ........................... $83,420,712
for fee and expense disclosure.
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New requirements for disclosure of fee 6 hours 4 hours \5\...................... $381 (blended rate for $1,524
waivers/expense reimbursement compliance attorney and
arrangements. senior programmer).
Number of responses to rule 482 that x 36,492 responses............... x 36,492 responses
disclose fee waivers/expense
reimbursement arrangements.
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Total burden of annual .............. 145,968 hours.................... ........................... $55,613,808
requirements for disclosure of
fee waivers/expense reimbursement
arrangements.
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Total annual burden........... .............. 364,920 hours.................... ........................... $139,034,520
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TOTAL FINAL ESTIMATED BURDENS INCLUDING AMENDMENTS
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Current burden estimates.............. .............. 212,927 hours.................... ........................... $74,098,735
Revised burden estimate............... .............. 577,847 hours.................... ........................... $213,133,255
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Notes:
\1\ Includes initial burden estimates annualized over a 3-year period.
\2\ These PRA estimates assume that the same types of professionals would be involved in preparing advertisements (reflecting the proposed and final
amendments to rule 482) that we believe otherwise would be involved in preparing a fund's advertisements. The Commission's estimates of the relevant
wage rates are based on salary information for the securities industry compiled by the Securities Industry and Financial Markets Association's Office
Salaries in the Securities Industry 2013. The estimated figures are modified by firm size, employee benefits, overhead, and adjusted to account for
the effects of inflation. See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings in the Securities
Industry 2013.
\3\ This estimate assumed that, after the initial 9 hours that an entity would spend on the proposed fee and expense disclosure, which we annualize over
a 3-year period, the entity would incur 3 additional burden hours associated with ongoing compliance with these requirements per year. The estimate of
6 hours is based on the following calculation: ((9 initial hours/3) + 3 hours of additional ongoing burden hours) = 6 hours.
\4\ The Commission estimates that there was a total of 41,953 responses to rule 482 that either were filed with FINRA or with the Commission in 2021. Of
those, the Commission estimates that 1,124 were responses from closed-end funds and BDCs, and that 2,816 were responses from variable insurance
contracts. The number of responses filed with the SEC is based on the average number of responses filed with the Commission from 2019-2021. The
Commission assumes that, moving forward, closed-end funds and BDCs will choose to use free writing prospectuses under rule 433, and also that variable
insurance contracts will not be subject to the amendments to rule 482. Therefore, we exclude closed-end funds, BDCs, and variable insurance contracts
from the total responses to rule 482 for purposes of this estimate. For purposes of estimating the burden of the final rules amendments, we estimate
that 38,013 responses to rule 482 are filed annually. We estimate that approximately 96% of these rule 482 responses provide fee and expense figures
in qualifying advertisements and would, therefore, be required to comply with the final rule amendments regarding such information (for example,
ensuring that the fee and expense figures are presented in accordance with the prominence and timeliness requirements in the amendments to rule 482).
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\5\ This estimate assumed that, after the initial 6 hours that an entity would spend on the proposed fee waiver and expense reimbursement requirements,
which we annualized over a 3-year period, the entity would incur 2 additional burden hours associated with ongoing compliance with these requirements
per year. The estimate of 4 hours is based on the following calculation ((6 initial hours/3) + 2 hours of additional ongoing burden hours) = 4 hours.
The table above summarizes our PRA initial and ongoing annual
burden estimates associated with rule 482, as amended. In the
aggregate, we estimate the total annual burden to comply with amended
rule 482 to be 577,847 hours, at an average time cost of $213,133,255.
The information provided under rule 482 will not be kept
confidential. The provision of information under rule 482 is necessary
to obtain the benefits of the safe harbor offered by the rule.
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. 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 proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
shall 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 by June 26, 2023.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information under the PRA unless it
displays a currently valid OMB control number.
Please direct your written comments to: David Bottom, Director/
Chief Information Officer, Securities and Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington, DC 20549 or send an email to:
<a href="/cdn-cgi/l/email-protection#77272536283a161e1b15180f3704121459101801"><span class="__cf_email__" data-cfemail="19494b5846547870757b7661596a7c7a377e766f">[email protected]</span></a>.
Dated: April 19, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08648 Filed 4-24-23; 8:45 am]
BILLING CODE 8011-01-P
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