Rule 498 Supporting Statement (2021)(clean)

OMB CONTROL NUMBER: 3235-0648

SUPPO RTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 498
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 5(b)(2) of the Securities Act of 1933 (“Securities Act”) (15 U.S.C. 77a et
seq.) 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 after sale, unless accompanied or preceded by a prospectus meeting
the requirements of Section 10 of the Securities Act (15 U.S.C. 77e(b)(2)). 1 Section
10(a) of the Securities Act describes the type of information required to be included
in a statutory prospectus (15 U.S.C. 77j). Sections 10(b) of the Securities Act and
24(g) of the Investment Company Act of 1940 (“Investment Company Act”) (15
U.S.C. 80a-1 et seq.) permit the Commission to allow the use of a prospectus that
omits or summarizes information required by Section 10(a) (15 U.S.C. 77j(b); 15
U.S.C. 80a-24(g)).
Rule 498 under the Securities Act permits open-end management investment
companies (“funds”) to satisfy their prospectus delivery obligations under the
Securities Act by sending or giving key information directly to investors in the form
of a summary prospectus (“Summary Prospectus”) and providing the statutory
prospectus on a website (17 CFR § 230.498). Upon an investor’s request, funds are
also required to send the statutory prospectus to the investor (17 CFR §
230.498(f)(1)). In addition, under rule 498, a fund that relies on the rule to meet its
statutory prospectus delivery obligations must make available, free of charge, the
fund’s current Summary Prospectus, statutory prospectus, statement of additional
information (“SAI”), and most recent annual and semi-annual reports to
shareholders at the website address specified in the required Summary Prospectus
legend (17 CFR 270.498(e)(1)). A Summary Prospectus that complies with rule 498
is deemed to be a prospectus that is authorized under Section 10(b) of the Securities
Act and Section 24(g) of the Investment Company Act (17 CFR 270.498(b)).

1

A “prospectus,” as defined by the Securities Act, is any prospectus, notice, circular,
advertisement, letter, or communication, written or by radio or television, which offers
any security for sale or confirms the sale of any security, with certain exceptions. 15
U.S.C. 77b(a)(10).

2.

Purpose and Use of the Information Collection

The purpose of rule 498 is to enable a fund to provide investors with a Summary
Prospectus containing key information necessary to evaluate an investment in the
fund. Unlike many other federal information collections, which are primarily for the
use and benefit of the collecting agency, this information collection is primarily for
the use and benefit of investors. The information filed with the Commission also
permits the verification of compliance with securities law requirements and assures
the public availability and dissemination of the information.
3.

Consideration Given to Information Technology

The Commission’s Electronic Data Gathering, Analysis, and Retrieval System
(“EDGAR”) automates the filing, processing, and dissemination of full disclosure
filings. This automation has increased the speed, accuracy, and availability of
information, generating benefits to investors and financial markets.
Pursuant to rule 497(k) (17 CFR 230.497(k)), all Summary Prospectuses
permitted under rule 498 are required to be filed with the Commission electronically
on EDGAR. 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. Summary Prospectuses are permitted to be sent to investors
by electronic means so long as the fund meets certain requirements.2 In addition,
under rule 498, a person that relies on the rule to meet its statutory prospectus
delivery obligations must make available, free of charge, the fund’s current Summary
Prospectus, statutory prospectus, SAI, and most recent reports to shareholders at the
website address specified in the Summary Prospectus legend.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or a
change in a rule. The requirements of rule 498 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

2

See Securities Act Release No. 7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)];
Securities Act Release No. 7856 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)].

2

or reporting requirements affecting small businesses. The information collection
requirements of rule 498 do not distinguish between funds that are small entities and
other funds. To the extent that smaller funds rely on rule 498, their burden to comply
with its requirements may be greater than for larger funds due to economies of scale.
The Commission believes, however, that imposing different requirements on
smaller fund companies would not be consistent with investor protection. Different
disclosure requirements for funds that are small entities may create the risk that
investors in these funds would be less able to evaluate funds and less able to compare
different funds, thereby lessening the ability of investors to make informed choices
among funds. The Commission believes it is important for the disclosure that is
required of funds seeking to rely on rule 498 to be provided to investors in all funds,
not just funds that are not considered small entities.
6.

