Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts — SEC — US

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 232, 239, 240, 270, and 274 [Release Nos. 33–10569; 34–84508; IC– 33286; File No. S7–23–18] RIN 3235–AK60 Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission is proposing rule and form amendments that are intended to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts. The proposal would modernize disclosures by using a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more readerfriendly presentation, with access to more detailed information available online and electronically or in paper format on request. The proposed new rule would permit a person to satisfy its prospectus delivery obligations under the Securities Act of 1933 for a variable annuity or variable life insurance contract by sending or giving a summary prospectus to investors and making the statutory prospectus available online. The proposed rule also would consider a person to have met its prospectus delivery obligations for any portfolio companies associated with a variable annuity or variable life insurance contract if the portfolio company prospectuses are posted online. In addition, we are proposing amendments to the registration forms for variable annuity and variable life insurance contracts to update and enhance the disclosures to investors in these contracts, and to implement the proposed summary prospectus framework. We are further proposing to require variable contracts to use the Inline eXtensible Business Reporting Language (‘‘Inline XBRL’’) format for the submission of certain required disclosures in the variable contract statutory prospectus. We are also proposing certain technical and conforming amendments to our rules and forms, including amendments to rules relating to variable life insurance contracts, as well as rescission of certain related rules and forms. Lastly, we are seeking comments regarding parallel amendments to rules governing mutual fund summary prospectuses and registration forms applicable to other types of registered investment companies. DATES: Comments should be submitted on or before February 15, 2019. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

Use the Commission’s internet
comment form (http://www.sec.gov/ rules/proposed.shtml); or
Send an email to rule-comments@
sec.gov. Please include File No. S7–23– 18 on the subject line. Paper Comments
Send paper comments to Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number S7–23–18. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s website (http://www.sec.gov/rules/ proposed.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information you wish to make available publicly. Investors wishing to provide comments regarding the proposed summary prospectus may wish to submit our Feedback Flier, available at Appendix C. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
Daniel K. Chang, James Maclean, Amy Miller, Senior Counsels; Amanda Hollander Wagner, Branch Chief; Michael C. Pawluk, Senior Special Counsel, Investment Company Regulation Office, at (202) 551–6792; Keith Carpenter or Michael Kosoff, Senior Special Counsels, Disclosure and Review Office, at (202) 551–6921, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–8549. SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (‘‘Commission’’) is proposing new rule 498A [proposed rule 17 CFR 230.498A] under the Securities Act. The Commission is also proposing amendments to the following rules:
Commission reference CFR citation (17 CFR) Regulation S–T [17 CFR 232.10 through 232.903]:
Rule 11 .................................................................................................................................................................. § 232.11. Rule 405 ................................................................................................................................................................ § 232.405. Securities Act of 1933 (‘‘Securities Act’’): 1 Rule 159A .............................................................................................................................................................. § 230.159A. Rule 421 ................................................................................................................................................................ § 230.421. Rule 431 ................................................................................................................................................................ § 230.431. Rule 482 ................................................................................................................................................................ § 230.482. Rule 485 ................................................................................................................................................................ § 230.485. Rule 497 ................................................................................................................................................................ § 230.497. Rule 498 ................................................................................................................................................................ § 230.498. Securities Exchange Act of 1934 (‘‘Exchange Act’’): 2 Rule 14a–16 .......................................................................................................................................................... § 240.14a–16. Investment Company Act of 1940 (‘‘Investment Company Act’’): 3 Rule 0–1 ................................................................................................................................................................ § 270.0–1.

1 15 U.S.C. 77a et seq.
2 15 U.S.C. 78a et seq.
3 15 U.S.C. 80a et seq.
4For an overview of variable annuities and variable life insurance contracts, see infra section I.A. 5A contract may impose a ‘‘surrender charge’’ if, after purchase payments are made, an investor withdraws money from the contract during a stated period typically ranging from six to ten (or even more) years. Commission reference CFR citation (17 CFR) Rule 6c–7 .............................................................................................................................................................. § 270.6c–7. Rule 6c–8 .............................................................................................................................................................. § 270.6c–8. Rule 6e–2 .............................................................................................................................................................. § 270.6e–2. Rule 6e–3(T) ......................................................................................................................................................... § 270.6e–3(T). Rule 11a–2 ............................................................................................................................................................ § 270.11a–2. Rule 14a–2 ............................................................................................................................................................ § 270.14a–2. Rule 26a–1 ............................................................................................................................................................ § 270.26a–1. Rule 27c–1 ............................................................................................................................................................ § 270.27c–1. Securities Act and Investment Company Act:
Form N–3 .............................................................................................................................................................. § 239.17a and 274.11b. Form N–4 .............................................................................................................................................................. § 239.17b and 274.11c. Form N–6 .............................................................................................................................................................. § 239.17c and 274.11d. Finally, the Commission is proposing to rescind:
Commission reference CFR citation (17 CFR) Investment Company Act:
Rule 26a–2 ..................... § 270.26a–2. Rule 27a–1 ..................... § 270.27a–1. Rule 27a–2 ..................... § 270.27a–2. Rule 27a–3 ..................... § 270.27a–3. Rule 27d–2 ..................... § 270.27d–2. Rule 27e–1 ..................... § 270.27e–1. Rule 27f–1 ...................... § 270.27f–1. Rule 27g–1 ..................... § 270.27g–1. Rule 27h–1 ..................... § 270.27h–1. Form N–27E–1 ............... § 274.127e–1. Form N–27F–1 ............... § 274.127f–1. Form N–27I–1 ................. § 274.302. Form N–27I–2 ................. § 274.303. Securities Act and Investment Company Act:
Form N–1 ........................ § 239.15 and 274.11.
Table of Contents
I. Introduction and Background
A. Overview of Variable Annuities and Variable Life Insurance Products B. Prospectus Disclosure and Delivery
1. Requirements for Variable Contract
Prospectus Disclosure and Delivery
2. Evolution of Layered Disclosure and
Delivery of Information to Investors
C. Rulemaking Proposal Overview
II. Discussion
A. New Option To Use a Summary Prospectus for Variable Contracts
1. Initial Summary Prospectus
2. Updating Summary Prospectus
3. Legal Effect of Use of Summary
Prospectus for Variable Contracts
4. Online Accessibility of Contract
Statutory Prospectus and Certain Other Documents Relating to the Contract
5. Other Requirements for Summary
Prospectus and Other Contract Documents
6. Incorporation by Reference
7. Filing Requirements for the Summary
Prospectus
8. Definitions in the Proposed Rule
B. Optional Method To Satisfy Portfolio Company Prospectus Delivery Requirements
1. Current Delivery Practices for Portfolio
Company Prospectuses
2. New Option To Satisfy Prospectus
Delivery Requirements
C. Discontinued Variable Contracts
D. Proposed Amendments to Registration Forms
1. General Instructions
2. Part A (Information Required in a
Prospectus)
3. Part B (Information Required in a
Statement of Additional Information)
4. Part C (Other Information)
5. Guidelines
E. Inline XBRL
F. Technical and Conforming Amendments to, and Requests for Comment on, Other Aspects of the Regulatory Framework for Variable Contracts G. Compliance Date
III. Economic Analysis
A. Introduction
B. Economic Baseline
1. Overview of Variable Products Market
2. Statutory and Regulatory Disclosure
Requirements
C. Benefits and Costs of the Proposed Rule
1. Optional Summary Prospectus Regime
2. Treatment of Discontinued Variable
Contracts
3. Changes to Forms N–3, N–4, and N–6
4. Inline XBRL
D. Effects on Efficiency, Competition, and Capital Formation E. Reasonable Alternatives
1. Mandating Summary Prospectuses
2. Summary Prospectuses Delivered With
Statutory Prospectuses
3. Contract-Specific Updating Summary
Prospectuses
4. Do Not Provide Updating Summary
Prospectuses
5. Inline XBRL
6. Alternatives to Form N–3, N–4, and N–
6 Amendments
7. Requiring All Variable Contracts
(Including Currently Discontinued Contracts) To Prepare Updated Registration Statements and Deliver Statutory or Summary Prospectuses
8. Alternatives to Commission’s Position
on Alternative Disclosure Contracts F. Request for Comments
IV. Paperwork Reduction Act
A. Form N–3
B. Form N–4
C. Form N–6
D. Registered Investment Company Interactive Data E. Proposed Rule 498A F. Request for Comments
V. Regulatory Flexibility Certification
VI. Consideration of Impact on the Economy
VII. Statutory Authority and Text of Proposed
Amendments
Appendices
Appendix A: Hypothetical Initial Summary
Prospectus
Appendix B: Hypothetical Updating
Summary Prospectus
Appendix C: Feedback Flier—Variable
Annuity Summary Prospectus
I. Introduction and Background
To meet life insurance needs and other financial goals, investors may consider variable annuity and variable life insurance contracts (together, ‘‘variable contracts’’ or ‘‘contracts’’) as a way of combining insurance guarantees with the potential for long-term investment appreciation.4 Variable contracts are generally more complex than other retail investment products, such as mutual funds, in a variety of ways. These investment products combine both investment and insurance features. They frequently offer a menu of optional benefits that an investor may select to customize the contract to meet his or her individual needs. In addition, most have two-level fee structures, where fees are assessed at both the contract level by the issuer (including any additional charges for optional benefits selected by the investor) and at the underlying investment option level. Further transactional charges may also apply, some of which could be substantial, for example, in the case of withdrawals made from a contract prior to a specified number of years.5 Special tax rules also apply to variable products, with both tax advantages and potential

6For example, assets within a variable contract grow tax-deferred, and transfers between investment options under the contract are not taxable events. However, investors may face a 10% federal income tax penalty if money is withdrawn before the investor reaches 591⁄2 years old. For these and other reasons, a variable contract generally is sold as a long-term investment. 7For purposes of this release, we refer to these entities as ‘‘portfolio companies.’’ 8For example, variable annuity contracts offer an average of 59 investment options, with some contracts offering more than 250 investment options. See Insured Retirement Institute, IRI Fact Book 2018 (‘‘IRI Fact Book’’), at 170. Furthermore, variable life insurance contracts offer an average of 64 investment options, with some contracts offering more than 300 investment options. These variable life figures are based on June 2018 data obtained from Morningstar Direct. 9The average contract value for individual variable annuities is approximately $106,187. See IRI Fact Book, supra note 8, at 170. Americans who own annuities have a median annual household income of $64,000 (80% have total annual household incomes below $100,000). Most individual annuity owners are retired. Although the average age of an annuity owner is 70, the average age at which owners purchased their first annuity is 51. See The Gallup Organization and Mathew Greenwald & Associates for The Committee of Annuity Insurers, Survey of Owners of Individual Annuity Contracts (2013) (‘‘Gallup Survey’’), at 8–
9. There is limited data available regarding variable
life insurance contracts, but based upon the data that is available, the Commission believes that the demographics of investors for those products are likely comparable. 10 Variable contracts generally are treated as annuity or insurance contracts under state insurance laws and securities under the federal securities laws. Although section 3(a)(8) of the Securities Act exempts from the Act any insurance or endowment policy or annuity contract issued by a corporation subject to the supervision of the insurance commissioner of any State or Territory of the United States or the District of Columbia, we have determined, and the courts have held, that variable annuities are securities under the federal securities laws and are not, therefore, entitled to this exemption. See, e.g., SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65 (1959) (variable annuity contracts are securities, and not insurance policies or annuity contracts within the meaning of the Act’s exemption because the issuer of a variable annuity contract has no element of fixed return and does not assume any investment risk, which is inherent in the concepts of insurance and annuity contracts); see also Adoption of Rule 3c–4 Under the Investment Company Act of 1940, Investment Company Act Release No. 7644, 1 SEC Docket 17 (Jan. 31, 1973) (because the contract holder participates directly in the investment experience of the separate account and bears an investment risk, a variable life insurance contract is a security, not entitled to the exemption set forth in section 3(a)(8) of the Securities Act). 11Unlike other types of life insurance, variable life insurance exposes the investor to greater market risk (the cash value can decrease), but also offers adverse tax impacts in certain circumstances.6 Investors should understand the features, risks, and charges associated with any potential investment. Providing investors with key information is particularly important in the context of variable contracts, since their structure is typically more complex than other types of investment products. The operation and terminology associated with these products can be difficult for investors to understand. Moreover, variable contract prospectuses are often quite lengthy (frequently more than a hundred pages), particularly in the case of products that include optional benefits. It is also common for insurers to describe different versions of the contract in one prospectus, some of which may no longer be available to new investors, leaving investors to wade through a lengthy document to find disclosures relevant to the particular contract that they purchased or are considering purchasing. In addition, variable contract investors generally allocate their purchase payments to a range of investment options. For most variable contracts, these investment options typically are mutual funds, which are separately registered and have their own prospectuses.7 Because insurers issuing variable contracts
typically bundle prospectuses for the underlying portfolio companies together with the variable contract prospectus, the disclosures that investors receive at the time of the initial purchase and on an annual basis thereafter can be voluminous.8 We are concerned that the volume, format, and content of disclosures in the variable contract context may make it difficult for some investors to find and understand key information that they need to make an informed investment decision. To improve the current disclosure framework and update the manner in which variable contract investors receive and review prospectuses and related information, we are proposing new rule 498A under the Securities Act that permits the use of a summary prospectus to satisfy statutory prospectus delivery obligations, along with other rule and form amendments intended to implement the summary prospectus framework. Investors would continue to have access to the contract statutory prospectus and other information about the contract online (and could receive paper or electronic copies upon request), which would continue to provide more-detailed information about the contract. Specifically, the approach under the proposed new rule contemplates the use of two types of summary prospectuses:
An ‘‘initial summary prospectus’’ to be provided to new investors, and an ‘‘updating summary prospectus’’ to be provided to existing investors. To help investors make an informed investment decision, each type of summary prospectus uses a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with website addresses or hyperlinks to more detailed information posted online and delivered electronically or in paper format on request. In proposing new rule 498A, we are considering approaches that could affect, and raise the possibility of future amendments to, certain parallel provisions of rule 498 and certain of our registration forms applicable to other types of registered investment companies. A. Overview of Variable Annuities and Variable Life Insurance Products Variable contracts are contracts between an investor and an insurance company that provide investors with exposure to the securities markets while also offering certain insurance protections, such as protection against market losses, protection against outliving their assets, or assurances that their beneficiaries will receive a certain amount upon death.9 Unlike traditional annuities and life insurance contracts, variable contracts have an investment component that allows investors the possibility of increasing their potential benefits.10 Variable contracts also offer tax benefits such as tax-deferral on investment earnings until distribution. This combination of insurance guarantees and tax-deferred investment may be appealing to investors. When an investor purchases a variable contract, he or she makes a purchase payment (in either a lump sum or a series of payments), and in return, the insurance company promises to pay a stream of periodic income payments, either immediately or at some future date. Variable annuities allow investors to receive periodic payments for either a definite period (e.g., 20 years), or for an indefinite period (e.g., the life of the investor), and also provide a basic death benefit to protect the investor’s beneficiaries. The investor may allocate the cash value of the purchase payments to a range of investment options available under the contract, including to portfolio companies and, in some cases, to a fixed account option that pays a fixed or minimum rate of interest. The investor’s account value changes depending on the performance of the investment options the investor has selected. Similar to variable annuities, variable life insurance contracts offer a death benefit to the investor, as well as the ability to accumulate cash value.11 Also

