Rule 433 Supporting Statement.Final.04-21-2021

SUPPORTING STATEMENT
FOR THE PAPERWORK REDUCTION ACT INFORMATION COLLECTION
SUBMISSION FOR SECURITIES ACT RULE 433
A.

JUSTIFICATION

1.

Circumstances Making the Collection of Information Necessary

The Commission adopted Rule 433 on July 19, 2005, in Release 33-8591 (“Securities
Offering Reform”). The rule was designed to reduce current restrictions on communications that
issuers can make to investors during a registered offering of securities. Specifically, it governs
the use and filing of a free writing prospectus. Rule 433 applies to any free writing prospectus
with respect to the securities of an issuer (except as set forth in Rule 164), that are the subject of
a registration statement that has been filed under the Securities Act of 1933. The free writing
prospectus can include information that is not included in the registration statement. A free
writing prospectus that satisfies the conditions of Rule 433 will be a prospectus under Section
10(b) of the Securities Act and will, for purposes of considering it a prospectus, be deemed to be
public, without regard to its method of use or distribution, because it is related to the public
offering of securities that are the subject of a filed registration statement. Rule 433 sets forth
conditions that issuers must meet to use a free-writing prospectus.
On August 5, 2020 the Commission issued a release proposing amendments that would
modernize the disclosure framework for open-end management investment companies.1 Among
other rule proposals in this release, 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. As part of these proposed
amendments, the Commission proposed to amend Rule 482 under the Securities Act 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 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. As part of the proposed amendments, the
Commission also proposed to amend Rule 433 to require a registered closed-end fund or
business development company (“BDC”) free writing prospectus to comply with the proposed
content, presentation, and timeliness requirements of proposed Rule 482, as applicable, if the
free writing prospectus includes fee and expense information. As a result, regardless of whether a
1

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) (the “2020 Retail Fund Investor Experience” release).

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registered closed-end fund or BDC advertisement uses Rule 482 or Rule 433, the advertisement
would be subject to the same requirements regarding fee and expense information.
Compliance with the requirements of Rule 433 is mandatory and the responses to the
information collections would not be kept confidential.
2.

Purpose and Use of the Information Collection

The primary purpose of the rule is to relax restrictions on communications that issuers
can make to investors during a registered offering of securities.
3.

Consideration Given to Information Technology

Rule 433 communications are filed electronically on the Commission’s Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system, except under limited conditions set forth in
Rule 433(d).
4.

Duplication of Information
There are no other filing requirements that duplicate this information.

5.

Reducing the Burden on Small Entities

All issuers, including small business issuers, have discretion as to whether or not they
want to disseminate written communications in the form of a free-writing prospectus.
Furthermore, Rule 433 was adopted in connection with other revisions, all of which were
intended to decrease costs and burdens for all issuers, including small business issuers, and
enhance communications between issuers and investors. 2
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 proposed amendments to Rule 433 do not
distinguish between small entities and other entities. We believe 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 allows 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

Rule 433 requires filing of written communications only when issuers choose to
disseminate them in a free-writing prospectus. Less frequent collection could compromise
investor protection.
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7.

Special Circumstances
There are no special circumstances.

8.

Consultations with Persons Outside the Agency

No comments were received on this request during the 60-day comment period prior to
OMB’s review of this submission.
9.

Payment or Gift to Respondents
No payment or gift has been provided to any respondents.

10.

Confidentiality

A free writing prospectus meeting the conditions of Rule 433(d)(1) must be filed with the
Commission and is publicly available.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. 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.
12. and 13. ESTIMATES OF HOUR AND COST BURDENS
We estimate that 791 closed-end funds and BDCs file approximately 4,271 free writing
prospectuses annually. We estimate that approximately 96% of the 4,271 responses
(approximately 4,100 responses) provide fee and expense figures in free writing prospectuses
and would, therefore, be required to comply with the proposed amendments to Rule 433
regarding such information. Similarly, we estimate that 96% of these responses would include
information regarding a fund’s total annual expenses and would, therefore, have to comply with
the proposed amendments regarding such information.
The table below summarizes the proposed estimates for internal burdens associated with
the proposed new requirements under Rule 433:

