IC-33427 Supporting Statement.06-15-2020

IC-33427 Supporting Statement.06-15-2020.pdf

Exchange Act Form 8-K

OMB: 3235-0060

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SUPPORTING STATEMENT FOR PROPOSED AMENDMENTS TO CERTAIN RULES
UNDER THE SECURITIES ACT OF 1933 AND CERTAIN FORMS UNDER THE
SECURITIES EXCHANGE ACT OF 1934
A.

JUSTIFICATION

1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

On March 20, 2019, the Securities and Exchange Commission (the “Commission”)
proposed rule and form amendments that would modify the registration, communications, and
offering processes for registered closed-end investment companies (“registered CEFs”) and
business development companies (“BDCs,” and together with registered CEFs, “affected
funds”).1
The proposed amendments include additional reporting requirements on Form 10-K2 for
BDCs. These proposed amendments are expected to increase disclosure burdens for BDCs,
including: (1) a requirement that all BDCs disclose financial highlights information on Form 10K; and (2) new Form 10-K requirements for BDCs that file short-form registration statements on
Form N-23 to disclose certain key prospectus information and material unresolved staff
comments.
Proposed amendments to Form 8-K4 are expected to increase disclosure burdens for
affected funds by newly requiring registered CEFs to report on Form 8-K and adding two new
reporting events for all affected funds.
The proposed amendments to Rules 163 and 433 are expected to increase the filing
burdens for affected funds electing to issue a free-writing prospectus under either rule, if they
meet either rule’s requirements.
The proposed amendments to Rule 173 are expected to increase burdens for affected
funds that elect to rely on Rule 172, which allows issuers, brokers, and dealers to satisfy final
prospectus delivery obligations if a final prospectus is or will be on file with the Commission
within the time required by the rules, and other conditions are satisfied. Rule 173 requires an
1

Securities Offering Reform for Closed-End Investment Companies, Investment Company Act Release
No. 33427 (Mar. 20, 2019) (“Offering Reform Proposing Release”).

2

17 CFR 249.310.

3

17 CFR 239.14 and 274.11a-1. The Commission’s Division of Investment Management will
separately submit, pursuant to the Paperwork Reduction Act of 1995, a supporting statement and
related attachments for Form N-2.

4

17 CFR 249.308.
1

issuer to, if applicable, provide a notice to purchasers stating that a sale of securities was made
based on a registration statement or in a transaction in which a final prospectus would have been
required to have been delivered in the absence of rule 172. Affected funds may incur additional
costs due to the requirement to provide the notice that Rule 173 requires to investors.
The Paperwork Reduction Act burdens associated with the following collections of
information under Securities Act rules and Exchange Act forms would be affected by the
proposed amendments:
“Rule 163” (OMB Control No. 3235-0619);
“Rule 173” (OMB Control No. 3235-0618);
“Rule 433” (OMB Control No. 3235-0617);
“Form 10-K” (OMB Control No. 3235-0063); and
“Form 8-K” (OMB Control No. 3235-0060).
A copy of Commission Release No. IC-33427, which contains the proposed amendments,
is attached.
2.

PURPOSE OF THE INFORMATION COLLECTION

The purpose of the proposed amendments is to modify the registration, communications,
and offering processes for affected funds. The proposal would extend to these funds offering
reforms that are currently available to operating company issuers.
The proposed collections of information related to Form 10-K and Form 8-K would tailor
the disclosure framework for affected funds in light of the proposed amendments to the offering
rules applicable to them. For example, we expect that the proposed offering rule reforms would
elevate the importance of BDCs’ annual reports, relative to prospectus disclosure, with investors
looking to the annual reports for key information. The proposed amendments also would further
harmonize the disclosure and regulatory framework for affected funds with the framework for
operating companies and provide investors with important information related to a fund
investment.
The primary purpose of Rule 433 is to relax restrictions on communications that issuers
can make to investors during a registered offering of securities. Rule 163 permits eligible wellknown seasoned issuers freedom to communicate with investors at any time, including by means
of a written offer other than a statutory prospectus. Rule 173 provides that a purchaser who does
not receive a final prospectus (because the issuer relied on Rule 172 to satisfy its prospectus
delivery obligations by filing its prospectus with the Commission instead of delivering it to the
purchaser) must receive a notification stating that the sale of securities was made pursuant to a
registration statement or in a transaction in which a final prospectus would have been required to
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have been delivered in the absence of Rule 172, and may request a copy of the final prospectus.
This notification enables investors to “trace” their purchases of securities for purposes of
asserting their rights under the liability provisions of the federal securities laws.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the proposed amendments are set forth in
the affected rules and forms. All of the affected forms are filed electronically with the
Commission using the Commission’s Electronic Data Gathering, Analysis and Retrieval
(“EDGAR”) system. Rule 433 communications are filed with the Commission electronically on
EDGAR, except under limited conditions set forth in Rule 433(d). Rule 163 communications are
also filed with Commission electronically on EDGAR. Rule 173 relies on the internet as a
means of disseminating information to investors.
4.