the potential for long-term returns that can grow the cash value. An investor may access the cash value of his or her contract by taking out loans (or withdrawals), which may be subject to surrender charges and are taxable under certain circumstances. Taking a loan or withdrawal reduces the policy’s cash value and death benefit, and may require additional premium payments to keep the policy in force. 12The death benefit can vary based on optional benefit features that the contract investor selects. See infra paragraph accompanying note 17. 13The mortality and expense (‘‘M&E’’) risk charge, which is based on an investor’s account value, compensates the insurance company for offering certain contract features (e.g., death benefit or annuitization) and is sometimes used to pay the insurance company’s costs to sell the contract (e.g., commissions). Typical M&E charges are approximately 1.25% of account value per year for variable annuities, and 0.90% for variable life insurance. See IRI Fact Book, supra note 8, at 55. 14 Investors indirectly bear the operating fees and expenses of the portfolio companies they select as the underlying investments in their variable contracts. 15See supra note 5. 16These additional insurance charges are determined at the time of the contract is written and vary based on the insured’s personal characteristics, such as age and health. These charges are in addition to the M&E risk charge discussed above. See supra note 13. 17See, e.g., IRI Fact Book, supra note 8, at 83 (‘‘Just under $2 trillion of VA assets were held by insurance companies as of the fourth quarter of 2017, with an estimated $800 billion having a living benefit.’’); Gallup Survey, supra note 9, at 21 (stating that ‘‘[n]early eight in ten annuity owners (79%) who own a variable annuity report that their contract has a guaranteed lifetime withdrawal benefit.’’). 18See section 2(a)(37) of the Investment Company Act (defining ‘‘separate account’’ to mean an account established and maintained by an insurance company pursuant to state law under which income, gains and losses from assets allocated to that account are credited against the account without regard to other income, gains or losses of the insurance company). In addition to directing all or part of their purchase payments to the investment options (typically mutual funds) available under the separate account, investors may also direct their purchase payments to a fixed account that pays a fixed, or minimum, rate of interest. The fixed account is part of the insurance company’s general account, which, unlike the separate account, is subject to the insurance company’s claims-paying ability and creditor reach. 19The assets of the separate account are segregated from the other assets of the insurance company (such as the insurance company’s general account) and are therefore insulated from the claims of the insurance company’s creditors. See rule 26a– 2 under the Investment Company Act (providing exemptions
from certain provisions of the Act to permit the insurance company that sponsors a separate account to hold the assets of the separate account). 20 In general, an insurance company’s separate account is an investment company under the Investment Company Act. See Prudential Ins. Co. v. SEC, 326 F.2d 383, 388 (3d Cir. 1964) (concluding that the insurer’s separate account, which was a completely segregated account devoted to investing in securities, the cash for which was derived from payments made by the purchaser of the variable annuity contract, and the proceeds from which were held for the sole benefit of the annuitant, was separable from the insurance company and should be deemed the ‘‘investment company’’ for purposes of the Act). Not all variable contract separate accounts are investment companies; exclusions may apply to certain separate accounts that rely, for example, on sections 3(c)(1), (7), or (11) of the Investment Company Act. 21See section 4(3) of the Investment Company Act (defining ‘‘management company’’ to mean any investment company other than a face-amount certificate company or a unit investment trust). 22See section 4(2) of the Investment Company Act (defining ‘‘unit investment trust’’ to include an investment company that is organized under a trust indenture, does not have a board of directors, and only issues redeemable securities, each of which represents an undivided interest in a unit of specified securities). 23Form N–3 filers register as management investment companies because the active management of the investment portfolio occurs at the separate account level. During the early years of variable product history, this was the predominant type of separate account. However, by 2017, only five variable annuity separate accounts were registered as management investment companies on Form N–3. 24 In 2017, 435 variable annuity separate accounts registered as UITs on Form N–4. 25 In 2017, 238 variable life insurance separate accounts registered as UITs on Form N–6. 26 Variable contract investors do not hold legal title to the assets of the insurance company’s separate account. See supra note 19. However, certain legal rights, such as voting rights, generally pass through to variable contract investors. 27See section 10(a) of the Securities Act (generally requiring a prospectus relating to a security to contain the information contained in the registration statement). For purposes of this release, a prospectus meeting the requirements of a section 10(a) prospectus is referred to as a ‘‘statutory prospectus.’’ 28See Registration Forms for Insurance Company Separate Accounts that Offer Variable Annuity Contracts, Investment Company Act Release No. 14575 (June 14, 1985) [50 FR 26145 (June 25, 1985)] Continued like variable annuities, a variable life insurance contract permits the investor to allocate insurance premiums to a variety of portfolio companies, and may also offer a fixed account investment option. Because an investor
will generally allocate the insurance premiums to portfolio companies, the cash value (and in some cases, the death benefit 12) will vary with the performance of these investments. Investors bear a number of ongoing fees, expenses, and other charges when investing in a variable contract, including mortality and expense risk charges,13 administrative fees, fees for optional benefits selected by the investor, and portfolio company fees and expenses.14 Investors may also bear certain transaction-based charges, including surrender charges.15 Variable life insurance contracts also impose an additional insurance charge to cover the cost of the death benefit.16 Variable contracts commonly offer optional benefit features as riders to the contract with their own terms and conditions. Riders commonly provide enhanced death benefits, as well as ‘‘living benefits’’ that may be designed to provide protection against investment losses or longevity risk, or to cover financial losses that result from illness, incapacity, or injury. These optional riders have become increasingly popular with variable contract investors.17 Typically, there is a separate charge for each rider. B. Prospectus Disclosure and Delivery

Requirements for Variable Contract
Prospectus Disclosure and Delivery The prospectus delivery requirements for variable contracts arise from the legal structure of these products. The ‘‘separate account’’ 18 established by the sponsoring insurance company is the legal entity that registers its securities. The separate account is an account that is owned by the insurance company.19 Separate accounts are typically registered as investment companies under the Investment Company Act 20 and also register their securities under the Securities Act by filing a registration statement with the Commission. Separate accounts may be organized either as management companies 21 or unit investment trusts (‘‘UITs’’).22 Variable annuity separate accounts that are management companies file registration statements on Form N–3,23 while those that are UITs file registration statements on Form N–4. Most variable annuity contracts sold today are offered by Form N–4 registrants.24 Variable life separate accounts, which also are typically organized as UITs, file registration statements on Form N–6.25 Form N–4 (variable annuity) and N– 6 (variable life) registrants are sometimes referred to as ‘‘two-tier’’ investment company structures. The top tier, which is the separate account established by the insurer and registered with the Commission as a UIT, is itself divided into ‘‘subaccounts,’’ each of which invests in the shares of an underlying portfolio company (e.g., a mutual fund or exchange-traded fund (‘‘ETF’’)) that serves as an investment option under the variable contract. In this structure, the insurer’s separate account, not the variable contract investor, is the legal owner of the underlying fund shares.26
Section 5(b)(2) of the Securities Act
makes it unlawful to carry or cause to be carried a security for purposes of sale or for delivery after sale ‘‘unless accompanied or preceded’’ by a prospectus that meets the requirements of section 10(a) of the Act.27 For purposes of section 5 of the Securities Act, each additional purchase payment under a variable contract is considered a ‘‘sale’’ requiring delivery of a current prospectus.28

(‘‘Forms N–3 and N–4 Adopting Release’’) at n.14 and accompanying text. 29 In addition to updating the registration statement for the variable contract annually to include updated financial statements, variable contract issuers also make amendments to the contract registration statement (generally as part of this annual update process), as necessary to reflect material or other changes to the information disclosed. See section 10(a)(3) of the Securities Act (requiring, among other things, that a prospectus used more than nine months after the effective date of a registration statement be updated so that the information contained therein shall not be more than 16 months old). But see infra section II.C (discussing circumstances in which certain variable contract issuers provide alternative disclosures instead of the contract statutory prospectus, as described in certain staff no-action letters). See also
section 11 of the Securities Act (providing a civil
remedy for a registration statement that contains ‘‘an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.’’); rule 408 under the Securities Act [17 CFR 230.408(a)] (requiring registrants to include, in addition to the information expressly required to be included in a registration statement, such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.). Additionally, portfolio companies may supplement or ‘‘sticker’’ their prospectus or SAI. See generally rule 497 under the Securities Act. 30Because the requirements of section 5(b)(2) of the Securities Act are applicable to ‘‘any person,’’ its obligations are applicable to financial intermediaries through whom variable contracts are sold, as well as variable contract issuers. 31See Forms N–3 and N–4 Adopting Release, supra note 28, at n.49 and accompanying text (‘‘Of course, delivery of a prospectus of an underlying company in which a contractowner actually invests will be required pursuant to section 5(b)(2) under the 1933 Act (15 U.S.C. 77e(b)(2)).’’). 32See Use of Electronic Media for Delivery Purposes, Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (‘‘1995 Release’’); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples Under the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940, Investment Company Act Release No. 21945 (May 9, 1996) ([61 FR 24644 (May 15, 1996]) (‘‘1996 Release’’); Use of Electronic Media, Investment Company Act Release No. 24426 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (‘‘2000 Release’’). 33Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)] (‘‘2009 Summary Prospectus Adopting Release’’) (permitting the use of a summary prospectus by registered open-end management investment companies). 34Securities Offering Reform, Securities Act Release No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (‘‘Securities Offering Reform’’) at n.202 and accompanying text (allowing the use of free writing prospectuses to provide information to investors and stating that a free writing prospectus is a permitted prospectus for purposes of section 10(b) of the Securities Act and, as such, can be used without violating section 5(b)(1) of the Securities Act). Additionally, Congress recently required the Commission to extend securities offering reform to closed-end funds (see section 509 of the Economic Growth, Recovery Relief, and Consumer Protection Act, S. 2155, 115th Cong. (2017–2018)), and to business development companies (see section 3 of the Small Business Credit
Availability Act, S. 2324, 115th Cong. (2017–2018)). 35See, e.g., 1995 Release, supra note 32 (providing Commission views on the use of electronic media to deliver information to investors, with a focus on electronic delivery of prospectuses, annual reports, and proxy solicitation materials); 1996 Release, supra note 32 (providing Commission views on electronic delivery of required information by broker-dealers, transfer agents, and investment advisers); 2000 Release, supra note 32 (providing updated interpretive guidance on the use of electronic media to deliver documents on matters such as telephonic and global consent, issuer liability for website content, and legal principles that should be considered in conducting online offerings). See also Securities Offering Reform, supra note 34 (adopting rule 172 under the Securities Act providing an ‘‘access equals delivery’’ framework under which issuers and intermediaries can satisfy their final prospectus delivery obligations); Shareholder Choice Regarding Proxy Materials, Investment Company Act Release No. 27911 (July 26, 2007) [72 FR 42222 (Aug. 1, 2007)] (‘‘Shareholder Choice Regarding Proxy Materials’’) (adopting rule amendments requiring issuers to post their proxy materials on a specified website and provide shareholders with a notice of internet availability of the materials). 36See infra note 93 and accompanying text (discussing omitting prospectuses as permitted by
section 10(b) of the Securities Act).
Variable contract issuers generally maintain current prospectuses for their products through the filing of annual post-effective amendments to their registration statement and, as necessary, supplementing or ‘‘stickering’’ the contract prospectus or statement of additional information (‘‘SAI’’).29 Rather than bearing the expense of sending a prospectus with each confirmation of an investor’s purchase of additional shares, which often occurs on a periodic basis (e.g., monthly), most registrants instead send copies of the new prospectus to all investors each time it is updated. It is our understanding that this practice is similar to that followed by most mutual funds. We understand that an insurer or the financial intermediary distributing the variable contact will typically deliver the variable contract prospectus upon issuance of the contract, in order to comply with the requirements of section 5(b)(2).30 However, we also understand that many insurers make it a practice to provide the variable contract prospectus to potential investors, often as part of the application package. The Commission has interpreted
section 5(b)(2) of the Securities Act to
require delivery of a portfolio company prospectus to an investor in a variable contract who has allocated his or her purchase payments to that portfolio company.31 We understand that today most investors receive summary prospectuses (as opposed to statutory prospectuses) for the underlying portfolio companies at the same time they receive the statutory prospectus for the variable contract. Since variable contracts generally offer exchange privileges permitting an investor to reallocate all or a portion of his or her investment from one underlying portfolio company to another, many insurance companies deliver prospectuses for all underlying portfolio companies to simplify the administrative task of tracking whether it delivered the appropriate current prospectus. Other insurers have invested in systems that enable the insurer to customize the delivery of underlying portfolio company prospectuses such that investors only receive prospectuses for the portfolio companies to which they have allocated purchase payments. Although paper is the default format for delivery of contract prospectuses, portfolio company prospectuses, and certain other required disclosures, we understand that most insurers offer investors the option to elect electronic delivery of these documents. The Commission has provided guidance noting that electronic delivery may be used to satisfy prospectus delivery requirements if: (1) The investor has notice of the availability of the information; (2) the use of the medium is not so burdensome that intended recipients cannot effectively access the information being provided; and (3) the issuer has evidence of delivery.32 Issuers relying on this guidance have typically satisfied the ‘‘evidence of delivery’’ requirement by obtaining informed consent to electronic delivery. Investors that have elected electronic delivery of materials associated with their variable contract typically receive an email that contains a link to the website where the materials are available.
2. Evolution of Layered Disclosure and
Delivery of Information to Investors Our proposal builds on our experience with both layered disclosure (under the mutual fund summary prospectus) 33 and integrated disclosure (enhanced over a decade ago with securities offering reform for corporate issuers).34 It also draws on more than twenty years of experience with the use of the internet as a medium to provide information to investors.35 Through each of these sets of reforms, ‘‘omitting prospectuses’’ as permitted by
section 10(b) of the Securities Act have
become a central feature of various parts of our securities offering and disclosure regime.36 In particular, our proposed approach for satisfying prospectus

