Rule 607 Supporting Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission
“Rule 607 under Regulation E”
A.

JUSTIFICATION
1.

Information Collection Necessity

Regulation E (17 CFR 230.601 - 230.610a) exempts from registration under the
Securities Act of 1933 (15 U.S.C. 77a et seq.) (“Securities Act”) securities of small business
investment companies (“SBICs”) that are registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.) (“Investment Company Act”) and closed-end investment companies
that elect to be regulated as business development companies (“BDCs”) under the Investment
Company Act, so long as the aggregate offering price of all securities of the issuer that may be
sold within a 12-month period does not exceed $5,000,000 and certain other conditions are met.
Regulation E was initially adopted in 1958 and made available to SBICs pursuant to Section 3(c)
of the Securities Act. Section 3(c) of the Securities Act generally permits the Securities and
Exchange Commission (“Commission”) to add to the securities exempted from the Securities
Act by Section 3 any class of securities issued by a SBIC. In 1984, pursuant to Section 3(b) of
the Securities Act, Regulation E was amended to permit the availability of the exemption to
BDCs. Section 3(b) of the Securities Act generally permits the Commission to add any class of
securities to the securities exempted from the Securities Act by Section 3.
Rule 607 under Regulation E (17 CFR 230.607) entitled, “Sales material to be filed,”
requires sales material used in connection with securities offerings under Regulation E to be filed
with the Commission at least five days (excluding weekends and holidays) prior to its use. 1

1

Sales material includes advertisements, articles or other communications to be published
in newspapers, magazines, or other periodicals; radio and television scripts; and letters,

2.

Information Collection Purpose

Commission staff reviews sales material filed pursuant to Rule 607 for materially
misleading statements and omissions. The requirements of rule 607 are designed to protect
investors from the use of false or misleading sales material in connection with Regulation E
offerings.
3.

Consideration Given to Information Technology

The Commission’s electronic filing system (Electronic Data Gathering, Analysis and
Retrieval or “EDGAR”) is designed to automate the filing, processing, and dissemination of
disclosure filings. The system permits publicly held companies to transmit filings to the
Commission electronically. This automation has increased the speed, accuracy, and availability
of information, generating benefits to investors and financial markets. Sales material filed
pursuant to rule 607 is required to be filed with the Commission electronically on EDGAR. (17
CFR 232.101(a)(1)(v)). The public may access filings on EDGAR through the Commission’s
Internet Web site (http://www.sec.gov) or at EDGAR terminals located at the Commission’s
public reference rooms.
4.

Duplication

The Commission periodically evaluates collection of information requirements for
duplication, and reevaluates them whenever it proposes a rule or form, or a change in either. The
reporting requirements of rule 607 are not duplicated elsewhere.

circulars or other written communications proposed to be sent given or otherwise
communicated to more than ten persons.
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5.

Effect on Small Entities

A primary purpose of the small offering exemption under Regulation E is to provide a
simple and relatively inexpensive procedure by which small businesses can raise limited amounts
of needed capital. Offerings under Regulation E require less extensive disclosure than Securities
Act registrations. Generally, the less burdensome provisions under Regulation E reflect a
commitment by the Commission to facilitate capital formation by SBICs and BDCs while
protecting investors.
6.

Consequences of Less Frequent Collection

Without this information collection requirement, the Commission would not be able to
effectively monitor the content of sales material used in connection with offerings under
Regulation E, limiting the Commission’s ability to protect investors from false or misleading
advertisements.
7.

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

Not applicable.
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
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 of information
requirements in rule 607 under Regulation E before it submitted this request for extension and
approval to the Office of Management and Budget. The Commission received no comments in
response to its request.
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9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

Not applicable.
12.

Estimate of Time Burden

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act and are not derived from a quantitative, comprehensive, or even
representative survey or study of the burdens associated with Commission rules and forms.
Respondents to this collection of information include SBICs and BDCs making an
offering of securities pursuant to Regulation E. Each respondent’s reporting burden under rule
607 relates to the burden associated with filing its sales material electronically, which is
negligible. Although there have been no filings made under this rule, we are requesting one
annual response and an annual burden of one hour for administrative purposes.
13.

Total Annual Cost Burden

We estimate that rule 607 does not impose any cost burdens.
14.

Federal Government Cost

The annual cost of reviewing and processing new registration statements, post-effective
amendments, proxy statements, and shareholder reports of investment companies amounted to
approximately $20.5 million in fiscal year 2011, based on the Commission’s computation of the
value of staff time devoted to this activity and related overhead. Because no filings under rule
607 were made in 2011, none of these 2011 costs were attributable to review of rule 607 filings.
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15.

Changes in Burden

This information collection imposes no hour or cost burdens; however, we are requesting
a one hour burden for administrative purposes. This does not result in a change to the existing
burden.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of the
information collection. Including the expiration date on the electronic version will
result in increased costs, because the need to make changes to the form may not follow the
EDGAR application’s scheduled version release dates.. The OMB control number will be
displayed.
18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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