Proposed rule 498B supporting statement (final)

OMB CONTROL NUMBER: 3235-xxxx
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Proposed Rule 498B
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 5(b)(2) of the Securities Act of 1933 (the “Securities Act”) makes it unlawful for
any person, directly or indirectly, to carry or cause to be carried through the mails or in interstate
commerce securities for the purpose of sale or for delivery, unless accompanied or preceded by a
prospectus that meets certain requirements. 1 On August 5, 2020, the Commission proposed rule
and form amendments that would modernize the disclosure framework for open-end
management investment companies (“open-end funds” or “funds”). 2 As part of this proposal, the
Commission proposed new rule 498B under the Securities Act to provide an alternative way for
open-end funds to keep shareholders informed, instead of delivering prospectus updates to
shareholders each year to satisfy section 5(b)(2).
Proposed rule 498B would allow an open-end fund to satisfy any obligations under
section 5(b)(2) of the Securities Act to have a statutory prospectus precede or accompany the
carrying or delivery of a security to the fund’s existing shareholders under specific conditions.
Those conditions would be: (1) the existing shareholders have been previously sent or given a
prospectus in order to satisfy any obligation under section 5(b)(2) of the Securities Act, such as

1

15 U.S.C. 77e(b)(2).

2

See 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) (“Proposing Release”).

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in connection with their initial investment in the fund; (2) certain specified disclosure materials
(including, among other things, current summary and statutory prospectuses) appear online; and
(3) existing shareholders receive notices of certain material changes to the fund when those
changes occur. The proposed rule also includes delivery upon request and website presentation
requirements, including that a fund must: (1) deliver, in a manner consistent with the requester’s
delivery preference, a copy of any of the fund documents that the rule would require to be made
available online, at no charge to the requester, subject to certain additional conditions; and (2)
ensure that those fund documents required to appear online are presented in a format convenient
for both reading online and printing on paper, and can be permanently retained in such a format
by persons accessing those materials, free of charge.
2.

Purpose and Use of the Information Collection

Certain provisions of proposed rule 498B contain “collection of information”
requirements within the meaning of the Paperwork Reduction Act of 1995 [44 U.S.C. 3501, et
seq.], and the Commission is submitting the collection of information to the Office of
Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR
1320.11. The information collection requirements for proposed rule 498B are designed to keep
open-end fund shareholders informed about their fund investment and updates to their fund that
occur year over year and to enable them to make informed decisions about whether to buy, sell,
or hold fund shares.
3.

Consideration Given to Information Technology

Open-end funds relying on proposed rule 498B would be required to make certain
information (including summary and statutory prospectuses) available online to facilitate
shareholders’ ready access to these sources of information in a convenient, centralized location.
These funds would also have to deliver this information to investors upon request, free of charge,
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either electronically or in paper (depending on the investor’s preferences). Notices of material
changes similarly would be delivered electronically or in paper, in accordance with the investor’s
preference.
4.

Duplication

Proposed rule 498B is modeled in part on rule 498 under the Securities Act and contains
certain similar provisions, including website posting and delivery-upon-request requirements
with regard to largely the same documents. 3 However, compliance obligations under rules 498B
and 498 apply under different circumstances (satisfying prospectus delivery requirements with
respect to existing shareholders, and satisfying prospectus delivery requirements by using a
summary prospectus, respectively). Furthermore, proposed rule 498B is designed to avoid
duplication and instead create efficiencies for funds that currently rely on rule 498, because the
Commission believes these funds would already be familiar with the website posting and
delivery-upon-request conditions and would have compliance processes in place related to these
conditions.
5.

Effect on Small Entities

The information collection requirements of rule 498B do not distinguish between small
entities and other funds. A fund’s reliance on proposed rule 498B would be voluntary, so the
rule’s effect on small entities is uncertain. Because the Commission generally anticipates that the
proposed rule would provide costs savings to funds, including small funds, we assume that the
vast majority of funds (and of small funds) would rely on rule 498B to satisfy their prospectus

3

See proposed rule 498B and current rule 498 [17 CFR 230.498].

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delivery obligations. 4 However, if a small fund does not believe that proposed rule 498B would
be beneficial to the fund, it could choose not to rely on the rule.
6.

Consequences of Not Conducting Collection

Proposed rule 498B sets forth conditions that an open-end fund would need to meet to
satisfy its obligations under section 5(b)(2) of the Securities Act if it chooses to rely on the rule.
The conditions are designed to ensure that existing shareholders remain informed about their
fund investments. Absent the information collection requirements in the proposed rule, open-end
fund shareholders may lose access to information they currently use to monitor their fund
investments and make informed investment decisions, which could result in less informed
investment decisions.
7.

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

The 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
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. In addition, the Commission has requested public comment on proposed rule 498B,
including the collection of information requirements in the proposed rule. Before adopting rule
498B, the Commission will receive and evaluate public comments on the proposed rule and its
associated collection of information requirements.

4

See Proposing Release, supra footnote 2, at section III.C.2.d (discussing the anticipated cost
savings associated with rule 498B).

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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 would be required under this collection of
information. The information collection would 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.