37Securities Offering Reform contemplated delivery of a preliminary prospectus to investors purchasing during an initial public offering, while our proposal would require delivery of variable contract summary prospectuses, which would accompany or precede delivery of the variable contract security and which would contain certain key information about portfolio companies. See, e.g., Securities Offering Reform, supra note 34; infra notes 120 and 192 and accompanying text (outlining certain portfolio company information which would be disclosed in variable contract summary prospectuses). 38For example, in 2007, the Commission engaged a consultant to conduct focus group interviews and a telephone survey concerning investors’ views and opinions about various disclosure documents filed by companies, including mutual funds. The consultant’s report concerning the focus group testing and related transcripts are in the comment file for this rule (available at https://www.sec.gov/ comments/s7-08-15/s70815-1.pdf). The consultant’s report concerning the telephone survey is available at http://www.sec.gov/pdf/disclosuredocs.pdf (approximately 60% of investors believed mutual fund prospectuses contained too much information and 56% of investors who received mutual fund prospectuses but rarely, very rarely, or never read them indicated that was because the prospectuses were too complicated or hard to understand, or too long and too wordy). In addition, in 2011, the Commission engaged a consultant to conduct investor testing regarding shareholder reports. The consultant’s report concerning that testing (‘‘Investor Testing of Mutual Fund Shareholder Reports’’) is in the comment file for this rule (available at https://www.sec.gov/ comments/s7-08-15/s70815-3.pdf). Separately, in 2012, Commission staff prepared a study of investor financial literacy pursuant to section 917 of the Dodd-Frank Act. See SEC Staff, Study Regarding Financial Literacy Among Investors (Aug. 2012) (‘‘2012 Financial Literacy Study’’). Materials relating to this study, including the staff’s report, are available at http://www.investor.gov/ publications-research-studies/sec-research. 39See Request for Comment on Fund Retail Investor Experience and Disclosure, Investment Company Act Release No. 33113 (June 5, 2018) [83 FR 26891 (June 11, 2018)] (‘‘Request for Comment on Fund Retail Investor Experience’’). The comment file for this request for comment is available at https://www.sec.gov/comments/s7-12-18/ s71218.htm. Multiple comment letters that the Commission has received to date on this request for comment reflect a preference for shorter summary disclosures, with additional information available online or upon request. See, e.g., Comment Letter of Carol Palmer, File No. S7–12–18 (June 5, 2018); Comment Letter of Perry Balke, File No. S7–12–18 (June 5, 2018); Comment Letter of Sara Karlidag, File No. S7–12–18 (June 6, 2018); Comment Letter of Harold Thomas, File No. S7–12–18 (June 8, 2018);
Comment Letter of Carla Rojas, File No. S7– 12–18 (June 9, 2018). 40See Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the Use of Certain Names or Titles, Investment Advisers Act Release No. 4888 (Apr. 18, 2018) [83 FR 21416 (May 9, 2018)]. The comment file for this proposal is available at https://www.sec.gov/comments/s7- 08-18/s70818.htm. 41See, e.g., Comment Letter of the Insured Retirement Institute, File No. S7–08–18 (Aug. 7, 2018); Comment Letter of Massachusetts Mutual Life Insurance Company, File No. S7–08–18 (Aug. 7, 2018). 42See 2012 Financial Literacy Study, supra note 38, at v-xix. The key information that investors found useful and relevant before purchasing an investment product includes information on fees and expenses, investment performance, principal risks, and investment objectives. With respect to the presentation of disclosure, the 2012 Financial Literacy Study indicates that investors preferred disclosures being ‘‘written in clear, concise, understandable language, using bullet points, tables, charts, and/or graphs.’’ See id. at iv. 43See John Beshears et al., How Does Simplified Disclosure Affect Individuals’ Mutual Funds Choices?, Explorations in the Economics of Aging, 75, 76 (David A. Wise ed., 2011) (‘‘Beshears Paper’’), available at https://scholar.harvard.edu/ laibson/publications/how-does-simplifieddisclosure-affect-individuals-mutual-fund-choices. 44We estimate that as of December 31, 2017, approximately 95% of mutual funds and ETFs use summary prospectuses. This estimate is based on EDGAR data for the number of mutual funds and ETFs that filed a summary prospectus in 2017 (10,686) and the Investment Company Institute’s estimated number of mutual funds and ETFs as of 12/31/2017 (11,253). See Investment Company Institute, 2018 Investment Company Fact Book, at 52, available at https://www.ici.org/pdf/2018_ factbook.pdf. 45See infra section III.C (stating that we expect a vast majority of insurers will choose to use summary prospectuses). 46However, the proposed rule departs from rule 498 in requiring two separate types of summary prospectuses. See infra sections II.A.1 and II.A.2. We designed this framework to distinguish the information we believe new and existing investors need, and to highlight the particular contract features and risks that are particularly relevant to these two groups of investors, taking into account information that we understand these investors may receive through other channels (e.g., as a result of state insurance law, other regulatory requirements, and industry practice). delivery obligations for variable contract prospectuses is generally modeled on the Commission’s mutual fund summary prospectus framework, with some modifications that reflect the unique structure, features, and risks of variable contracts. Likewise, our proposed approach for satisfying portfolio company prospectus delivery requirements incorporates
aspects of the ‘‘access equals delivery’’ framework we adopted in 2005, in instances where certain information has already been provided to investors,37 as well as certain website posting requirements from the mutual fund summary prospectus rule. Our proposal also draws on the Commission’s investor testing efforts, outreach, and other empirical research concerning investors’ preferences. This included information about summary content and layered disclosure approaches as well as methods of delivery for required disclosures and use of the internet for financial and other purposes generally.38 Most recently, the Commission released a request for comment on many of these same issues.39 Certain comments that the Commission has received on its recent Form CRS Relationship Summary proposal 40 also reflect support for a disclosure regime that leverages the benefits of layered disclosure.41 Moreover, certain observations by the staff of the Commission’s Office of Investor Education and Advocacy as
part of its 2012 Financial Literacy Study
show that investors generally favor a layered approach to disclosure and, wherever possible, the use of a summary containing key information about an investment product or service.42 Investors may have a preference for certain efficiencies afforded by more concise information, as research shows the introduction of a shorter and simplified summary prospectus may allow investors to spend less time and effort to arrive at the same portfolio decision they would have come to after reading the statutory prospectus.43 For these same reasons, we believe that variable contract investors would benefit from the summary disclosures and layered approach contemplated by our proposal, especially given the fact that variable contracts are typically more complex than other types of investment products, in part due to the two-tier structure that most use. Based upon the foregoing, we believe that a summary prospectus framework for variable contracts would benefit investors. The mutual fund industry has widely adopted the use of summary prospectuses.44 We believe our proposed prospectus delivery approach would be similarly widely adopted by issuers of variable contracts.45
C. Rulemaking Proposal Overview
We are proposing a new disclosure framework that, among other things, would permit the use of summary prospectuses for variable contracts, with additional information available to investors online. To help investors make an informed investment decision, this proposal uses a layered disclosure approach designed to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online, or delivered in paper or electronic format on request. We anticipate that the proposed framework would improve investor understanding of variable contracts. The proposed rule builds upon our experience creating a summary prospectus option for mutual funds in 2009, but with certain differences intended to reflect the nature of variable contracts.46 Like the Commission’s mutual fund summary prospectus rule, the summary prospectus that the proposed rule contemplates is meant to highlight key information of variable contracts that we believe would help an

47The mutual fund summary prospectus rule is designed to provide investors with ‘‘streamlined and user friendly information that is key to an investment decision.’’ See Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28064 (Nov. 21, 2007) [72 FR 67790 (Nov. 30, 2007)] (‘‘2007 Summary Prospectus Proposing Release’’), at
section I; see also Richard J. Wirth, What’s Puzzling
You . . . Is the Nature of Variable Annuity Prospectuses, 34 Western New England Law Review 127 (2012) (‘‘Informed decision-making demands that consumers have enough of an understanding of what’s for sale and what trade-offs are being asked of them in order to make an informed decision about whether or not to buy a product.’’). 48See infra section II.A. 49See infra section II.A.4. 50See infra section II.B. 51This option would not apply to Form N–3 registrants, which do not have underlying portfolio companies due to a single-tier investment company structure. 52See infra section II.C. 53See infra section II.D. 54The Commission first adopted the registration form for variable annuities over 30 years ago, and adopted the registration form for variable life insurance over 15 years ago. See Forms N–3 and N– 4 Adopting Release, supra note 28; Registration Form for Insurance Company Separate Accounts Registered as Unit Investment Trusts That Offer Variable Life Insurance Policies, Investment Company Act Release No. 25522 (Apr. 12, 2002) [67 FR 19848 (Apr. 23, 2002)] (‘‘Separate Accounts Offering Variable Life Release’’). 55See infra section II.E. 56See infra section II.F. investor make an informed investment decision.47 Because variable contracts typically include a number of optional benefits and underlying investment options, a summary could not, by its nature, include all relevant aspects and details regarding each of these contract features. The variable contract summary prospectus is designed to be a succinct summary of the contract’s key terms and benefits and most significant risks, making it easier to read and more understandable for investors. This summary prospectus would serve as the cornerstone of a layered disclosure framework that would alert investors to the availability of more detailed information in the statutory prospectus and in other locations, and would be tailored to the unique aspects of these products. As a result, investors would have ready access to key information in connection with an investment decision. The main elements of the new disclosure framework include:

Option to use summary prospectus.48
Proposed new rule 498A would permit the use of two distinct types of contract summary prospectuses: (1) Initial summary prospectuses covering variable contracts currently offered to new investors; and (2) updating summary prospectuses for existing investors. The initial summary prospectus would include certain key information about the contract’s most salient features, benefits, and risks, presented in plain English in a standardized order. The updating summary prospectus would include a brief description of certain changes to the contract that occurred during the previous year, as well as a subset of the information required to be in the initial summary prospectus. Certain key information about the portfolio companies would be provided in both the initial summary prospectus and updating summary prospectus.
Availability of variable contract statutory
prospectus and other materials.49 The proposed rule would require the variable contract statutory prospectus, as well as the contract’s SAI, to be publicly accessible, free of charge, at a website address specified on or hyperlinked in the cover of the summary prospectus. An investor who receives a contract summary prospectus would be able to request the contract statutory prospectus and SAI to be sent in paper or electronically, at no cost to the investor.
Optional method to satisfy portfolio
company prospectus delivery requirements.50 The proposed rule would provide an optional method for satisfying portfolio company prospectus delivery obligations by making portfolio company summary and statutory prospectuses available online at the website address specified on or hyperlinked in the variable contract summary prospectus, with certain key information about the portfolio companies provided in the variable contract’s summary prospectus.51 Investors would also be able to request and receive those disclosures in paper or electronically at no cost. This new option for satisfying portfolio company prospectus delivery requirements would only be available for portfolio companies available as investment options through variable contracts that use contract summary prospectuses.
Discontinued Variable Contracts.52 In
proposing the new variable contract summary prospectus disclosure framework, we acknowledge the industry practice of providing alternative disclosures under the specific circumstances described in certain staff no-action letters. In light of this proposal, we believe that it is useful to consider the appropriate disclosure framework for the types of contracts that were the subject of the staff no-action letters.
Form amendments.53 We are also
proposing to amend Forms N–3, N–4, and N– 6—the registration forms for variable contracts—to update and enhance the disclosure regime for these investment products.54 The proposed amendments are intended to consolidate certain summary information in a condensed presentation, reflect industry developments (e.g., the prevalence of optional benefits in today’s variable contracts), and otherwise improve disclosures provided to variable contract investors.
Inline XBRL.55 Registrants would be
required to use the Inline XBRL format for the submission of certain variable contract information. This requirement is intended to harness technology to provide a mechanism for allowing investors, their investment professionals, data aggregators, and other data users to efficiently analyze and compare the available information about variable contracts, as required by their particular needs and circumstances.
Other Amendments.56 We are proposing
certain technical and conforming amendments to our rules to reflect the proposed new regime for variable contract summary prospectuses. We are also proposing certain technical amendments to rules relating to variable life insurance contracts, as well as rescission of certain rules and forms.
Table 1 summarizes the various
requirements—under the current prospectus delivery regime, and under the proposed summary prospectus regime—for information to either be (1) delivered to all investors, (2) made available online, or (3) delivered to those investors who so request:
TABLE 1—INFORMATION AVAILABLE TO VARIABLE CONTRACT INVESTORS
Current prospectus delivery regime 57 Optional proposed summary prospectus regime Contract Statutory Prospectus. Delivered to all investors ................................................. Required to be available online and delivered (in paper or electronic format) upon request. Contract SAI ......................... Available upon request ................................................... Required to be available online and delivered (in paper or electronic format) upon request. Contract Part C Information Not delivered to investors or required to be available online, but is filed with registration statement (available on EDGAR). Not delivered to investors or required to be available online, but is filed with registration statement (available on EDGAR). Initial Summary Prospectus N/A .................................................................................. Delivered to new investors. Updating Summary Prospectus. N/A .................................................................................. Delivered to existing investors.

57This column assumes that the contract at issue is not providing alternative disclosures to investors in lieu of the statutory prospectus, as described in certain staff no-action letters discussed below in
section II.C.
58See infra section II.B.2.
59Additionally, summary information about portfolio companies would be available in the initial summary prospectus and updating summary prospectus. See infra sections II.A.1.c.ii(i) and II.A.2.c.ii(c). 60See supra note 44. 61Estimates are based on EDGAR filings. 62See 2009 Summary Prospectus Adopting Release, supra note 33, at 66–67 (similarly noting the Commission’s intent to review the use of the mutual fund summary prospectus by investors in funds that voluntarily adopt the summary prospectus). 63See infra section III.C.1. 64Proposed rule 498A(f)(1). For an initial purchase of a variable contract, the initial summary prospectus must be ‘‘sent or given no later than the time of the carrying or delivery of the contract security.’’ See infra section II.A.3. 65State insurance law requirements typically require that variable contracts have free look provisions that permit investors to return the contract for a refund within a stated number of days of receiving it (usually between ten and twenty days). The amount of the refund may differ between variable annuity contracts and variable life Continued
TABLE 1—INFORMATION AVAILABLE TO VARIABLE CONTRACT INVESTORS—Continued
Current prospectus delivery regime 57 Optional proposed summary prospectus regime Portfolio Company Prospectuses. Delivered to all investors ................................................. Delivered to investors, or, if the new option to satisfy portfolio company prospectus delivery is relied-upon,58 required to be available online and delivered (in paper or electronic format) upon request.59 Under proposed rule 498A, use of the summary prospectus to satisfy a registrant’s section 5(b)(2) obligation would be voluntary. We have designed the proposal to permit, but not require, registrants to use a summary prospectus coupled with the internet availability of variable contract disclosures to make the delivery process more convenient and efficient. While we believe the summary prospectus regime will benefit investors, we are proposing that the approach be optional in light of the novel nature of this disclosure approach for variable contracts (including its use of layered disclosure), and because of the diversity of variable contracts (and corresponding diversity of disclosure for variable contracts). We believe that optionality not only would give market participants time to adjust to the new layered disclosure approach, but also give the Commission and its staff the opportunity to assess the benefits to investors and insurers. While approximately 95% of mutual funds currently use a summary prospectus,60 it took nearly eight years after the adoption of the mutual fund summary prospectus framework for the industry to reach that threshold.61 Given the current widespread use of summary prospectuses by mutual funds, we believe investors and other market participants have generally become comfortable with the use of a summary prospectus. However, the proposed variable contract summary prospectus regime would differ from the mutual fund summary prospectus framework in several key ways (e.g., the use of an initial and an updating summary prospectus, and the new layered disclosure approach to satisfying portfolio company prospectus delivery obligations). Therefore, we intend to review the use of the summary prospectus by investors in variable contracts that voluntarily adopt the summary prospectus and then reconsider whether use of the summary prospectus for variable contracts should be mandated in the future.62 We believe that the diversity of variable contracts (and the corresponding diversity regarding variable contracts’ approach to prospectus disclosure) also supports permitting, but not requiring, insurers to use the variable contract summary prospectus regime. We have observed that some variable contracts are fairly basic, offering few (or no) optional benefits and few investment options. Because these contracts have fairly straightforward disclosure documents, the summary prospectus regime may be less compelling for these products, as compared to more complex variable products with numerous optional benefits and investment options (which tend to
have longer and more complicated prospectuses). Registrants will likely assess the relative benefit of using a summary prospectus based on the types of products they offer and the length of their current prospectuses—as well as the benefit of more concise disclosure to investors—when evaluating whether to opt into the new layered disclosure regime.63 An optional approach would also preserve flexibility for registrants that may not wish to undertake the costs of the transition to a summary prospectus regime.
II. Discussion
A. New Option To Use a Summary Prospectus for Variable Contracts We are proposing new rule 498A, which would provide a new option for a person to satisfy its prospectus delivery obligations for variable contracts under section 5(b)(2) of the Securities Act by: (1) Sending or giving to new investors key information contained in a variable contract statutory prospectus in the form of an initial summary prospectus; (2) sending or giving to existing investors each year a brief description of certain changes to the contract, and a subset of the information in the initial summary prospectus, in the form of an updating summary prospectus; and (3) providing the statutory prospectus and other materials online. In addition, the new rule would require a registrant (or the financial intermediary distributing the variable contact) to send the variable contract statutory prospectus and other materials to the investor in paper or electronic format upon request.