Consequences of Not Conducting Collection

Section 5(b)(2) of 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 after sale, unless accompanied or
preceded by a prospectus meeting the requirements of Section 10 of the Securities
Act. Section 10(a)(3) of the Securities Act generally requires that when a prospectus
is used more than nine months after the effective date of the registration statement,
the information in the prospectus must be as of a date not more than sixteen months
prior to such use (See 15 U.S.C. 77j(a)(3)). The effect of these provisions is that
mutual funds are required to update their statutory prospectuses at least annually to
reflect current cost, performance, and other financial information. This legal
requirement prevents the Commission from specifying less frequent distribution of
the Summary Prospectus to investors when offering securities for sale.
The requirement that funds using a Summary Prospectus must respond to an
investor’s request for additional information within three business days ensures that
investors who wish to review additional information before making an investment
decision will be able to do so.
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 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
3

various forums provide the Commission and staff with a means of ascertaining and
acting upon paperwork burdens confronting the industry. The Commission requested
public comment on the collection requirements for rule 498 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 information collection collects
basic Personally Identifiable Information (PII) that may include the name, title, and
length of service of the person or persons who are primarily responsible for the dayto-day management of the fund’s portfolio.
However, the agency has determined that the information collection does 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 on January 29, 2016, is provided as a supplemental
document and is also available at https://www.sec.gov/privacy.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made 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 even representative survey or study of
the cost of Commission rules and forms. Rule 498 contains collection of information
requirements. Under rule 498, use of the summary prospectus is voluntary, but the
rule’s requirements regarding provision of the statutory prospectus upon investor
request are mandatory for funds that elect to send or give a summary prospectus in
reliance upon rule 498. The information provided under rule 498 will not be kept
confidential.

4

The burden hour estimate for complying with the information collection
requirements of rule 498 is based on consultations with industry representatives and
on the Commission’s experience with the contents of disclosure documents. The
number of burden hours may vary depending on, among other things, the number of
funds, and whether compilation of the information required 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.
In its most recently-approved PRA submission for rule 498, the Commission
estimated the annual internal compliance burden to comply with rule 498’s collection
of information to be 20,327 burden hours.3
Based on an analysis of fund filings, the Commission now estimates that 11,329
funds could file registration statements or amendments to registration statements on
Form N-1A.4 Of this group, we estimate that 93%, or 10,536 funds, will rely on the
summary prospectus rule.5
The Commission continues to estimate that the annual hourly burden per fund
associated with the compilation of the information required on the cover page or the
beginning of the Summary Prospectus is 0.5 hours, and estimates that the annual
hourly burden per fund to comply with the website posting requirement is
approximately 1 hour, requiring a total of 1.5 hours per fund per year.6 The total
annual hour burden associated with these requirements of the rule is approximately

3

This estimate is based on the most recent rule 498 PRA submission, which OMB
approved in April 2019.

4

11,329 funds = 9,223 mutual funds + 2,106 ETFs (2,111 ETFs - 5 UIT ETFs). Each fund
is a separate series of an open-end management investment company registered on Form
N-1A.

5

11,329 funds × 93% = 10,536 funds. 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 Release No. 33963 (Aug. 5,
2020) (“Tailored Shareholder Reports Proposing Release) (estimating that 93% of funds
deliver a summary prospectus in reliance on rule 498).

6

0.5 hours per fund + 1 hour per fund = 1.5 hours per fund. The Commission believes
that funds that have opted to use the Summary Prospectus have already incurred the
estimated one-time hour burden to initially comply with rule 498, and therefore the
estimated burden hours to initially comply with rule 498 and the associated costs are not
included in these estimates.

