Rule 482 Supporting Statement clean

OMB CONTROL NUMBER: 3235-0565
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 482
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Like most issuers of securities, when an investment company 1 (“fund”) 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. 77a et seq.) (the “Securities Act”). In recognition of the
particular problems faced by funds that continually offer securities and wish to advertise their
securities, the Securities and Exchange Commission (“Commission”) has 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)).
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

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.

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 tollfree 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, and
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 August 5, 2020 the Commission issued a release proposing amendments that would
modernize the disclosure framework for open-end management investment companies. 2 The
Commission proposed amendments to the advertising rules for registered investment companies
and business development companies to promote more transparent and balanced statements about
investment costs. We are proposing to amend rule 482 to 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 proposed amendments to rule 482, investment

2

Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors, and
Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee Information in
Investment Company Advertisements, Investment Company Act Release No. 33963 (Aug. 5, 2020).

2

company fee and expense presentations in advertisements would have to 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.
Compliance with the requirements of rule 482 is mandatory and the responses to the
information collections would not be kept confidential.
2.

Purpose and Use of the Information Collection

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.
Rule 482 contains requirements that are intended to encourage the provision to investors
of information that is balanced and informative. 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 betterinformed decisions.

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 §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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3.

Consideration Given to Information Technology

The Commission’s Electronic Data Gathering, Analysis and Retrieval System
(“EDGAR”) automates the filing, processing and dissemination of disclosure filings. This
automation has increased the speed, accuracy, and availability of information, generating
benefits to investors and financial markets. The vast majority of fund advertisements are filed
with FINRA under Investment Company Act rule 24b-3, which allows any sales material filed
with FINRA to be deemed to be filed with the Commission. 4 Rule 482 advertisements that are
required to be filed with the Commission are to be filed electronically on EDGAR (17 CFR
232.101(a)(1)(i) and (iv)). The public may access filings on EDGAR through the Commission’s
website (http://www.sec.gov) or at EDGAR terminals located at the Commission’s public
reference rooms.
4.

Efforts to Identify Duplication

The Commission periodically evaluates rule- and form-based reporting and
recordkeeping requirements for duplication, and reevaluates them whenever it proposes or adopts
changes in its rules or forms. The requirements of rule 482 are not generally duplicated
elsewhere.
5.

Effect on Small Entities

The Commission reviews all rules periodically, as required by the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses. The current disclosure requirements for fund
advertisements do not distinguish between small entities and other entities. To the extent smaller

4

Id.

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funds advertise, their burden to prepare advertisements may be greater than for larger funds due
to economies of scale. This burden will include the cost of reviewing an advertisement to
confirm that it meets the requirements of rule 482.
The Commission believes, however, that imposing different requirements on smaller fund
companies would not be consistent with investor protection. The use of different standards for
small entities may create a risk that investors may receive false or misleading information. In
addition, the Commission believes that uniform disclosure standards for all fund advertisements
allow investors to compare funds more easily when making an investment decision. Allowing
different standards for small entities may create confusion for investors who wish to compare
funds.
6.

Consequences of Not Conducting Collection

Since fund advertising is voluntary, the Commission does not determine the frequency
with which funds advertise pursuant to rule 482. Therefore, short of not requiring any collection
for advertisements governed by rule 482, the Commission cannot require less frequent collection.
Not requiring disclosure of the information required by rule 482 will harm investors by
denying them information that may be useful in making investment decisions. If such
advertisements did not contain this disclosure, investors could receive inadequate information or
could receive confusing, false, or misleading information. As a result, investor confidence in the
securities industry could be adversely affected.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

This collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry through public
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conferences, meetings and informal exchanges. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry. The Commission requested public comment on the collection requirements in rule 482
before it submitted this request for revision and approval to the Office of Management and
Budget. The Commission received no comments in response to its request.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The agency has determined that this information collection
does not constitute a system of record for purposes of the Privacy Act (the information is not
retrieved by a personal identifier). In accordance with Section 208 of the E-Government Act of
2002, the agency has conducted a Privacy Impact Assessment (“PIA”) of the EDGAR system in
connection with this collection of information. The EDGAR PIA, published on January 29, 2016,
is provided as a supplemental document and is available at https://www.sec.gov/privacy.
12.

Burden of Information Collection

The burden hour estimate for complying with rule 482 is based the Commission’s
experience with the contents of disclosure documents. The number of burden hours may vary
depending on, among other things, the complexity of the document, the number of funds
included in a single document, and whether preparation of the document is performed by fund
staff or outside counsel. The number of funds used to estimate the burden hours is an estimate
based on the Commission’s statistics. The following estimates of average burden hours are made
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solely for purposes of the Paperwork Reduction Act of 1995 (“PRA”) (44 U.S.C. 3501 et seq.)
and are not derived from a comprehensive or representative survey or study of the cost of
Commission rules and forms. Compliance with the requirements of rule 482 is mandatory, and
responses to the information collections are not kept confidential.
In its most recent PRA submission for rule 482, the Commission estimated that 41,2655
responses to rule 482 are filed annually by 2,877 investment companies offering approximately
12,476 portfolios, or approximately 3.3 responses per portfolio annually. 6 The burden associated
with rule 482 is presently estimated to be 5.16 hours per response. The annual hourly burden is
therefore approximately 212,927 hours. 7
Based on updated assumptions, we now estimate that 36,994 responses to rule 482 are
filed annually. 8 We estimate that approximately 96% of the rule 482 responses provide fee and
expense figures in qualifying advertisements and would, therefore, be required to comply with
the proposed 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 proposed amendments to rule 482). Similarly, we estimate that 96% of the responses to rule
482 provide advertisements that include information regarding a fund’s total annual expenses
and would, therefore, have to comply with the proposed amendments regarding such
information.