Initial Summary Prospectus
a. Overview
The proposed rule would require a person relying on the rule to send or give an initial summary prospectus in connection with sales of variable contracts to new investors.64 We have designed the initial summary prospectus to use a layered disclosure approach that would provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online and electronically or in paper format on request. Simplicity and clarity are of heightened importance in a prospectus in connection with an initial purchase decision for a variable contract because of the long-term nature and complexity of these products. In addition, these considerations are important because, unlike with other investment products, typically variable contract investors have a state-mandated ‘‘free look’’ opportunity to return the contract for a full refund of premium within a limited number of days following contract issuance.65

insurance contracts and also may vary among the states. See also NAIC, Annuity Disclosure Model Regulations (2nd Quarter, 2015) (‘‘2015 NAIC Annuity Disclosure Model Regulations’’), available at http://www.naic.org/store/free/MDL-245.pdf (‘‘Where the Buyer’s Guide and disclosure document are not provided at or before the time of application, a free look period of no less than fifteen (15) days shall be provided for the applicant to return the annuity contract without penalty. This free look shall run concurrently with any other free look provided by state law or regulation.’’); NAIC, Life Insurance Disclosure Model Regulations, (3rd Quarter, 2018), available at http://www.naic.org/ store/free/MDL-580.pdf (‘‘[I]f the policy for which application is made contains an unconditional refund provision of at least ten (10) days, the Buyer’s Guide may be delivered with the policy or prior to delivery of the policy.’’). 66Some states have adopted model regulations that require insurers to provide certain disclosure documents to annuity investors either at or before the time of application. For example, the ‘‘Buyer’s Guide’’ describes in plain English how variable contracts work, what certain technical terms mean, tax implications, and fees. See NAIC, Buyer’s Guide for Deferred Annuities Variable (2013), available at http://www.naic.org/documents/prod_serv_ consumer_anb_lv_2013.pdf; NAIC, Life Insurance Buyer’s Guide, (2007), available at http://naic.org/ documents/consumer_guide_life.pdf. 67See, e.g., FINRA Rule 2330 (Members’ Responsibilities Regarding Deferred Variable Annuities) (establishing sales practice standards, including suitability standards, regarding recommended purchases and exchanges of variable annuities). 68See supra note 31 and accompanying text; see also infra section II.C (discussing circumstances under which certain variable contract issuers provide alternative disclosures instead of the contract statutory prospectus, as described in certain staff no-action letters). 69Additionally, to the extent that a variable contract investor meets periodically with a sales agent, the sales agent may also provide additional supplemental information about the contract or the portfolio companies. 70Proposed rule 498A(b)(1). 71See General Guidance to Variable Annuity, Variable Life, and Other Insurance Company Investment Contract Registrants, SEC Staff NoAction Letter (Nov. 3, 1995), at section I.4 (discussing industry practice); see also infra section II.D.1 (discussing our proposed form instructions that would incorporate this existing staff guidance). 72Proposed rule 498A(b)(1). Similarly, a mutual fund summary prospectus ‘‘may describe only one Fund, but may describe more than one Class of a Fund.’’ See rule 498(b)(4). 73See infra section II.A.7.c. (discussing potential
section 11 liability considerations to the extent that
the language in the summary prospectus is not identical in substance to the same sections of the statutory prospectus). One unique aspect of variable contract disclosure practices is the wide variety of information about the contract that we understand investors commonly receive throughout the lifecycle of the contract. During the sales process, potential investors typically receive informational materials provided by the insurer, such as marketing brochures, investment option guides, and other explanatory materials that focus on key features of the particular contract or variable contracts generally. They may also receive disclosures required under state law, such as a ‘‘Buyer’s Guide’’ that generally describes how variable contracts work.66 Each investor also typically completes an application, along with certain assessment forms, in order to determine whether a variable contract may be appropriate for the investor.67 Once the application is approved, the investor receives the contract, which sets forth in detail the investor-specific contract terms and is accompanied by the contract statutory prospectus. In addition to receiving an updated contract statutory prospectus and the prospectuses of the portfolio companies at least annually,68 investors also receive other information during the lifecycle of a variable contract. This includes, for example, information required under federal law (such as purchase and sale confirmations, and annual and semi-annual reports for the portfolio companies to which the investor has allocated contract value). This also includes notices that insurers may choose to send to investors alerting them to key events (such as required minimum distributions, withdrawals, annuitization, ability to exercise an optional benefit, and loan confirmations).69 We have designed the initial summary prospectus to complement current disclosure practices by not unnecessarily duplicating other disclosures, and by highlighting aspects of the contract that may not be described in detail elsewhere. b. Scope of Disclosure To Be Included in Initial Summary Prospectus The proposed rule requires that the initial summary prospectus may only describe a single contract that the registrant currently offers for sale.70 We understand that industry practice is to combine multiple contract prospectuses into a single registration statement on Form N–3, N–4, or N–6 when those prospectuses describe variable contracts that are ‘‘essentially identical.’’ 71 We also understand that certain contract prospectuses include disclosure about contract features and options that the registrant may no longer offer to new investors. Aggregating disclosures for multiple contracts, or currently-offered and nolonger-offered features and options of a single contract, can hinder investors from distinguishing between contract features and options that apply to them and those that do not. Therefore, the proposed rule limits the initial summary prospectus to describing
only a single contract that the registrant offers under the statutory prospectus to which the initial summary prospectus relates. While the initial summary prospectus could only describe one contract, the proposed rule nonetheless would permit it to describe more than one class of a currently-offered contract.72 Although the content requirements for the initial summary prospectus crossreference items of Forms N–3, N–4, and N–6, we anticipate that the proposed rule’s scope provisions may cause registrants to vary certain disclosures that appear in the statutory prospectus when the same disclosure topics appear in the initial summary prospectus. This may occur even if both disclosures respond to the same form item requirement.73 For example, a registrant that describes several currently- and previously-offered optional benefits in response to Item 11 of Form N–4 in its statutory prospectus would not be permitted to describe optional benefits that it no longer currently offers in its initial summary prospectus. We request comment generally on the proposed scope requirements for the initial summary prospectus, and specifically on the following issues:

Should the initial summary prospectus
be limited to describing a single contract that the registrant currently offers for sale? Would this reduce the initial summary prospectus’ complexity and minimize confusion to investors? Would this requirement be burdensome in any way for registrants to interpret, administer, or manage operationally, and if so, how? Should the proposed rule instead frame this requirement of one summary prospectus-per-contract in another manner, for clarity or for any other reason?
Should we allow an initial summary
prospectus to describe multiple contracts if the registrant currently offers multiple contracts through the related registration statement? Would the answer change if the multiple contracts were offered on a single prospectus versus multiple separate prospectuses? Would this make the initial summary prospectus substantially longer or confusing to investors, and would it decrease the likelihood that investors would read an initial summary prospectus?
Should we restrict the number of
contract classes that may be included in an initial summary prospectus?
c. Preparation of the Initial Summary
Prospectus
The following chart outlines the information that the proposed rule would require to appear in an initial summary prospectus. Along with specifying required introductory disclosures on the outside front cover
page or the beginning of the initial

74To the extent we have proposed amendments to Forms N–3, N–4, and N–6 that would facilitate the proposed summary prospectus content requirements, as well as amend the content requirements for the statutory prospectus, we generally discuss these amendments in more detail in section II.D below. However, in order to better explain the initial summary prospectus, we have elected to discuss new or amended items that we propose to include in the statutory prospectus, to the extent they would also appear in the initial summary prospectus, in this section II.A.1. 75Proposed rule 498A(b)(5). 76We understand that many investors purchase variable contracts through an intermediary and often do not directly compare competing products. A standardized order may nonetheless be useful for investment professionals to compare the products they ultimately recommend to investors with other products, as well as investors considering whether to purchase a new annuity contract to replace an existing one. See infra note 160 and accompanying text. Having a more comparable document may ultimately promote greater comparability across products, registrants, and insurance institutions, which could lead to better investor understanding and increased competition. As discussed below in Section II.E, we are also proposing to require the use of Inline XBRL format for the submission of certain required disclosures in the variable contract statutory prospectus. The structured data format would allow investors, financial intermediaries, third-party analysts, and others to more efficiently analyze and compare these products. 77Registrants on Form N–3 could omit the
appendix specified by proposed Item 19 of Form N–
3, and instead provide the more detailed disclosures about the investment options offered under the contract required by proposed Item 20 of Form N–3. See infra note 517 and accompanying text. 78Proposed rule 498A(b)(2)(i) through (v). 79The legend would be required to provide an internet address, other than the address of the Commission’s electronic filing system, toll-free telephone number, and email address that investors can use to obtain the statutory prospectus and other information, request other information about the variable contract, and to make investor inquiries. Proposed rule 498A(b)(2)(vi)(B). The website address would be required to be specific enough to lead investors to a direct link to the statutory prospectus and other required information, rather than to the home page or another part of the website. The website could host other relevant disclosure documents with prominent links to each required document. Id. The legend could indicate, if applicable, that the statutory prospectus and other information are available from a financial intermediary (such as a broker-dealer) through which the contract may be purchased or sold. Id. For purposes of this proposed requirement, documents available on the website address would be required to be publicly accessible and free of charge. See proposed rule 498A(h)(1); see also infra
section II.A.4.
80Proposed rule 498A(b)(2)(vi). summary prospectus, the proposed rule references particular disclosure items from Forms N–3, N–4, and N–6 (as proposed to be amended).74 The information would be required to appear in the same order, and under the relevant corresponding headings, as the proposed rule specifies.75 We propose a standardized presentation to require certain disclosure items that we believe would be most relevant to investors (such as the proposed contract overview
section and proposed table that includes
key information about the contract), to appear at the beginning of the initial summary prospectus, with supplemental information appearing further in. The required presentation could also facilitate comparison of different variable contracts.76
TABLE 2—OUTLINE OF THE INITIAL SUMMARY PROSPECTUS
Heading in initial summary prospectus Proposed item of Form N-3 Proposed item of Form N-4 Proposed item of Form N-6 Cover Page:
Identifying Information.
Legends.
EDGAR Contract Identifier.
Table of Contents (optional).
Content:
Overview of the [Variable Annuity/Life Insurance] Contract ....................... 2 ............................. 2 ............................. 2. Important Information You Should Consider About the [Contract] ............. 3 ............................. 3 ............................. 3. Standard Death Benefit ............................................................................... 11(a) ...................... 10(a) ...................... 10(a). Other Benefits Available Under the Contract .............................................. 12(a) ...................... 11(a) ...................... 11(a). Buying the Contract ..................................................................................... 13(a) ...................... 12(a) ...................... 9(a)–9(e). How Your Contract Can Lapse ................................................................... ................................ ................................ 14. Surrendering Your Contract or Making Withdrawals: Accessing the Money in Your Contract. 14(a) ...................... 13(a) ...................... 12(a). Additional Information About Fees .............................................................. 4 ............................. 4 ............................. 4.
Appendix: Portfolio Companies Available Under the Contract ................... 19 or 20 77 .............. 18 ........................... 18.
i. Cover Page and Table of Contents
Identifying Information. Under the proposed rule, the following information would be required to appear on the front cover page or the beginning of the initial summary prospectus:

The depositor’s name;
the registrant’s name;
the name of the contract, and the
class or classes if any, to which the initial summary prospectus relates;
a statement identifying the initial
summary prospectus as a ‘‘Summary Prospectus for New Investors’’; and
the approximate date of the first use
of the initial summary prospectus.78 Legends. The cover page or beginning of the initial summary prospectus would also be required to include the following legends:
This Summary Prospectus summarizes key features of the [name of Contract]. You should read this Summary Prospectus carefully, particularly the section titled Important Information You Should Consider About the [Contract]. Before you invest, you should review the prospectus for the [name of Contract], which contains more information about the [Contract], including its features, benefits, and risks. You can find the prospectus and other information about the [Contract] online at [ll]. You can also obtain this information at no cost by calling [ll] or by sending an email request to [ll].79 You may cancel your [Contract] within 10 days of receiving it without paying fees or penalties. In some states, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total contract value. You should review the prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply. Additional general information about certain investment products, including [variable annuities/variable life insurance contracts], has been prepared by the Securities and Exchange Commission’s staff and is available at Investor.gov.80 These proposed legends are designed to provide identifying information about the variable contract to which the initial