DUPLICATION OF INFORMATION

The Commission periodically evaluates rule- and form-based reporting and
recordkeeping requirements for duplication and reevaluates them whenever it proposes a rule or
form, or a change in either. The proposed amendments to BDCs’ annual reporting requirements
on Form 10-K do not require duplicative reporting or recordkeeping. While information about
fees and expenses, premiums and discounts, and outstanding senior securities that certain BDCs
would be required to disclose on Form 10-K under the proposal is also required in these funds’
prospectuses, because the annual report on Form 10-K will be incorporated by reference into the
fund’s prospectus under the proposal, requiring disclosure in both the prospectus and annual
report should not require duplicative disclosure.
With respect to the proposed amendments to Form 8-K, certain items in Form 8-K are
substantively the same as or similar to existing disclosure requirements in the annual and semiannual reports for registered CEFs. We do not believe that requiring similar disclosure on Form
8-K and in a registered CEF’s annual or semi-annual reports should result in significant burdens
for registered CEFs since, absent significant changes, they should be able to use their Form 8-K
disclosure to more efficiently prepare the corresponding disclosure in any shareholder reports
that follow funds’ issuance of reports on Form 8-K. This approach also may reduce potential
disruptions to shareholders who are accustomed to finding certain information in the shareholder
reports, and who may not regularly monitor for reports on Form 8-K. It should also limit
discrepancies between different types of funds’ shareholder reports.
There are no other filing requirements for Rules 163 and 433 that are duplicated
elsewhere (although there are requirements to file other types of fund communications under the
federal securities laws). There are no other requirements that duplicate the notice required by
Rule 173.

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5.

REDUCING THE BURDEN ON SMALL ENTITIES

With respect to Form 10-K, both large and small BDCs would be required to provide
financial highlights in their annual reports and registration statements under the proposal because
we believe this information would benefit investors in both large and small BDCs. We believe
the costs associated with this proposed requirement should be minimal for both large and small
BDCs, since we understand it is currently general market practice for BDCs to include this
information in their registration statements. Under the proposal, smaller BDCs generally would
not be able to file short-form registration statements, so these funds would not be required to
disclose in their annual reports on Form 10-K: (1) information regarding fees and expenses,
premiums and discounts, and outstanding senior securities; and (2) material unresolved staff
comments.
The proposed reporting requirements under Form 8-K would apply equally to large and
small affected funds. Form 8-K reporting is designed to provide important current information
to investors. We believe current disclosure on Form 8-K by affected funds would be beneficial
to investors and the market, regardless of the size of the affected fund.
All affected funds, including smaller affected funds, have discretion as to whether or not
to disseminate written communications in the form of a free-writing prospectus. Therefore, any
burdens incurred by funds complying with either Rule 163 or Rule 433 would arise from a fund’s
discretion to utilize those rules for communications purposes.
Similarly, all affected funds, including small funds, have discretion regarding whether to
rely on Rule 172, and thus subject themselves to the requirements of Rule 173. We believe that
the burdens associated with the proposed amendments to Rule 173 would not be significant, and
because Rule 172 is discretionary, affected funds would not rely on this rule if the associated
burdens in Rule 173 would outweigh the benefits of not delivering a final prospectus to securities
purchasers.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

Form 10-K and Form 8-K set forth the disclosure requirements for periodic and current
reports filed by companies to help investors make informed investment decisions. Less frequent
collection would deprive investors of access to information that is important to their voting and
investment decisions.
Rules 163 and 433 include filing requirements only for those issuers that choose to issue
written communications in the form of a free-writing prospectus. Less frequent collection could
compromise investor protection. Likewise, because Rule 173 allows a purchaser of a security
that chooses to rely on Rule 172 to request a copy of the final prospectus, if one has not been
sent, less frequent collection of Rule 173 information could compromise investor protection.