5

15,804 hours. 7 Based on an estimated wage rate of about $296 per hour,8 the total
cost to registrants of the internal hour burden for complying with rule 498 is about
$4,677,984 annually. 9

7

1.5 hours per fund x 10,536 funds = 15,804 hours.
The most recently-approved PRA for rule 498, see infra footnote 3, estimated an increase
of 4,529 burden hours over the previously-approved PRA due to new temporary burdens
associated with amendments to rule 498 that require temporary summary prospectus
disclosures that correspond with amendments to rule 30e-3. See Optional Internet
Availability of Investment Company Shareholder Reports, Investment Company Release
No. 33115 (Jun. 5, 2018).
Under the amendments, funds that intend to rely on rule 30e-3 prior to January 1, 2022
to satisfy their obligations to transmit shareholder reports by making such reports and
other materials accessible at a website address specified in a notice to investors must
include prominent disclosures on the cover page or beginning of their summary
prospectuses (as well as the front cover page of their statutory prospectuses, and on the
front cover page or beginning of their annual and semiannual reports) of the upcoming
change in transmission format from January 1, 2019 to December 31, 2021.
Because the transition period for these temporary disclosure requirements will shortly
expire, the Commission believes that most, if not all, of the funds that not only opt to use
a summary prospectus but also rely on rule 30e-3 have already incurred the estimated
one-time hour burden to initially comply with rule 30e-3 as it relates to summary
prospectuses, as well as most other associated costs. Accordingly, burden hours
associated with rule 30e-3 are not included in these PRA estimates.

8

The Commission’s estimate concerning the wage rate is based on salary information for
the securities industry compiled by the Securities Industry and Financial Markets
Association. The estimated wage figure is based on published rates for intermediate
accountants and attorneys, modified to account for an 1,800-hour work year; multiplied
by 5.35 to account for bonuses, firm size, employee benefits, and 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. We estimate that intermediate accountants and attorneys will divide their time
equally, yielding an estimated hourly wage rate of $296. ($173 per hour for intermediate
accountants + $419 per hour for attorneys = $592) ÷ 2 = $296 per hour.

9

15,804 hours per year × $296 per hour = $4,677,984 per year.

6

13.

Costs to Respondents

In its most recently-approved PRA submission for rule 498, the Commission
estimated that the annual external cost burden to comply with rule 498 was
$167,458,800. 10
Cost burden is the cost of goods and services purchased to prepare and update
rule 498 summary prospectuses, such as printing and mailing costs, the services of
independent auditors and outside counsel, and website hosting services. 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 and consultations
with industry representatives.
The Commission now estimates that the annual cost burden to comply with rule
498 is approximately $18,105 per fund, for a total annual cost burden of
approximately $190,754,280. 11
14.

Costs to Federal Government

The annual cost of reviewing and processing registration statements,
post-effective amendments, proxy statements, shareholder reports, and other filings
of funds amounted to approximately $22.2 million in fiscal year 2019, based on the
Commission’s computation of the value of staff time devoted to this activity and
related overhead.
15.

Changes in Burden

As reflected in the table below, the new annual total internal burden of 15,804
hours represents a decrease of 4,523 hours over the previous estimate of 20,327
hours. The decrease in burden hours reflects the Commission’s belief that funds have
largely incurred the temporary rule 498 burdens associated with rule 30e-3. 12
In addition, the new annual total external cost of $190,754,280 represents an
increase of $23,295,480 over the previous estimate of $167,458,800. This increase is
due to a change in the estimated number of funds that use a Summary Prospectus,

10

See supra footnote 3.

11

$18,105 per fund x 10,536 funds = $190,754,280.
We adjusted the previously-approved external cost estimate of $15,900 per fund, see supra
footnote 3, up to $18,105 to account for the effects of inflation.

12

See supra footnote 7.

7

coupled with an upward adjustment to the estimated external cost per fund to reflect
the effects of inflation.
Table 1: Summary of Revised Annual Responses, Burden Hours, and
Burden Hour Costs for Rule 498
Annual No. of Responses

Internal Annual Time Burden (Hrs.)

External Cost Burden ($)

Previously
approved

Requested

Change

Previously
approved

Requested

Change

Previously
approved

Requested

Change

9,057

10,536

+1,479

20,327

15,804

-4,523

$167,458,800

$190,754,280

+$23,295,480

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 Submissions

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.

8