81A registrant would be able to modify the proposed legends so long as the modified statements contain comparable information. Proposed rule 498A(b)(2)(vi)(A). 82See rule 498(b)(1)(v). 83Many investors may not be familiar with the free look period, and the proposed legend is intended to alert them of its existence and explain where they may obtain additional information about its operation. This is particularly important because the free look period may be the only time the investor may cancel the contract without paying significant surrender fees or tax penalties. 84The Commission’s Office of Investor Education and Advocacy maintains the website as an online resource to help investors make sound investment decisions and avoid fraud. The website includes investment bulletins, alerts, guidance and tools designed to assist investors, including those considering variable contracts, in obtaining additional information and resources on understanding and managing their investments. See, e.g., Updated Investor Bulletin: Variable Annuities (Oct. 30, 2018), available at https:// www.investor.gov/additional-resources/news-alerts/ alerts-bulletins/updated-investor-bulletin-variableannuities; Investor Bulletin: Variable Life Insurance; Investor Bulletin: Variable Life Insurance (Oct. 30, 2018), available at https:// www.investor.gov/additional-resources/news-alerts/ alerts-bulletins/investor-bulletin-variable-lifeinsurance. 85Proposed rule 498A(b)(2)(vi)(C). 86Proposed rule 498A(b)(2)(vii); cf. rule 481(b)(1) under the Securities Act. 87Proposed rule 498A(b)(3). An EDGAR contract identifier is issued by the Commission, is ten characters in length (nine numbers preceded by a ‘‘C’’), and uniquely, and persistently, identifies each contract. These identifiers are available to the public. Information filed with the Commission containing these identifiers is searchable by the public and our staff using the contract identifiers and also using the contract names without the need to reference the registrant issuing the contract. See Rulemaking for EDGAR System, Investment Company Act Release No. 26990 (July 18, 2005) [70 FR 43558 (July 27, 2005)] at text following n.29. 88Proposed rule 498A(b)(4). 89Rule 481(c). 90See Item 1 of Form S–11 (requiring certain disclosures and also referencing Item 501 of Regulation S–K); see also Item 501 of Regulation S– K [17 CFR 229.501]. 91Proposed rule 498A(b)(5). 92 Id. summary prospectus relates, as well as certain general information that would be applicable to all variable contracts.81 While the proposed legend describing how to obtain further information about the contract generally parallels the legend on the cover page of mutual fund summary prospectuses,82 we have proposed several additional legends that we believe are appropriate in the context of variable contracts. These additional legends notify investors that:
(1) The initial summary prospectus is a summary that should be read carefully (and that investors should particularly focus on the ‘‘Important Information You Should Consider About the [Contract]’’ section of the summary prospectus); (2) they may cancel the variable contract within a limited amount of time after receiving it (that is, alerting investors to the existence of the free look period); 83 and (3) additional general information about certain investment products, including variable contracts, is available at Investor.gov.84 If any information is incorporated by reference into the initial summary prospectus, the proposed rule would require that the legend include certain disclosures related to that information.85 These requirements are described below in section II.A.6. The cover page would also be required to include a legend indicating that the Securities and Exchange Commission has not approved or disapproved of the contract or passed upon the accuracy or adequacy of the disclosure in the summary prospectus and that any contrary representation is a criminal offense.86 EDGAR Contract Identifier. We are also proposing to require that the contract’s EDGAR contract identifier be included on the bottom of the back cover page or last page of the initial summary prospectus in a type size smaller than that generally used in the prospectus (e.g., 8-point modern type).87 This requirement is intended to enable Commission staff and others to more easily link the initial summary prospectus with other filings associated with the contract.
Table of Contents. The proposed rule
would permit an initial summary prospectus to include a table of contents.88 A table of contents must show the page number of the various sections or subdivisions of the summary prospectus, and immediately follow the cover page in any prospectus delivered electronically.89 We request comment generally on the proposed requirements for the cover
page and table of contents of the initial
summary prospectus, and specifically on the following issues:

Should we include any additional
information or eliminate any of the information that we have proposed to include in these parts of the initial summary prospectus? For example, for prospectuses filed on Form S–11, which is used for registration under the Securities Act of securities of certain real estate companies, the cover page must include a prominent cross-reference to the risk factors section of the prospectus, including the page number where it appears, as well as certain disclosures, if applicable, regarding limitations on transferability of the securities being registered and the absence of a market for securities of the same class as those being registered.90 Would it be helpful for the cover
page of the initial summary prospectus to
contain similar disclosures relevant to variable contracts? For example, in addition to stating that investors should particularly focus on the ‘‘Important Information You Should Consider About the [Contract]’’
section of the initial summary prospectus,
should the cover page include disclosures regarding surrender charges or other items relating to the contract, a cross-reference to the risk factors section or other sections of the statutory prospectus, or other disclosures?
Are the proposed legends sufficient to
notify investors of the availability and significance of the contract statutory prospectus and other information about the variable contract and how to obtain this information? Should the legends include greater detail about the information that is available?
Will the proposed legends adequately
inform investors of the various means for obtaining additional information about a variable contract? Are the proposed requirements for the website address where additional information is available adequate to ensure that the website and the additional information will be easy to locate?
Would the proposed legend on the cover
page or beginning of the initial summary
prospectus with information on the free look period help alert investors that they may cancel their contracts without fees or penalties within a limited time after the sale? Should this legend be more prominently displayed (e.g., larger font size, boxed, or bolded) relative to the other legends?
As proposed, should registrants be
permitted to modify the required legends, provided the modified legends provide comparable information?
Should the legends include a reference
to the Investor.gov website? Why or why not? If so, what specific information about variable contracts would be most helpful to investors for the staff to provide on this website?
Should the proposed requirement to
include the contract’s EDGAR contract identifier on the bottom of the back cover
page or last page of the initial summary
prospectus instead require that another identifier be provided? If so, what identifier should be listed, and why?
Should registrants be permitted to
include a table of contents in the initial summary prospectus? Instead, should a table of contents be required? Does rule 481(c) under the Securities Act provide appropriate requirements for a table of contents included in an initial summary prospectus?
ii. Content of the Initial Summary
Prospectus
Proposed rule 498A specifies the content and order thereof required in an initial summary prospectus.91 An initial summary prospectus must contain the information required by the proposed rule, and only that information, in the order specified by the rule.92 Adhering to these content requirements is one condition that an initial summary prospectus must satisfy in order to be deemed to be a prospectus that is permitted under section 10(b) of the Securities Act and section 24(g) of the

93Proposed rule 498A(b); see also infra section II.A.3.
Section 10(b) of the Securities Act authorizes the
Commission to adopt rules deemed necessary or appropriate in the public interest or for the protection of investors that permit the use of an ‘‘omitting prospectus’’ for the purposes of section 5(b)(1) that omits or summarizes information contained in the statutory prospectus. Section 24(g) of the Investment Company Act authorizes the Commission to permit the use of a prospectus under
section 10(b) of the Securities Act to include
information the substance of which is not included in the statutory prospectus. 15 U.S.C. 77j(b); 15 U.S.C. 77e(b)(1); 15 U.S.C. 80a–24(g); see also 2009 Summary Prospectus Adopting Release, supra note 33, at n.70. 94See proposed rule 498A(b)(5)(i); see also proposed Item 2 of Forms N–3, N–4, and N–6; infra
section II.D.2.b.
95See proposed rule 498A(b)(5)(i); see also proposed Item 2(a) of Forms N–3, N–4, and N–6. 96See proposed rule 498A(b)(5)(i); see also proposed Item 2(b) of Forms N–3 and N–4. 97However, a detailed explanation of the separate account, sub-accounts, and portfolio companies is not required. See Instruction 2 to proposed Item 2(b)(1) of Forms N–3 and N–4. The registrant thus would not list the names of each portfolio company available under the contract, as this would be duplicative of information available in the appendix that would accompany the summary prospectus. See infra
section II.A.1.c.ii(i).
98See infra note 517 and accompanying text. 99See proposed rule 498A(b)(5)(i); see also Instruction 1 to proposed Item 2(b)(1) of Forms N– 3 and N–4. 100See proposed rule 498A(b)(5)(i); see also proposed Item 2(b)(2) of Forms N–3 and N–4. 101See proposed rule 498A(b)(5)(i); see also proposed Item 2(b) of Form N–6. The proposed instructions to this requirement would require the registrant to disclose that additional information on the portfolio companies is provided in an appendix to the summary prospectus, and provide a crossreference to the relevant appendix. See proposed rule 498A(b)(5)(i); see also Instruction 1 to proposed Item 2(b)(3) of Form N–6. 102See proposed rule 498A(b)(5)(i); see also proposed Item 2(c) of Forms N–3, N–4, and N–6. 103 Id. Investment Company Act for the purposes of section 5(b)(1) of the Securities Act.93 To aid market participants in understanding the types of disclosures we propose to require,
Appendix A to this release contains a
hypothetical initial summary prospectus for a variable annuity separate account with a registration statement filed on Form N–4. This hypothetical initial summary prospectus is provided solely for illustrative purposes and is not intended to imply that it would reflect a ‘‘typical’’ initial summary prospectus. (a) Overview of the Contract The initial summary prospectus would begin with a section including certain basic and introductory information about the contract and its benefits, under the heading ‘‘Overview of the [Variable Annuity/Life Insurance] Contract.’’ 94 This section would appear at the beginning of the initial summary prospectus because it is designed to provide basic information about how the variable contract functions. We believe that investors of different levels of financial sophistication may benefit from receiving this information early in the initial summary prospectus. This would provide a contextual baseline to help inform investors’ understanding of disclosure about more detailed aspects of the variable contract that are described later in the initial summary prospectus. Specifically, this section would be required to include a concise description of the following:
Purpose of Contract. The proposed requirement to briefly describe the purpose(s) of the contract in general terms 95 is intended to provide the reader with information on what financial objectives that contract could help the investor achieve, as well as the profile of an investor for whom the contract may be appropriate (e.g., by discussing a representative investor’s time horizon, liquidity needs, and financial goals). This requirement could be satisfied, for example, by stating that the contract is meant to help the investor accumulate assets through an investment portfolio, to provide or supplement the investor’s retirement income, or to provide death benefits and/or other benefits, and that the contract may not be appropriate for an investor that intends to access his or her invested funds within a short-term timeframe. Phases of Contract (for Variable Annuity Contracts). The proposed requirement to include a brief description of the accumulation (savings) phase and annuity (income) phases of the contract 96 is meant to provide basic information about how the variable annuity contract functions, which in turn would help highlight how the contract differs from other types of investment products. It also is designed to address common areas of confusion among variable annuity investors. For example, it would highlight the effect of annuitization on the ability to make withdrawals and the continuation of contract benefits. This discussion would require a brief overview of the investment options available under the contract (that is, portfolio companies and any general or fixed account option).97 The registrant also would be required to prominently disclose that additional information on the portfolio companies is provided in an appendix to the summary prospectus (or elsewhere in the case of registrants on Form N–3 that chose to omit the
appendix from the initial summary
prospectus in favor of more detailed information about investment options as required by proposed Item 20 of Form N–3),98 and provide a cross-reference or link to the relevant appendix.99 Finally, the registrant would be required to state, if applicable, that if an investor annuitizes, he or she will receive a stream of income payments, but he or she will be unable to make withdrawals, and death benefits and living benefits will terminate.100 Premiums (for Variable Life Insurance Contracts). Instead of requiring a description of the phases of the contract as with variable annuities, Form N–6 would require the ‘‘Overview’’ section to briefly describe the payment of premiums under the variable life insurance contract. This description of premiums would include: (1) Whether premiums may vary in timing and amount (e.g., flexible premiums); (2) whether restrictions may be imposed on premium payments (e.g., by age of insured, or by amount); (3) how premiums may be allocated (this discussion would include a brief overview of the investment options available under the contract, as well as any general (fixed) account options); and (4) a statement that payment of insufficient premiums may result in a lapse of the contract.101 Unlike variable annuities, variable life insurance requires the investor to make continuous premium payments in order to avoid a lapse of the contract. We therefore believe the ‘‘Overview’’
section should prominently explain the
role of premium payments in the contract, and highlight for investors a key risk that non-payment (or insufficient payment) of premiums could result in contract lapse. Contract Features. Finally, this
section would include a summary of the
contract’s primary features, including death benefits, withdrawal options, loan provisions, and any available optional benefits.102 If applicable, the registrant would be required to state that the investor will incur an additional fee for selecting a particular benefit.103 Because registrants would discuss many of these subjects in other sections of the initial summary prospectus in greater detail (and would discuss each of these subjects in more detail in the contract statutory prospectus), this paragraph is intended to be summary in nature. We request comment generally on the ‘‘Overview’’ section that we propose would appear in the initial summary prospectus, and specifically on the following issues:

104See proposed rule 498A(b)(5)(ii); proposed Item 3 of Forms N–3, N–4, and N–6. 105 In determining these proposed topic areas, we considered investor complaints received by the Commission’s Office of Investor Education and Advocacy and the results of the 2012 Financial Literacy Study. See text accompanying note 667 (regarding investor complaints); 2012 Financial Literacy Study, supra note 39. We also considered various regulatory and industry sources. See, e.g., FINRA Rule 2330(b)(1)(A)(i) (variable annuity investors must be informed, ‘‘in general terms, of various features of deferred variable annuities, such as the potential surrender period and surrender charge; potential tax penalty if consumers sell or redeem deferred variable annuities before reaching the age of 591⁄2; mortality and expense fees; investment advisory fees; potential charges for and features of riders; the insurance and investment components of deferred variable annuities; and market risk’’). 106We considered mutual fund disclosure research that supported the view that a tabular presentation would be an effective disclosure delivery method. See, e.g., John Kozup, Elizabeth Howlett, and Michael Pagano, The Effects of Summary Information on Consumer Perceptions of Mutual Fund Characteristics, The Journal of Consumer Affairs 42, 37–59 (2008) (concluding that summary information, particularly using graphical presentation, is an effective way to facilitate the processing of information for investors evaluating mutual funds). Experts in disclosure effectiveness for consumerfacing communications also have encouraged the use of a ‘‘strong design grid’’ (such as the tabular presentation we propose) to clarify concepts to consumers and to organize disclosure elements. See, e.g., Susan Kleimann, Making Disclosures Work for Consumers, Presentation to the SEC’s Investor Advisory Committee (June 14, 2018), available at https://www.sec.gov/spotlight/investoradvisory-committee-2012/iac061418-slides-bysusan-kleimann.pdf (‘‘Kleimann Presentation’’). 107 Immediately following this heading would be the statement: ‘‘An investment in the Contract is subject to fees, risks, and other important considerations, some of which are briefly summarized in the following table. You should review the prospectus for additional information about these topics.’’ 108The table also could include a third column, which would include cross-references to the locations in the statutory prospectus where the subject matter that each line-item requires is described in greater detail, or would otherwise cross-reference that information. See infra note 162 and accompanying text. 109See Item 3 of current Forms N–3, N–4, and N– 6 (‘‘Fee Table’’). 110See infra section II.A.1.c.ii(h). 111The Commission’s Office of Investor Education and Advocacy frequently receives investor inquiries about variable contract surrender charges, suggesting that many investors may be confused about how surrender charges work. 112See proposed
rule 498A(b)(5)(ii); see also Instruction 2(a) to proposed Item 3 of Forms N–3, N–4, and N–6. The maximum surrender charge would be expressed as a percentage of the contribution or premium or the amount surrendered, whichever is applicable. 113We propose to use $100,000 as the basis for the surrender charge example because the value of the average variable annuity contract has recently exceeded $100,000. See IRI Fact Book, supra note