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7.

SPECIAL CIRCUMSTANCE
There are no special circumstances in connection with these proposed amendments.

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission has issued a proposing release soliciting comment on the new
“collection of information” requirements and the associated paperwork burdens. 5 Comments on
Commission releases are generally received from registrants, investors, and other market
participants. In addition, the Commission and staff participate in ongoing dialogue with
representatives of various market participants through public conferences, roundtables and
meetings. All comments received on the proposal are available at
https://www.sec.gov/comments/s7-03-19/s70319.htm. The Commission will consider all
comments received prior to publishing the final rules as required by 5 CFR 1320.11(f).
9.

PAYMENT OR GIFT TO RESPONDENTS
No payment or gift has been provided to any respondents.

10.

CONFIDENTIALITY
No assurance of confidentiality was provided.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature, including social security numbers, would be
required under the Rule 173 and Rule 433 information collection. The information collection
does not collect Personally Identifiable Information (PII). The agency has determined that a
system of records notice (SORN) and privacy impact assessment (PIA) are not required in
connection with the collection of information.
No information of a sensitive nature will be required under the following collections of
information in connection with these rulemaking amendments: Rule 163, Form 8-K, and
Form 10-K. These information collections collect basic Personally Identifiable Information (PII)
that may include a name and job title. However, the agency has determined that these
information collections do not constitute a system of record for purposes of the Privacy Act.
Information is not retrieved by a personal identifier. In accordance with Section 208 of the EGovernment 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

5

See Offering Reform Proposing Release, supra note 1.

5

on February 5, 2019, is provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12. AND 13. ESTIMATES OF HOUR AND COST BURDENS
The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act of 19956 and are not derived from a comprehensive or even
representative survey or study of the cost of Commission rules and forms. We estimated the
average number of hours an affected fund would spend completing the information collections
and the average hourly rate for outside professionals. In deriving our estimates, we recognize
that the burdens will likely vary among individual funds based on a number of factors, including
the nature of their business. We believe that some affected funds may experience hour and cost
burdens in excess of our estimated averages and some affected funds may experience burdens
less than our estimated averages. Our estimates have been adjusted to reflect the fact that some
of the proposed amendments would not apply to all affected funds.
For the Exchange Act reports on Form 10-K and Form 8-K, we estimate that 75% of the
burden of preparation is carried by the company internally and that 25% of the burden of
preparation is carried by outside professionals retained by the company at an average cost of
$400 per hour.7
For Rules 163 and 433, we estimate that 25% of the burden of preparing and filing a free
writing prospectus under these rules is undertaken by the issuer internally and that 75% of the
burden is undertaken by outside professionals retained by the issuer at an average cost of $400
per hour. For Rule 173, we estimate that 100% of the annual reporting burden would be borne
by the issuer.
Form 10-K
We estimate there are 103 BDCs that file Form 10-K annually.8 We estimate the
proposed amendments requiring financial highlights disclosure in Form 10-K would increase the
burdens associated with the form for these BDCs by 1.5 hours per filing. With respect to an
estimated 44 BDCs that would file a short-form registration statement on Form N-2,9 the
6

44 U.S.C. 3501 et seq.

7

We recognize that the costs of retaining outside professionals may vary depending on the nature of
the professional services, but for purposes of this PRA analysis we estimate that such costs would be
an average of $400 per hour. This estimate is based on consultations with operating companies, law
firms, fund representatives and other persons who regularly assist funds in preparing and filing
reports with the Commission.

8

This estimate is based on data from Form 10-K and Form 10-Q filings as of September 30, 2018.

9

This estimate is based on trading data as of June 30, 2018.