5

This estimated number of responses to rule 482 is composed of 41,003 responses filed with FINRA and
262 responses filed with the Commission in 2019.

6

41,265 responses ÷ 12,476 portfolios = 3.3 responses per portfolio.

7

41,265 responses x 5.16 hours per response = 212,927 hours.

8

In 2019, there were 41,003 responses to rule 482 filed with FINRA and 262 responses filed with the
Commission in 2019. Of those, 4,271 were responses from closed-end funds and BDCs. We assume that,
moving forward, closed-end funds and BDCs will choose to use free writing prospectuses under rule 433.
Therefore, we excluded closed-end funds or BDCs from our estimate of the total responses to rule 482.

7

Based on a Commission estimate of 355,140 internal hours and an estimated wage rate of
approximately $336 per hour associated with the proposed amendments to rule 482, 9 the total
incremental internal cost to the industry of the hour burden for complying with the requirements
of proposed rule 482 would be$119,327,040, as reflected in the table below.
RULE 482 PRA ESTIMATES
Internal Hour
Burden

Estimated
Wage Rate

Annual
Internal Time
Costs

Annual
External
Cost Burden

CURRENTLY A PPROVED ESTIMA TES
Number of responses

41,265

Hours per response

× 5.16

Total annual burden

212,927 hours

×

$348
(blended rate for compliance
attorney and senior programmer)

41,265

41,265

× $1,795.68

$0

$74,098,735

$0

PROPOSED IN CREMEN TA L ESTIMA TES
Number of responses
Burden per response
Total annual burden

35,514
$336
(blended rate for compliance
attorney and senior programmer)

× 10 hours 10
355,140 hours

35,514

35,514

$3,360

$0

$119,327,040

$0

$74,098,735

$0

TOTAL ESTIMATED BU RDENS INCLUDING AMEND MENTS
Current burden

212,927 11
hours

9

These PRA estimates assume that the same types of professionals would be involved in preparing these
notices 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.

10

This estimate of 10 burden hours per response incorporates an estimate of 6 burden hours per response
associated with the proposed new general requirements for fee and expenses disclosure, and an estimate of
4 burden hours associated with the proposed new requirements for disclosure of fee waivers/expense
reimbursement arrangements.”

11

The estimate of 212,927 hours is the current burden estimate that was included in the 2020 PRA renewal.
The PRA discussion in the Commission’s proposed amendments was based on the estimates submitted in
the 2017 PRA renewal, which estaimted that the annual burden to complay with rule 482’s information
rqeuirements would be 278,161 hours. For the purposes of this PRA submission we use the most recent
estimates from the 2020 PRA renewal.

8

Incremental burden

355,140 hours

$119,327,735

$0

Total burden

568,067 hours

$193,426,470

$0

13.

Cost to Respondents

Cost burden is the cost of services purchased to comply with rule 482, such as for the
services of computer programmers, outside counsel, financial printers, and advertising agencies.
The external cost burden does not include the internal cost of the hour burden discussed in Item
12 above. Estimates are based on the Commission’s experience with advertisements and sales
literature. As reflected in the table above, the Commission continues to attribute no external cost
burden to rule 482.
14.

Cost to the Federal Government

Advertising regulation affects costs incurred by the federal government. Annually,
approximately 41,003 responses are filed annually pursuant to rule 482; however these responses
are generally filed with and reviewed by FINRA and are generally not reviewed by the
Commission.
15.

Change in Burden

Currently, the approved annual hour burden for rule 482 is 212,927 hours. The new
proposed estimate of the total annual hour burden is 568,067hours. This reflects an increase of
355,140hours due to a increase in the estimated number of hours needed to filea response
pursuant to rule 482. There is no annual external cost burden attributed to rule 482.

TABLE 1: CHANGE IN BURDEN ESTIMATES
Annual Number of Responses

Rule
498

Annual Time Burden (hours)

Cost Burden (dollars)

Previously
Approved

Proposed
Estimate

Change

Previously
Approved

Proposed
Estimate

Change

Previously
Approved

Proposed
Estimate

41,265

36,994

-4,271

212,927

568,067

+355,140

$74,098,735

$193,426,470

9

Change
+$119,327,73
5

16.

Information Collection Planned for Statistical Purposes

The results of any information collected will not be published.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exception to Certification Statement for Paperwork Reduction Act
Submission

The Commission is not seeking an exception to the certification statement.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
The collection of information will not employ statistical methods.

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