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Table 1 of Estimates in Changes to Current Reporting Burden Resulting from
Proposed Amendments to Rule 433:
Internal
initial burden
hours1
New general requirements re: fee
and expense figure disclosure

Internal annual hour burden

6 hours2

9 hours
Number of responses to rule 433
that include fee/expense figure
disclosure

x 4,100 responses

T otal burden of new requirements
for fee and expense disclosure
New requirements for disclosure of
fee waivers/expense reimbursement
arrangements

24,600 hours

4 hours3
6 hours

Number of responses to rule 433
that disclose fee waivers/expense
reimbursement arrangements

x 4,100 responses

T otal burden of annual
requirements for disclosure of fee
waivers/expense reimbursement
arrangements

16,400 hours

T otal annual burden

41,000 hours

Current burden estimates

6,391 hours

Revised burden estimate

47,391 hours

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS
Current burden estimates

6,391 hours

$7,668,800 Cost Burden

Revised burden estimate

47,391 hours

$21,444,800 Cost Burden

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Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. This estimate assumes 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.
3. This estimate assumes 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 hour of additional ong oing burden hours) = 4 hours.

Cost burden is the cost of services purchased to comply with Rule 433, 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 $7,668,800
external cost burden to Rule 433.
In the 2020 Retail Fund Investor Experience Release, we estimated that there would be
no changes to the external cost burden estimate as a result of the proposed amendments to Rule
433. However, we did estimate that compliance with Rule 433, as proposed to be amended,
would entail $13,776,000 in internal costs estimated associated with the proposed increased hour
burden.
TABLE 2.

CURRENT AND REVISED BURDENS UNDER THE AMENDMENTS TO
SECURITIES ACT RULES, SECURITIES ACT REGISTRATION
STATEMENTS AND EXCHANGE ACT FORMS
Current Burden

Rule 433

14.

Revised Burden

Program Change

Burden
Hours
(A)

Cost
(B)

Burden
Hours
(C)

Costs
(D)

Burden
Hours
Increase
(E)

Costs
Increase
(F)

6,391

$7,668,800

47,391

$21,444,800

41,000

$13,776,000

Costs 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.
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15.

Reason for Change in Burden

We are proposing to amend rule 433 to require a registered closed-end fund or BDC free
writing prospectus to comply with the proposed content, presentation, and timeliness
requirements of proposed rule 482, as applicable, if the free writing prospectus includes fee and
expense information. As a result, regardless of whether a registered closed-end fund or BDC
advertisement uses rule 482 or rule 433, the advertisement would be subject to the same
requirements regarding fee and expense information. Compliance with the requirements of rule
433 is mandatory and the responses to the information collections would not be kept
confidential. For purposes of the PRA, we estimate that the amendments related to Rule 433 will
result in a net increase of 41,000 burden hours and a net increase in the cost burden of
$13,776,000 for the services of outside professionals.
Table 3

RULE 433 PRA ESTIMATES

The table below summarizes the proposed estimates for internal burdens associated with
this new requirement under rule 433:
Internal initial burden
Internal annual hour
hours 1
burden
PROPOSED ESTIMATES FOR RULE 433
New general
9 hours
requirements re: fee and
expense figure disclosure
Number of responses to
rule 433 that include
fee/expense figure
disclosure
T otal burden of new requirements for fee
and expense disclosure

16.

Internal time costs

External costs

6 hours 3
x 4,100 responses

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

$2,016
x 4,100 responses

2 4 ,600 hours

New requirements for
6 hours
disclosure of fee
waivers/expense
reimbursement
arrangements
Number of responses to rule
x 4,100 responses
433 that disclose fee
waivers/expense
reimbursement arrangements
T otal burden of annual requirements for
dis closure of fee waivers/expense
reimbursement arrangements
T otal annual burden

Wage rate2

$ 8 ,265,600

4 hours 4

$336
(blended rate for
compliance attorney and
senior programmer)
-

x 4,100 responses

1 6 ,400 hour

$ 5 ,510,400

4 1 ,000 hours

$ 1 3,776,000

Information Collection Planned for Statistical Purposes
The information collection is not planned for statistical purposes.

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$1,344

17.

Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date.

18.

Exceptions to Certification for Paperwork Reduction Act Submissions
There are no exceptions to certification for the Paperwork Reduction Act submissions.

B.

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

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