Burden of Information Collection

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 comprehensive or even
representative survey or study of the cost of Commission rules and forms. The likely respondents
to proposed rule 498B’s information collection requirements are registered open-end funds.
Reliance on rule 498B is voluntary; however, compliance with the rule’s conditions is mandatory
for funds relying on the rule. The information provided under proposed rule 498B would not be
kept confidential.
Because an open-end fund’s reliance on proposed rule 498B would be voluntary, the
percentage of funds that would choose to rely on the rule is uncertain. We generally anticipate
that the proposed rule would provide costs savings to open-end funds, and so we assume that the
vast majority of these funds would rely on rule 498B to satisfy their prospectus delivery
obligations. 5 For purposes of this estimate, we assume that open-end funds that currently rely on

5

See id.

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rule 498 generally would rely on proposed rule 498B. We believe this assumption is appropriate
because open-end funds that rely on rule 498 are funds that have already chosen to rely on a rule
that provides an alternative means of satisfying prospectus delivery obligations, and because
certain of the conditions of proposed rule 498B overlap with similar conditions to rely on rule
498. Therefore, we assume that these funds would experience some efficiencies in coming into
compliance with proposed rule 498B. Based on these assumptions, we estimate that 90% of
open-end funds would choose to rely on rule 498B. 6
The table below summarizes the proposed estimates for internal burdens associated with
this new requirement under rule 498B:
TABLE 1: Summary of Burden Hour and Burden Hour Cost Estimates for Each Proposed Rule 498B
Information Collection
IC Title

Internal annual burden hours

Wage rate1

Internal time costs

Preparation of notice of
material changes

8 hours2

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

$2,688

Preparation of summary
prospectus3

20 hours4

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

$6,720

Website availability
requirements5

8 hours6

$239 (webmaster)

$1,912

Delivery upon request

0 hours

Total burden per registrant

36 hours

Number of registrants

× 11,169 open-end

$11,320
funds7

× 11,169 open-end funds

TOTA L ESTIMA TED BURDEN S
Total annual burden

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402,084
hours

$126,433,080

We estimate that 93% of open-end funds use summary prospectuses. This estimate is based on
data on the number of mutual funds and ETFs that filed a summary prospectus in 2018 in the
Commission’s Electronic Data, Gathering, Analysis, and Retrieval system (“EDGAR”) (10,808)
and the Investment Company Institute’s estimated number of mutual funds and ETFs as of
December 31, 2018 (11,656). See Investment Company Institute, 2019 Investment Company Fact
Book, at 50, available at https://www.ici.org/pdf/2019_factbook.pdf. Funds that use summary
prospectuses under rule 498 already meet several of the conditions of proposed rule 498B, which
we believe would lead most of these funds to rely on proposed rule 498B due to the lower
compliance costs of relying on the new rule. As a result, and to simplify our calculations, we
estimate that 90% of open-end funds would rely on proposed rule 498B.

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Notes:
1. These 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 other regulatory filings. 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.
2. This estimate assumes that, after an initial 12 hours that a fund would spend complying with the requirement to prepare
the required notices of material changes, which we annualize over a 3-year period, the fund would incur 4 additional burden
hour associated with this requirement per year. The estimate of 8 hours is based on the following calculation: ((12 initial
hours /3) + 4 additional ongoing burden hours) = 8 hours.
3. For purposes of the PRA, we assume that all funds that choose to rely on rule 498B will incur the costs of preparing a
summary prospectus. We recognize, however, that this may be an overestimation to the extent that these funds already
prepare a summary prospectus because they rely on rule 498.
4. This estimate assumes that, after an initial 30 hours that a fund would spend preparing its summary prospectus, which we
annualized over a 3-year period, the fund would incur an additional 10 burden hours associated with ongoing preparation of a
summary prospectus per year. The estimate of 20 hours is based on the following calculation: ((30 initial hours /3) + 10 hours
of additional ongoing burden hours) = 20 hours.
5. For purposes of the PRA, we assume that all funds that choose to rely on rule 498B will incur the costs of complying with
the website availability requirements. We recognize, however, that this may be an overestimation because the set of
documents that funds relying on 498B must post online would be identical to the set of documents that are publicly
accessible online for funds currently relying on rule 498. Therefore, for funds currently relying on 498, there would be no
added burden to comply with this requirement.
6. This estimate assumes that, after an initial 12 hours that a fund would spend complying with the website availability
requirements, which we annualize over a 3-year period, the fund would incur 4 additional burden hours associated with
ongoing compliance with these website availability requirements per year. The estimate of 8 is based on the following
calculation: ((12 initial hours /3) + 4 hour of additional ongoing burden hours) = 8 hours.
7. We assume that 90% of 12,410 funds registered on Form N-1A will rely on rule 498B. 90% x 12,410 = 11,169.

13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to prepare and disseminate
documents using rule 498B. We estimate that it would cost $500 per fund to print and deliver
prospectuses and other materials under proposed rule 498B upon request, free of charge. This
cost burden does not include the hour burdens discussed in Item 12.
TABLE 2: Summary of External Cost Estimates for Each Proposed Rule 498B Information Collection
IC Title

Annual external cost

Preparation of notice of material changes

$0

Preparation of summary prospectus

$0

Website availability requirements

$0

Delivery upon request

$500

Total burden per registrant

$500
× 11,169 open-end funds

Number of registrants
TOTA L ESTIMA TED BURDEN S

$5,584,500

Total annual burden

14.

Cost to the Federal Government

Proposed rule 498B does not impose a cost on the federal government.
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15.

Change in Burden

We are asking that a new collection of information for proposed rule 498B be created.
The hour burden for the proposed rule will be 402,084 hours, and the cost burden will be
$5,584,500.
16.

Information Collection Planned for Statistical Purposes

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

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification 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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