Are the requirements of the proposed
section clear and appropriate in light of the
goals of the initial summary prospectus, and would the information disclosed to investors be helpful to investors in light of these goals? Is this the most useful information for the beginning of the initial summary prospectus? Would it provide investors with context to better understand the remainder of the initial summary prospectus? Why or why not? Would the information provided in the proposed section be unnecessarily duplicative with other information that would appear in the initial summary prospectus?
Should we impose word or page limits
on the proposed section? If so, what should the word or page limits be (e.g., no more than one page)?
Are there additional disclosure topics
that should be required to be included in the proposed ‘‘Overview’’ section? Instead, should we provide flexibility to registrants in preparing this section as to topics, etc.? (b) Key Information The initial summary prospectus would next include a table (the ‘‘Key Information Table’’) that would provide a brief description of key facts about the variable contract in a specific sequence and in a standardized presentation that is designed to be easy to read and navigate.104 Specifically, it would include a summary of five topic areas:
(1) Fees and expenses; (2) risks; (3) restrictions; (4) taxes; and (5) conflicts of interest. This is intended to highlight, in a consolidated location, important considerations related to these products, including certain unique aspects of the variable contract that might be unfamiliar to investors who have experience with mutual funds or other types of investment products.105 The Key Information Table includes a number of prescribed disclosures and is designed to complement the ‘‘Overview’’ section. We have proposed placing these two disclosure sections at the beginning of the initial summary prospectus because we believe they contain certain basic information that is critical for variable contract investors to read. We are also proposing that this information be provided in a standardized tabular presentation because we believe that, as compared to the narrative-type presentation of corresponding disclosures in the statutory prospectus, a summary tabular presentation would be easier to read and better convey the importance of the information to investors.106 This presentation may also facilitate comparisons of certain disclosure topics among variable contract prospectuses. We propose requiring that a registrant provide the Key Information Table under the heading ‘‘Important Information You Should Consider About the [Contract].’’ 107 There would be specified headings for each of the five topic areas that the table would include, and under each heading would be two columns. The left column would list the required disclosure line-items for each of the five topic areas, and the right column would provide a brief description for each corresponding lineitem, according to the respective instructions for each proposed lineitem.108 (i) Fees and Expenses Variable contracts typically have multiple layers of fees, expenses, and charges that can be confusing to investors. While the Fee Table currently required in variable contract prospectuses provides comprehensive fee and expense information,109 that information is frequently presented over a span of two or more pages when a prospectus is printed on paper. We believe that investors may benefit from a shorter, more tailored discussion in the Key Information Table that is intended to convey the importance of a contract’s fee and expense structure. As discussed below, we are proposing to require that the initial summary prospectus also include the Fee Table from the statutory prospectus.110 This framework would allow an investor to determine the level of fee information that best suits his or her informational needs. Surrender Charges. We believe that it is important that investors understand that if they make a withdrawal in the first several years of their contract, they may pay a significant charge that will reduce the value of their investment. We believe, however, that investors frequently do not understand, or may be surprised by, surrender charges associated with early withdrawals.111 The proposed
Key Information Table would require certain information intended to alert investors about the potential impact of surrender charges imposed on early withdrawals. The first line-item in the proposed table, ‘‘Surrender Charge (charges for early withdrawals),’’ would require a statement that if the investor withdraws money from the contract within [x] years following his or her last premium payment, he or she will be assessed a surrender charge. This statement would include the maximum surrender charge, and the maximum number of years that a surrender charge may be assessed since the last payment was made under the contract.112 In addition, we are proposing to require an example of the maximum surrender charge an investor could pay (in dollars) under the contract assuming a $100,000 investment (e.g., ‘‘[i]f you make an early withdrawal, you could pay a surrender charge of up to $9,000 on a $100,000 investment.’’).113 We

8, at 170. Using this figure would result in cost estimates that more closely mirror the actual experience of many variable contract investors. See infra note 130 and accompanying text. 114Registrants would continue to disclose the surrender fee in the Fee Table as a line-item in the ‘‘Transaction Expenses’’ table. They also would continue to reflect the consequence of any surrender fee in the ‘‘Example’’ to the Fee Table that would show the investor’s contract costs if he or she were to surrender the contract after 1 year, 3 years, 5 years, and 10 years. See Item 3 of Forms N–3, N–4, and N–6. 115See proposed rule 498A(b)(5)(ii); see also Instruction 2(b) to proposed Item 3 of Forms N–3, N–4, and N–6. Although surrender charges are a type of transaction charge, we are proposing to require surrender charges be separately disclosed in the Key Information Table to highlight to investors the significant costs associated with early withdrawals. 116See proposed Item 4 of Forms N–3, N–4, and N–6 (requiring disclosure of transaction expenses). 117See proposed rule 498A(b)(5)(ii); see also Instruction 2(c) to proposed Item 3 of Forms N–3, N–4, and N–6. 118See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(i)(A) to proposed Item 3 of Forms N–3 and N–4. 119Minimum and maximum annual fees for base contract expenses would not be required on Form N–6 because life insurance charges are based on underwriting and can vary significantly from one insured person to another depending on various demographic characteristics. This could lead to significant variations between these amounts, which we do not expect would be helpful, and may be confusing, to investors. 120See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(i)(D) to proposed Item 3 of Form N–
4. Registrants would use the gross expense ratio
disclosed in the Fee Table of a portfolio company’s current prospectus, which is the same basis for calculating portfolio company expense ratios as Items 4 (Fee Table) and 18 ([Portfolio Companies] Available Under the Contract) of Form N–4. 121The disclosure would also require, in a parenthetical or footnote to the table or each caption, an explanation of the basis for each percentage (e.g., as a percentage of separate account value or benefit base, or % of net asset value). See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(i)(C) to proposed Item 3 of Form N–4 (% of net asset value). 122See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(i)(B) to proposed Item 3 of Form N– 3. 123See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(i) to proposed Item 3 of Form N– 3; Instruction 2(c)(i) to proposed Item 3 of Form N– 4. Because the table showing minimum and maximum annual fees is intended to inform investors about the types and ranges of fees associated with a variable contract, we are excluding certain assumptions from the calculations. For example, although we know that some registrants do not charge extra for certain optional benefits, we want to alert investors to the costs associated with optional benefits that are available for an additional charge. Accordingly, the disclosure should reflect the minimum cost associated with an optional benefit that has a fee. 124 Instruction 2(c)(i)(A) to proposed Item 3 of Forms N–3 and N–4. Many states require a contract specifications page that contains information about the premiums, fees, annuitization date and other information specific to an investor’s variable annuity contract. See, e.g., the Insurance Compact’s Individual Deferred Variable Annuity Contract Standards, available at https:// www.insurancecompact.org/rulemaking_records/ 080911_stds_annuity_individual_deferred_ variable.pdf. 125This reflects the principle, which experts in disclosure effectiveness for consumer-facing communications have encouraged, of ‘‘eliminat[ing] most complex calculations’’ for consumers. See Kleimann Presentation, supra note 106. 126See proposed Item 4 of Forms N–3 and N–4. 127See Instructions 6 and 7 to proposed Item 4 of Forms N–3 and N–4. 128See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(ii) to proposed Item 3 of Forms N– 3 and N–4. believe that for purposes of the Key Information Table, providing a dollar
figure may better communicate to
investors the impact of surrender charges than a surrender charge
schedule that shows the applicable
surrender charge per year as a percentage.114 Transaction Charges. The second line-item in the ‘‘Fees and Expenses’’
section of the proposed table,
‘‘Transaction Charges (charges for certain transactions),’’ would require a statement that, in addition to surrender charges, the investor may also be charged for other transactions. This statement would be required to include a brief description of the types of such charges (e.g., front-end loads, charges for transferring cash value between investment options, charges for wire transfers, etc.).115 We are not proposing to require registrants to disclose the amount of each transaction charge in the Key Information Table because we understand the costs associated with most transaction charges to be relatively small, as a percentage of average account size (unlike surrender charges). Moreover, the Fee Table would require more detailed information about each of these charges (including the amount of each charge).116 The line-item for Transaction Charges in the Key Information Table is designed to provide a simple narrative description to alert investors that surrender charges are not the only transaction charges they could pay. Ongoing Fees and Expenses. The third line-item in the ‘‘Fees and Expenses’’
section, ‘‘Ongoing Fees and Expenses
(annual expenses),’’ is designed to alert investors that they also will bear recurring fees on an annual basis.117 In Form N–3 and N–4, the disclosure in this line-item would begin with the legend ‘‘The table below describes the fees and expenses that you may pay each year, depending on the options you choose.’’ 118 Form N–4 registrants would disclose, in a tabular presentation in the order specified, the minimum and maximum annual fees for: (1) Base contract expenses; 119 (2) investment options (e.g., portfolio company fees and expenses); 120 and (3) optional benefits.121 Since Form N–3 registrants have a single-tier structure and consolidate fees and expenses for investment options into base contract expenses, Form N–3 registrants would disclose the same information as Form N–4 registrants except fees for base contract expenses and investment options would be consolidated into a single entry labeled ‘‘annual contract expenses.’’ 122 The minimum annual fee column would show the lowest available current fee for each annual fee category (i.e., the least expensive contract class, the lowest total annual portfolio company operating expense, lowest annual contract expenses, and the least expensive optional benefit available for an additional charge).123 The maximum annual fee column would show the highest fees for these categories. Additionally, a legend preceding the minimum and maximum annual fee table would refer investors to their contract specifications page for information about the specific fees they would pay each year based on the options elected.124 This presentation would consolidate the more detailed information in the Fee
Table, in an effort to minimize the need
for investors to perform complex calculations to understand the fees they will pay.125 For example, like the proposed ‘‘Ongoing Fees and Expenses’’ line-item in the Key Information Table, the Fee Table would also include information about the contract’s base contract fee, portfolio company fees and expenses, and optional benefits.126 However, the Fee Table would be required to include a separate response for each contract form that the prospectus offers that has different fees, and also a separate response for each contract class.127 In order to condense this information, the parallel disclosure in the Key Information Table would be presented as fee ranges. We have also designed an example in Forms N–3 and N–4 to provide a highlevel cost illustration that would give an investor a tool to understand the basic cost framework of the contract. To emphasize that an investor’s choices have a significant impact on the costs associated with his or her investment, we propose to require a two-column tabular presentation in the order specified reflecting the lowest and highest current annual cost estimates for the variable contract.128 The following legend would precede this table:
‘‘Because your contract is customizable, the choices you make affect how much you will pay. To help you understand the cost of owning your contract, the

129See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(ii)(A) to proposed Item 3 of Forms N–3 and N–4. 130While the example in the Fee Table in current Forms N–3 and N–4 uses $10,000 as the basis for calculating assumptions relating to the costs of investing in a contract, we propose to use $100,000 as the basis for the cost assumption in the ‘‘Key Information’’ table because the value of the average variable annuity contract has recently exceeded $100,000. See IRI Fact Book, supra note 8, at 170. Using this figure would result in costs estimates that more closely mirror the actual experience of many variable contract investors. For that reason, we are also proposing to amend the Forms to use $100,000 as the base assumption for similar examples used in the Forms, as discussed below. 131See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N–3 and N–4. The prescribed assumptions largely mirror the Fee Table, with the exception of the sales load, which is not reflected because we are seeking to highlight the contract’s ongoing expenses. Because registrants may charge different fees in different years (which may have the effect of making fees appear small under certain circumstances), we propose to base the cost estimate on the average cost of a contract over a 10-year period to level-set the calculation. See Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N–3 and N–4. 132See proposed rule 498A(b)(5)(ii); see also Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N–3 and N–4. Instruction 2(c)(ii)(C)(e) to proposed Item 3 of Forms N–3 and N–4 would direct that, unless otherwise stated, the least and most expensive combination of annual contract expenses and optional benefits available for an additional charge should be based on the disclosures provided in the Example in Item 4 (Fee
Table), and that if a different combination of these
items would result in different maximum or minimum fees in different years, the registrant must use the least or most expensive combination of these items each year. 133While the example in the Fee Table would include a similar cost estimate, it would reflect the most expensive combination of portfolio company operating expenses and optional benefits available for each contract class available under the contract. The Fee Table example also includes estimated costs for 1-, 3-, 5- and 10-year periods (not just for one year), and reflects different scenarios based on whether the contract is surrendered or annuitized. See proposed Item 4 of Forms N–3 and N–4. 134For example, since he or she would know the range of costs to be paid over one year, he or she could estimate the costs to be paid over five years. 135We would also encourage registrants to use design features (e.g., multiple colors or shading patterns) that visually distinguish minimum and maximum fees, and lowest and highest annual cost estimates. 136 Instruction 2(c) to proposed Item 3 of Form N– 6. 137See proposed rule 498A(b)(5)(ii); see also Instruction 3 to proposed Item 3 of Forms N–3, N– 4, and N–6. 138See proposed rule 498A(b)(5)(ii); see also Instruction 3(a) to proposed Item 3 of Forms N–3, N–4, and N–6 (‘‘State that a contractowner can lose money by investing in the Contract.’’). 139See proposed rule 498A(b)(5)(ii); see also Instruction 3(b) to proposed Item 3 of Forms N–3, N–4, and N–6 (‘‘State that a Contract is not a shortterm investment vehicle and is not appropriate for an investor who needs ready access to cash, accompanied by a brief explanation.’’). 140See proposed rule 498A(b)(5)(ii); see also Instruction 3(c) to proposed Item 3 of Forms N–3, N–4, and N–6 (e.g., from Form N–4, ‘‘State that an investment in the Contract is subject to the risk of poor investment performance and can vary depending on the performance of the investment options available under the Contract (e.g., Portfolio Companies and any fixed account investment options), that each investment option will have its own unique risks, and that the contractowner should review a Portfolio Company’s prospectus before making an investment decision.’’). Because most variable annuity contracts typically offer fifty or more portfolio companies to which investors can allocate their purchase payments, we are not requiring that the Key Information Table include risk information specific to each portfolio company, as to do so would undermine the goal of brevity for this disclosure item. following table shows the lowest and highest cost you could pay each year. This estimate assumes that you do not take withdrawals from the contract, which could add surrender charges that substantially increase costs.’’ 129 The lowest and highest annual dollar costs in this table would be based on certain prescribed assumptions (i.e., a $100,000 investment) 130 with no additional contributions, transfers, or withdrawals, no sales
charges, and a 5% annual return over a hypothetical 10- year period.131 The lowest annual cost estimate would be based on the least expensive combination of contract classes and portfolio company charges, excluding optional benefits, and the highest annual cost estimate would reflect the most expensive combination of these items.132 Excluding optional benefits from the lowest annual cost estimate, and including them in the highest annual cost estimate, would illustrate the cost impact of adding optional benefits to a contract.133 With this information, the investor would be able to roughly estimate further costs,134 and could obtain additional information about costs in the statutory prospectus if needed. 135 In Form N–6, we have proposed that registrants provide disclosure in the ‘‘Ongoing Fees and Expenses’’ section of the table that primarily uses a narrative presentation, rather than the approach taken in Forms N–3 and N–4, due to the fact that maximum expenses could potentially exceed 100% of contract value based on the underwriting of the variable life insurance contract and therefore potentially be misleading to investors. This section of the table would require: (1) A brief statement that investment in a variable life insurance contract is subject to certain ongoing fees and expenses that are set based on characteristics of the insured; and (2) the minimum and maximum annual fees for the investment options in a tabular presentation.136 (ii) Risks The proposed Key Information Table also would include a condensed discussion of contract risks. Current risk disclosures in variable contract statutory prospectuses typically span multiple pages. While this level of disclosure may be appropriate for a statutory prospectus, we believe that a moreconcise overview presentation of contract risks is better suited for the Key Information Table in light of the goals of the summary prospectus. Like the summary of fee and expense information that would appear in the proposed Key Information Table, these risk summaries are intended to provide a concise overview, with additional information available for an investor who desires or requires additional details. Specifically, the table would include four line-items under the heading ‘‘Risks,’’ each of which would include disclosure about a risk that we believe investors should be alerted to: (1) Risk of loss; (2) risks that could occur if an investor believes a variable annuity is a short-term investment; (3) risks associated with the contract’s investment options; and (4) insurance company risks.137 Each of these lineitems would include succinct descriptions of the respective risk. The first line-item is intended to convey the concept that although variable contracts have elements of insurance, unlike most traditional forms of insurance, these products are subject to the risk of investment loss.138 This could help prevent any misunderstanding if, for example, an investor confused a variable annuity contract
and a fixed annuity contract and did not understand that the contract value in a variable annuity could decline. The second line-item is intended to emphasize to investors that variable contracts are generally long-term investments and not appropriate for an investor who needs ready access to cash, particularly in view of the impact of surrender charges and/or tax penalties for early withdrawals.139 The third line-item is intended to focus on the general risk of poor investment performance (as opposed to the details of the specific risks associated with each of the particular investment options available under the contract).140 The fourth line-item is meant to alert investors that any obligations, guarantees, or benefits under the contract that may be subject to the claims-paying ability of the insurance company (as opposed to the separate account, which is insulated from the claims of the insurance company’s creditors) will depend on the financial