6

proposed amendments requiring additional disclosure in Form 10-K are expected to increase the
burdens associated with the form by 3 hours per filing. For purposes of the PRA, we estimate
the total incremental burden would be 213 hours for internal time and $28,400 for the services of
outside professionals.
Form 8-K
We estimate there are 704 registered CEFs. 10 We estimate the proposed amendments to
Form 8-K would result in each registered CEF making, on average, 11 Form 8-K filings per year
with an estimated burden of 6.3125 hours per filing. With respect to the estimated 103 BDCs,
the proposed amendments to Form 8-K are expected to result in 1 additional Form 8-K filing per
year per BDC with an estimated burden of 5 hours per filing. For purposes of the PRA, we
estimate an additional 7,847 responses per year with a total incremental burden of approximately
37,049.25 burden hours of internal time and $4,939,900 for the services of outside professionals.
Rule 163
For Rule 163 free-writing prospectuses, we estimate that the proposed amendments
would increase the number of responses by 2 each year, with an estimated burden of 0.25 hours
per response. We estimate that for purposes of the PRA the total incremental burden for the
proposed amendments to Rule 163 would be approximately 0.125 internal burden hours and
$150 for the services of outside professionals.
Rule 173
We estimate that 807 affected funds would become subject to Rule 173 as a result of the
proposed amendments, and each of these affected funds would provide, on average, 43,546
responses per year, resulting in an increase of 35,141,622 responses annually. We estimate that
each of the 807 affected funds would incur 0.0167 average burden hours per response, resulting
in an annual incremental paperwork burden of approximately 586,865 hours of internal
personnel time, with no change to estimated external costs.
Rule 433
For Rule 433 free-writing prospectuses, we estimate that the proposed amendments
would increase the number of responses by 4,360 each year, with an estimated burden of 1.28
hours per response. For purposes of the PRA, we estimate that the incremental annual
paperwork burden for affected funds under the proposed amendments to Rule 433 would be
approximately 1,395 hours of internal personnel time and a cost of approximately $1,674,240 for
the services of outside professionals.

10

This estimate is based on Morningstar data and SEC filings as of September 30, 2018.

7

Summary of Estimated Paperwork Burdens
Table 1 below shows the estimated total annual paperwork compliance burden, in hours
and in costs, of the proposed amendments. 11 The burden estimates were calculated by
multiplying the estimated number of responses by the estimated average amount of time it would
take a registrant to prepare and review disclosure required under the proposed amendments. The
portion of the burden carried by outside professionals is reflected as a cost, while the portion of
the burden carried by the registrant internally is reflected in hours.
Table 1.

Form 10-K
Form 8-K
Rule 163
Rule 173
Rule 433

14.

Incremental Paperwork Burden increases under the Proposed Amendments
for Securities Act Rules and Exchange Act Forms.
Current
Annual
Responses
8,137
118,387
10
232,448,548
15,700

Proposed
Number of
Responses
8,137
126,234
12
267,590,170
20,060

Current
Burden
Hours
14,198,780
818,158
1
3,881,891
5,024

Change in
Burden
Hours
284
49,399
0.5
586,865
5,581

Change in
Company
Hours
213
37,049
0.125
586,865
1,395

Change in
Professional
Hours
71
12,350
0.375
0
4,186

Change in
Professional
Costs
$28,400
$4,939,900
$150
0
$1,674,240

COST TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to approximately $103,479,690 in fiscal year 2019, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead
15.

REASON FOR CHANGES IN BURDEN

The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed amendments related to Form 10-K and Form 8-K would
tailor the disclosure framework for these funds in light of the proposed amendments to the
offering rules applicable to them and would provide investors with important information to
inform their investment decisions. The proposed amendments to Rules 163 and 433 would
permit registered closed-end funds and business development companies to utilize the freewriting prospectus rules currently available to operating companies. The proposed amendments
to Rule 173 would similarly provide parity and would allow investors who do not receive a copy
of a final prospectus to “trace” their purchases of securities for purposes of asserting their rights
11

For convenience, the estimated hour and cost burdens in the tables have been rounded to the nearest whole
number.

8

under the liability provisions of the federal securities laws. For purposes of the PRA, we
estimate that the proposed amendments to Securities Act rules and Exchange Act forms would
result in a net increase of 625,522.125 burden hours and a net increase in the cost burden of
$6,642,690 for the services of outside professionals. 12
Table 2.