141See proposed rule 498A(b)(5)(ii); see also Instruction 3(d) to proposed Item 3 of Forms N–3, N–4, and N–6 (e.g., from Form N–4, ‘‘State that an investment in the Contract is subject to the risks related to the Depositor, including the extent to which any obligations, guarantees, or benefits are subject to the claims-paying ability of the Depositor.’’). 142See proposed rule 498A(b)(5)(ii); see also Instruction 3(d) to proposed Item 3 of Forms N–3, N–4, and N–6 (e.g., from Form N–4, ‘‘If applicable, further state that more information about the Depositor, including its financial strength ratings, is available upon request from the Registrant’’). 143See Instruction to Instruction 3(d) to proposed Item 3 of Forms N–3, N–4, and N–6. 144See proposed rule 498A(b)(5)(ii); see also Instruction 3(e) to proposed Item 3 of Form N–6 (‘‘Briefly state (1) the circumstances under which the Contract may lapse (e.g., insufficient premium payments, poor investment performance, withdrawals, unpaid loans or loan interest), (2) whether there is a cost associated with reinstating a lapsed Contract, and (3) that death benefits will not be paid if the Contract has lapsed.’’). 145See proposed rule 498A(b)(5)(ii); see also Instruction 1(c) to proposed Item 3; proposed Item 5 of Forms N–3, N–4, and N–6. While we understand that variable annuity statutory prospectuses today commonly discuss contract risks (although Form N–3 and Form N–4 do not currently require them to do so), this discussion can be dispersed throughout the prospectus. 146See proposed rule 498A(b)(5)(ii); see also Instruction 4 to proposed Item 3 of Forms N–3, N– 4, and N–6. We recognize that there may be overlap between the proposed line-items for ‘‘Investment Options’’ and ‘‘Optional Benefits,’’ since many optional benefits limit the investment options available to investors. 147See proposed rule 498A(b)(5)(ii); see also Instruction 4(a) to proposed Item 3 of Forms N–3, N–4, and N–6 (‘‘State whether there are any restrictions that may limit the investment options that a contractowner may choose, and/or whether there are any limitations on the transfer of Contract value among Portfolio Companies. If applicable, state that the insurer reserves the right to remove or substitute Portfolio Companies as investment options’’). 148See proposed rule 498A(b)(5)(ii); see also Instruction 4(b) to proposed Item 3 of Forms N–3, N–4, and N–6 (‘‘State whether there are any restrictions or limitations relating to optional benefits, and/or whether an optional benefit may be modified or terminated by the Registrant. If applicable, state that withdrawals may affect the availability of optional benefits by reducing the benefit by an amount greater than the value withdrawn, and/or could terminate a benefit.’’). 149See, e.g., proposed rule 498A(b)(5)(iv), proposed Item 12(a) of Form N–3, and proposed Item 11(a) of Forms N–4 and N–6 (all referencing the requirement that the table summarizing certain benefits available under
the contract, which would appear in both the initial summary prospectus and the statutory prospectus, would be required to include a brief description of restrictions/ limitations associated with each benefit); see also proposed rule 498A(b)(5)(ix), proposed Item 19 of Form N–3, and proposed Item 18 of Forms N–4 and N–6 (all referencing the requirement that, if the availability of one or more portfolio company varies by benefit offered under the contract, the appendix that would appear in the initial summary prospectus, updating summary prospectus, and statutory prospectus would be required to include a separate table indicating which portfolio companies are available under each of the benefits offered under the contract). 150See proposed rule 498A(b)(5)(ii); see also Instruction 5 to proposed Item 3 of Forms N–3, N– 4, and N–6. 151 Id. 152See, e.g., proposed Item 16 of Form N–3, proposed Item 15 of Forms N–4 and N–6. solvency of the insurance company.141 As part of these disclosures, the registrant would be required to state, if applicable, that additional information about the insurance company, including its financial strength ratings, may be obtained from the registrant.142 In lieu of providing this statement, a registrant could include the insurance company’s financial strength rating(s).143 A fifth line-item, which would only appear in the ‘‘Risks’’ section for variable life insurance contracts, is meant to focus on contract lapse, which is a key risk for variable life insurance investors (but not relevant to variable annuity contracts).144 For example, a variable life insurance contract may lapse when sufficient premium payments are not made by the investor. Since inadvertent contract lapse could negate the insurance benefit of the variable life insurance contract, we believe this risk should be included in the Key Information Table. Because the registrant may provide additional details about these and other risks in the statutory prospectus, we are also proposing a new requirement in Forms N–3 and N–4 that, like the current parallel requirement in Form N– 6, would require the registrant to summarize the principal risks of purchasing a contract in a consolidated risk section within the statutory prospectus.145 Registrants would have the flexibility to discuss any principal risks, and would not be limited to the risk topics, or the level of disclosure, when responding to this requirement. (iii) Restrictions The proposed Key Information Table also would require registrants to briefly disclose those features of a variable contract that commonly include restrictions or limitations, namely the investment options and optional benefits that the contract offers. We have designed this section of the table to include separate line-items for each of these topics under the heading ‘‘Restrictions.’’ 146 For example, many variable annuity contracts have optional benefits that restrict the percentage of assets that investors can allocate to certain
investment options, such as more volatile categories of equity funds, in order to facilitate the insurance company’s ability to reserve for the guarantees under the benefit. The ‘‘Investment Options’’ line-item would require registrants to disclose whether there are any restrictions that may limit the investment options that an investor may choose and/or limitations on the transfer of contract value among portfolio companies, and if applicable, that the insurer reserves the right to remove or substitute portfolio companies as investment options.147 The ‘‘Optional Benefits’’ line-item would require registrants to disclose whether there are any restrictions or limitations relating to optional benefits, as well as whether the registrant may modify or terminate an optional benefit.148 We are proposing to include these line-items in the Key Information Table to put investors on notice of restrictions and limitations associated with different options that are available under the contract. We are not proposing to require a description of the specific restrictions and limitations associated with each of the available investment options and optional benefits. Doing so would likely add significant length to the table. Instead, this information will be provided in other parts of the initial summary prospectus, as well as the statutory prospectus.149 (iv) Taxes Because variable contracts are subject to a special tax regime, with both tax advantages and potential tax impacts in certain circumstances, we are proposing to require that the Key Information
Table include tax-related disclosures.
The ‘‘Tax Implications’’ line-item of the
table, which would appear under the
heading ‘‘Taxes,’’ would require a statement that investors should consult with a tax professional to determine the tax implications of an investment in, and payments received under, the variable contract.150 A registrant also would be required to state that there is no additional tax benefit to the investor if the contract is purchased through a tax-qualified plan or individual retirement account (IRA), and that withdrawals will be subject to ordinary income tax and may be subject to tax penalties.151 The tax disclosure in the proposed Key Information Table is meant to alert investors to tax implications of their investment in a location and using a presentation we believe investors are most likely to see and understand. Similar to the other line-items in the proposed Key Information Table, additional detail about the tax implications of an investment in a variable contract would also be available in the statutory prospectus.152

153A registrant may omit these line-items if neither the registrant nor any of its related companies pay financial intermediaries for the sale of the contract or related services. See Instruction to Instruction 6 to proposed Item 3 of Forms N–3, N–4, and N–6. 154See proposed rule 498A(b)(5)(ii); see also Instruction 6(a) to proposed Item 3 of Forms N–3, N–4, and N–6. 155 Id. 156 Id. 157See Item 8 of Form N–1A (requiring disclosure alerting investors who purchase a fund through a broker-dealer or other financial intermediary (such as a bank) that the fund and its related companies may pay the intermediary for the sale of fund shares and related services, and such payments may create a conflict of interest by influencing the brokerdealer or other intermediary and your salesperson to recommend the fund over another investment). 158See proposed rule 498A(b)(5)(ii); see also Instruction 6(b) to proposed Item 3 of Forms N–3, N–4, and N–6. 159 Id. 160Replacement contracts usually occur in connection with a tax-free exchange of nonqualified contracts under section 1035 of the Internal Revenue Code, or because of a rollover or direct transfer of a qualified plan contract (e.g., an individual retirement annuity) from one life insurance company to another. See 26 U.S.C. 1035; see also 26 CFR 1.1035–1. 161See proposed rule 498A(b)(5)(ii); see also Instruction 1(a) to proposed Item 3 of Forms N–3, N–4, and N–6. 162See proposed rule 498A(b)(5)(ii); see also General Instruction 1(b) to proposed Item 3 of Forms N–3, N–4, and N–6. The proposed instruction specifies that the cross-reference should be adjacent to the relevant disclosure, either within the table row, or presented in an additional table column. 163See proposed rule 498A(a)(i)(4); see also infra
section II.A.5.
164For example, a more detailed description of the contract’s fees and expenses would appear in the Fee Table section of the contract statutory prospectus. See infra section II.D.2.d. 165For example, it may not always be possible to provide a single cross-reference for the ‘‘Restrictions’’ line-items as they may be discussed in multiple sections of the statutory prospectus. See supra note 149. 166See proposed rule 498A(b)(5)(ii); see also Instruction 1(c) to proposed Item 3 of Forms N–3, N–4, and N–6. (v) Conflicts of Interest The proposed Key Information Table would also include, if applicable,153 line-items regarding conflicts of interest that may arise in the context of variable contracts, specifically with regards to investment professional compensation and exchanges. The ‘‘Investment Professional Compensation’’ line-item would require registrants to disclose, if applicable, that an investment professional may be paid for selling the contract to investors.154 A registrant would be required to describe the basis upon which such compensation is typically paid (e.g., commissions, revenue sharing, compensation from affiliates and third parties).155 A registrant providing the required disclosure would be required to further state that investment professionals may have a financial incentive to offer or recommend the contract over another investment for which the investment professional is not compensated (or compensated less).156 This proposed requirement reflects analogous disclosure that appears in mutual fund summary prospectuses 157 and is designed to address similar concerns, namely to alert investors to the existence of compensation arrangements for investment professionals and the potential conflicts of interest arising from these arrangements. The ‘‘Exchanges’’ line-item would require the registrant to state, if applicable, that some investment professionals may have a financial incentive to offer a new contract in place of the one owned by the investor.158 A registrant would further be required to state that investors should only exchange their contract if they determine, after comparing the features, fees, and risks of both contracts, that it is preferable for them to purchase the new contract rather than continue to own the existing contract.159 When a contract owner purchases a new annuity contract to replace an existing one, the new contract is referred to as a replacement contract.160 We understand that a significant proportion of variable contract sales stem from exchanges, and these disclosures are intended to alert investors to potential conflicts of interest that may arise in that context. (vi) General Instructions In addition to the proposed instructions specific to each line-item in the Key Information Table, the table would be subject to a set of general instructions. To streamline the disclosure and encourage registrants to use plain-English, investor-friendly principles when drafting the disclosures, the proposed general
instructions would require registrants to disclose the required information in the tabular presentation reflected in the form, in the order specified. However, registrants would be permitted to exclude any disclosures that are not applicable or modify any of the statements that would be required to appear in the table so long as the modified statement contains comparable information.161 The proposed general instructions would also require registrants to provide cross-references or links to the location in the statutory prospectus where the subject matter required by the line-item is described in greater detail.162 The cross-reference or link would not necessarily need to be a page number or
page range; instead, a registrant could
cross-reference or link a particular
section or sub-section, or heading or
sub-heading, in the statutory prospectus. As discussed below, we are separately proposing that any crossreference that is included in an electronic version of a summary prospectus must be an active hyperlink.163 We believe that providing crossreferences and links would help investors who seek additional information quickly find more detailed information that may be important to them. We recognize that certain lineitems in the Key Information Table may more readily lend themselves to the inclusion of a single cross-reference or link because the information may be found in one location in the statutory prospectus.164 On the other hand, other line-items may aggregate information that appears in multiple locations in the statutory prospectus, and therefore a registrant would need to include multiple cross-references or links as appropriate.165 Finally, in keeping with our goal of providing a brief tabular presentation of key facts that can be easily digested by investors, the proposed instructions provide that all disclosures in the Key Information Table should be short and succinct, consistent with the limitations of a tabular presentation.166 (vii) Requests for Comment on Key Information Table We request comment generally on the Key Information Table that we propose would appear in the initial summary prospectus, and specifically on the following issues. We request specific comment about the table as it would appear in the updating summary prospectus and the statutory prospectus later in this release.

Should we require the proposed Key
Information Table to be included in the initial summary prospectus? Would this table provide a succinct summary of the contract’s key terms and benefits and most significant risks, in a presentation that would improve readability and increase readership?
Would the topics of the line-items that
we propose to include in the Key Information
Table be appropriate or useful for investors
making an initial purchase of a variable contract? If not, why not? Should we require the table to include additional or different topics? Should we limit the topics and related disclosures to those that are required, or should we permit registrants to include additional topics at their discretion? Could this open the door to lengthy disclosure that might undermine the goal of a succinct presentation?
Is the proposed tabular presentation
useful and likely to facilitate investor

167A QR code is a two-dimensional barcode capable of encoding information such as a website address, text information, or contact information. For example, when included on print materials, these codes can be read using the camera on a smartphone to take the user directly to a specific website address. understanding of key information about variable contracts? Would another presentation be better? If so, why, and what would a better alternate presentation be? Would the two-column presentation be effective for investors reading an electronic version of the initial summary prospectus? Should the form of presentation be required, or should it be left to the discretion of registrants? Would a standardized presentation facilitate comparison of different variable contracts?