Current and Revised Burdens increases under the Proposed Amendments
for Securities Act Rules and Exchange Act Forms .
Current Burden
Burden Hours
Cost
(A)
(B)

Revised Burden
Burden Hours
Costs
(C)
(D)

Program Change
Burden Hours
Costs
(E)
(F)

Form
10-K

14,198,780

$1,895,224,719

14,198,993

$1,895,253,119

213

$28,400

Form
8-K

818,158

108,674,430

855,207

$113,614,330

37,049

$4,939,900

Rule
163

1

$720

1.125

$870

0.125

$150

Rule
173

3,881,891

$0

4,468,756

$0

586,865

$0

Rule
433

5,024

$6,028,800

6,419

$7,703,040

1,395

$1,674,240

16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
The information collections do not employ statistical methods.

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of Form
10-K and Form 8-K. Including the expiration date on the electronic version of the forms will
result in increased costs because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be displayed.
With respect to Rule 163, we request authorization to omit the expiration date on the
electronic version of the form. Including the expiration date on the electronic version of the form
will result in increased costs, because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be displayed. With
respect to Rules 173 and 433, the Commission is not seeking OMB approval to omit the
expiration date.

12

For the net change in burdens and costs expected to result for each of the individual collections of information,
see the attached Short Statements.

9

18.

EXCEPTIONS TO CERTIFICATION STATEMENT FOR PAPERWORK
REDUCTION ACT SUBMISSION
There are no exceptions to certification for Paperwork Reduction Act submissions.

B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
The information collections do not employ statistical methods.

10

FORM 10-K SHORT STATEMENT
The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed collections of information related to Form 10-K would
tailor the disclosure framework for business development companies in light of the proposed
amendments to the offering rules applicable to them. For purposes of the PRA, we estimate that
the proposed amendments related to Form 10-K would result in a net increase of 213 burden
hours and a net increase in the cost burden of $28,400 for the services of outside professionals.
These changes are due to proposed amendments that would require business development
companies to provide additional disclosure on Form 10-K.

11

FORM 8-K SHORT STATEMENT
The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed collections of information related to Form 8-K would
improve parity among registered closed-end funds, business development companies, and
operating companies and provide investors with important information to inform their
investment decisions. For purposes of the PRA, we estimate that the proposed amendments to
Form 8-K would result in a net increase of 37,049 burden hours and a net increase in the cost
burden of $4,939,900 for the services of outside professionals. These changes are due to
proposed amendments that would increase the scope of Form 8-K reporting by registered closedend funds and business development companies.

12

RULE 163 SHORT STATEMENT
The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed amendment to Rule 163 would permit registered closedend funds and business development companies that qualify as a WKSI to issue a free-writing
prospectus as is currently available to operating companies that qualify as a WKSI. For purposes
of the PRA, we estimate that the proposed amendments to Rule 163 would result in a net
increase of 0.125 burden hours and a net increase in the cost burden of $150 for the services of
outside professionals. These changes are due to proposed amendments that would expand the
scope of Rule 163 to registered closed-end funds and business development companies.

13

RULE 173 SHORT STATEMENT
The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed amendments to Rule 173 entail burdens for affected
funds that elect to rely on Rule 172 to satisfy final prospectus delivery obligations , subject to
certain conditions. Such funds may incur additional costs due to the requirement to provide the
notice that Rule 173 requires to investors (stating that a sale of securities was made based on a
registration statement or in a transaction in which a final prospectus would have been required to
have been delivered in the absence of rule 172). For purposes of the PRA, we estimate that the
proposed amendments to Rule 173 would result in a net increase of 586,865 internal burden
hours due to the increase in the number of issuers expected to provide the information required
under Rule 173. We estimate no change to the external cost burden.

14

RULE 433 SHORT STATEMENT
The proposed amendments in Release No. IC-33427 would modify the registration,
communications, and offering processes for registered closed-end funds and business
development companies. The proposed amendments to Rule 433 would permit registered
closed-end funds and business development companies to issue a free-writing prospectus as is
currently available to operating companies. For purposes of the PRA, we estimate that the
proposed amendments to Rule 433 would result in a net increase of 1,395 burden hours and a net
increase in the cost burden of $1,674,240 for the services of outside professionals. These
changes are due to proposed amendments that would expand the scope of Rule 433 to registered
closed-end funds and business development companies.

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