Should we require cross-references to the
location (section or sub-section, or heading or sub-heading) in the statutory prospectus where the information provided in response to each line-item of the Key Information
Table is discussed in greater detail? Instead
of cross-referencing to the relevant location in the statutory prospectus, should we instead require the cross-reference to include a specific page number in the statutory prospectus where an investor could find the information? Would it confuse investors who receive the summary prospectus to see crossreferences to the statutory prospectus? If so, should the table in the summary prospectus not include cross-references, or should we consider some other approach?
If we require cross-references, should
electronic versions of the summary prospectus be required to link directly to the relevant location in the statutory prospectus, as would be required by proposed rule 498A? If not, why not? Would requiring a crossreference (or link) pose any particular technical, legal, or other challenges for registrants? If so, what would these challenges be, and how could we modify the proposed rule or provide guidance to mitigate these challenges? Instead of hyperlinks, are there other technological tools that would better help an investor find information that is cross-referenced in the Key Information Table, such as QR codes or similar technological tools? 167
Is the level of detail of the disclosure that
we propose in each line-item of the Key Information Table appropriate, and does it strike the right balance between providing enough information to alert an investor to the most salient facts (including fees, expenses, and risks) of the variable annuity contract, but not too much, or too detailed information? If not, how should we modify the table?
Should we impose a word or page limit
on the proposed Key Information Table (e.g., no more than two or three pages)? If so, what should the word limit or page limit be?
Would the disclosure that a registrant
would provide in response to the proposed ‘‘Fees and Expenses’’ line-items convey the appropriate amount of information to investors and concisely alert investors to the most important fees and expenses associated with the variable annuity contract? Are there any additional charges that should be included in these line-items? For example, we understand that in some instances an investment professional may charge fees for providing additional services that are directly deducted from the value of the investor’s contract and which may be treated as a withdrawal from the contract, reduce the contract’s benefits, and be subject to surrender charges. How common are such arrangements, and what disclosures, if any, would be appropriate to be included in the Key Information Table or elsewhere, such as in the fee table?
Would the ‘‘Surrender Charge’’ line-item,
as proposed, convey sufficient information for investors to understand the dollar amount that they could pay as a surrender charge if they make withdrawals in the first several years of their contract, and if not, how should we modify this line-item?
Would the Minimum and Maximum
Annual Fee and Lowest and Highest Cost tables convey information in a way that investors are likely to easily understand? Would these tables assist investors in understanding the costs of their investment and helping them compare the costs of investing in the variable annuity with the costs of investing in another product? Are the assumptions underpinning those tables appropriate? If not, why not? Are there any revisions that we should consider? Is $100,000 an appropriate figure to use as the basis for the cost example in the proposed
table? Should we require that registrants use
a different figure instead? If so, why? Should we require additional information to accompany the tables? For example, should the legend accompanying the tables inform investors that it is possible that the total fees associated with the contract may exceed the accumulated gains from the investment options selected by the investor? Should the Lowest and Highest Cost table include additional information such the hypothetical value of the contract (e.g., in year 1 and year 10), the expenses incurred per year, and the value of the contract (e.g., in year 1 and year

after expenses?

Should we require registrants creating an
electronic version of the initial summary prospectus to provide an interactive calculator for investors to determine how fees and expenses would affect their specific investments? If so, should the calculator include transaction charges?
Should variable life insurance contracts
also be required to show the lowest and highest possible combination of charges in the Form N–6 Key Information Table? Cost of insurance is often an important component of expenses for variable life insurance contracts (unlike variable annuities), and can vary significantly from one insured person to another depending on various demographic characteristics (e.g., age, gender, health, smoking status). If the lowest and highest possible combinations of charges are shown, how should variations in cost of insurance be reflected?
Would the disclosure that a registrant
would provide in response to the proposed ‘‘Risks’’ line-items adequately convey an overview of the risks of investing in a variable contract? Are there other risks that we should require a registrant to disclose in the proposed Key Information Table? Should we revise or remove any of the proposed ‘‘Risks’’ line-items? For example, is it appropriate to allow registrants to include the insurance company’s financial strength rating(s) in the line-item regarding the claims-paying ability of the insurance company? Should we revise the instructions associated with these proposed line-items to require different disclosures? Should we require a line-item for ‘‘Other Principal Risks’’ to provide registrants an opportunity to disclose risks related to investing in the contract that they would not otherwise be required to disclose in the Key Information
Table? Should we instead provide flexibility
by permitting registrants to disclose other risks at their discretion? Why or why not?
Would the disclosure that a registrant
would provide in response to the proposed ‘‘Restrictions’’ line-items appropriately convey the appropriate amount of information about certain restrictions that various contract options may entail, in light of the goals of the proposed Key Information
Table? Should a registrant be required to
disclose information about restrictions in the Key Information Table other than those associated with the contract’s investment options and optional benefits? If so, what? Instead, should we provide flexibility by permitting registrants to disclose other restrictions at their discretion?
Is the disclosure that a registrant would
be required to provide in response to the proposed ‘‘Tax Implications’’ line-item appropriate, in light of the goals of the proposed Key Information Table? Should a registrant be required to emphasize more prominently that withdrawals will be subject to ordinary income tax, and not the capital gains rates? Should the line-item require disclosure of the specific tax penalties and requirements that variable contract investors may incur (e.g., penalties for withdrawal before age 591⁄2, or that purchases through a tax-qualified plan may be subject to required minimum distribution each year beginning at age 701⁄2)?
Are the disclosures that a registrant
would be required to provide in response to the proposed ‘‘Investment Professional Compensation’’ line-items appropriate, in light of the goals of the proposed Key Information Table? Would these disclosures adequately apprise investors of the potential conflicts that arise when their investment professional is compensated for recommending an investment into a new or an exchange from an existing variable contract, and are these disclosures appropriately balanced? Should we revise these proposed disclosure requirements, and if so, how? Is it appropriate that these lineitems appear under the heading ‘‘Conflicts of Interest’’? Is there another way that the summary prospectus could highlight the implications for investors of exchanges?
Do the instructions associated with each
of the proposed line-items clearly explain what a registrant would be required to disclose? In keeping with the structured format of a tabular presentation, we sought to promote concise disclosure by largely directing registrants to state, rather than to explain, certain information in response to the required line-items. Should the

168Proposed rule 498A(b)(5)(iii); see also proposed Item 11(a) of Form N–3; proposed Item 10(a) of Form N–4; proposed Item 10(a) of Form N– 6. 169 Id. For a discussion of the proposed disclosure requirements, see infra section II.D.2.j. 170See proposed Items 11(b) and (c) of Form N– 3; proposed Items 10(b) and (c) of Form N–4; proposed Item 10(b) of Form N–6. 171See supra paragraph accompanying note 17 (regarding the prevalence of optional benefits). 172See proposed rule 498A(b)(5)(iv); see also proposed Item 12(a) of Form N–3; proposed Item 11(a) of Form N–4; proposed Item 11(a) of Form N– 6. 173For example, the description of limitations or restrictions could include statements like ‘‘benefit limits investment options available’’ or ‘‘withdrawals could terminate benefit.’’ See Instruction 6 to proposed Item 12(a) of Form N–3; Instruction 6 to proposed Item 11(a) of Form N–4; Instruction 6 to proposed Item 11(a) of Form N–6. 174See proposed Item 12(b) and (c) of Form N– 3 and Instruction to proposed Item 12(b) and (c); proposed Item 11(b) and (c) of Form N–4 and Instruction to proposed Item 11(b) and (c); proposed Item 11(b) and (c) of Form N–6 and Instruction to proposed Item 11(b) and (c). 175Registrants may, but would not be required to, provide in the initial summary prospectus crossreferences or links to these additional narrative disclosures in the contract statutory prospectus. 176See Instruction 1(b) to proposed Item 12(a) of Form N–3; Instruction 1(b) to proposed Item 11(a) of Form N–4; Instruction 1(b) to proposed Item 11(a) of Form N–6. 177See Instruction 1(c) to proposed Item 12(a) of Form N–3; Instruction 1(c) to proposed Item 11(a) of Form N–4; Instruction 1(c) to proposed Item 11(a) of Form N–6. 178 Id. instructions prescribe specific language or should registrants have flexibility in drafting their responses? Are there any particular instructions that we should include or modify in any way, for clarity or for any other reason? (c) Standard Death Benefit The initial summary prospectus would be required to briefly describe the standard death benefit that the contract provides, under the heading ‘‘Standard Death Benefit.’’ 168 It would briefly describe the operation of the benefit.169 Including this disclosure in the initial summary prospectus would highlight to investors important information about this benefit, such as information about the potential limitations on the standard death benefit and the possibility of its termination, that they might not otherwise receive through marketing materials and similar channels during the sales process. Under the proposed registration form amendments, a registrant would include in the statutory prospectus these disclosures, as well as additional disclosures relating to when the death benefit is calculated and payable or the forms the benefit may take.170 While this additional information provides detail that may help an investor who wants to understand the mechanics of how the standard
death benefit operates later in the contract lifecycle, we are not requiring that it be included in the initial summary prospectus because we believe it would not be as critical to a basic initial understanding of the benefit, including any risks and limitations. We request comment generally on the disclosure on the standard death benefit that we propose would appear in the initial summary prospectus, and specifically on the following issues:

Are the proposed disclosure
requirements in the initial summary prospectus under the ‘‘Standard Death Benefit’’ heading clear and appropriate in light of the goals of the initial summary prospectus?
Would this disclosure be useful to
investors in connection with an initial purchase of a variable contract? Should this proposed content requirement include any additional, or any different, disclosure about the standard death benefit? For example, would including one or more of the other disclosures required to be included in the statutory prospectus better assist investors in gaining a basic initial understanding of the standard death benefit? (d) Other Benefits Available Under the Contract Following the discussion of the standard death benefit, the initial summary prospectus would be required to summarize additional standard or optional benefits available to the investor under the variable contract. We understand that insurers commonly consider these types of benefits to be primary features of variable contracts.171 These benefits are also often key differentiators between competing products, and we propose requiring specific disclosures in both the statutory prospectus and the initial summary prospectus. This information would appear in tabular form, under the heading ‘‘Other Benefits Available Under the Contract.’’ 172 This summary
table would include information about
any optional death benefits, as well as any optional or standard living benefits, that the contract offers. Specifically, the summary table would include the name of each benefit, its purpose, whether the benefit is standard or optional, associated fees (as a stated percentage of contract value, benefit base, etc.), and a brief description of limitations or restrictions.173 The table items include key factors investors may wish to consider when assessing these benefits. We also have designed the proposed
table to include information that
investors may be less likely to receive through other channels, such as concise disclosure about the restrictions and limitations associated with these benefits. The terms of optional benefits can be complex. Providing the required information in a uniform tabular presentation is designed to make these important disclosures easier for investors to read, understand, and compare. Under the proposed form amendments, a registrant would include in the statutory prospectus the summary
table, as well as additional disclosures
in narrative form relating to optional benefits, such as further additional description of each benefit, and descriptions of benefits’ limitations, restrictions and risks, and one or more examples illustrating the operation of each benefit.174 We believe that requiring the initial summary prospectus to include only the summary
table and not the additional narrative
disclosures is appropriate for the scope of the initial summary prospectus.175 Consistent with the layered disclosure approach, investors who want more information about optional benefits may refer to the more extensive narrative disclosures in the contract statutory prospectus. We are also proposing instructions to allow registrants that offer multiple benefits of the same type (e.g., death benefit, accumulation benefit, withdrawal benefit, long-term care benefit, etc.) to use multiple tables to provide the required information, if doing so might better permit comparisons of those benefits.176 Registrants may also include appropriate titles, headings, or other information that might promote clarity and facilitate understanding of the
table(s).177 For example, if certain
optional benefits are only available to certain investors, or are mutually exclusive, the table could include footnotes or headings to identify which optional benefits are affected and to whom they are available.178 These instructions are designed to accommodate the variety of benefits currently offered or that might be offered in the future, and provide registrants flexibility in presenting this information. We request comment generally on the disclosure relating to other benefits available under the contract that we propose would appear in the initial summary prospectus, and specifically on the following issues:
Are the proposed initial summary
prospectus disclosure requirements

179See proposed rule 498A(b)(5)(v); see also Item 11(a)(i) and (ii) of current Form N–3; proposed Item 13(a) of Form N–3; Item 10(a)(i) and (ii) of current Form N–4; proposed Item 12(a) of Form N–4. Although we have proposed renumbering certain provisions of this item, we have not proposed any substantive changes to this item in Forms N–3 and N–4. 180 Id. 181See proposed rule 498A(b)(5)(v); see also Item 7(a) through (e) of current Form N–6; proposed Item 9(a) through (e) of Form N–6. We have not proposed any changes to this item in Form N–6. Sub-accounts refer to the investment options, such as portfolio companies, available under the contract. 182This section of the summary prospectus for variable contracts is similar to the disclosure on purchasing fund shares that appears in mutual fund summary prospectuses. See rule 498(b)(2); Item 6 of Form N–1A. 183See proposed Item 13(b) through (f) of Form N–3; proposed Item 12(b) through (e) of Form N– 4. 184See proposed rule 498A(b)(5)(vi); see also Item 11 of current Form N–6; proposed Item 14 of Form N–6. We have not proposed any changes to this item in Form N–6. 185For example, costs could occur in the form of premium payments that the investor previously paid into the policy, and which the investor cannot retrieve following contract lapse. 186See proposed rule 498A(b)(5)(vii); see also Item 12 of current Form N–3; proposed Item 14(a) of Form N–3; Item 11 of current Form N–4; proposed Item 13(a) of Form N–4; Item 9 of current Form N–6; proposed Item 12(a) of Form N–6. We have proposed certain changes to this item in Forms N–3 and N–4 to harmonize the requirements with Continued under the heading ‘‘Other Benefits Available Under the Contract’’ clear and appropriate in light of the goals of the initial summary prospectus?

Are the proposed disclosure items
in that table useful and appropriate for consideration by investors in connection with the initial purchase of a variable contract, or should we revise, supplement, or replace those items? Should the proposed summary table include any additional, or any different, disclosure about the standard death benefit or any other benefit? For example, should it include one or more of the other disclosures required to be included in the statutory prospectus? Or should we require that registrants add links or cross-references to these other disclosures? For the associated fee of each optional benefit, should the summary table permit a range of fees?
Would investors find the proposed
tabular presentation useful?
Alternatively, would a different tabular presentation, a narrative presentation, or no presentation requirement for disclosure about any optional death benefits, as well as any optional or standard living benefits, be preferable?
Are the proposed instructions clear,
or should we modify them in any way? For example, should we require specific standardized disclosures in situations where certain optional benefits are only available to certain investors (e.g., an additional column indicating any restrictions related to investors who invested during specific time periods), as opposed to permitting registrants to address this issue as they see fit? (e) Buying the Contract (for Variable Annuity Contracts) and Premiums (for Variable Life Insurance Contracts) The initial summary prospectus would be required to include a brief description of the procedures for purchasing the variable contract (and premiums, in the case of variable life insurance contracts), under the heading ‘‘Buying the Contract’’ for variable annuity contracts and ‘‘Premiums’’ for variable life insurance contracts.179 For variable annuity contracts, this would include a concise explanation of the minimum initial and subsequent purchase payments required, any limitations on the amount of purchase payments (such as when the selection of certain optional benefits may limit additional purchase payments), as well as a statement of when such payments are credited.180 For variable life insurance contracts this would include a description of the purchase procedures (including, among other things, the minimum initial and subsequent premium payments required, any limitations on the amount of such premium payments, and how to avoid contract lapse), premium amount, premium payment plans, premium due dates, and automatic premium loans.181 We believe this information should be included in the initial summary prospectus so investors have a clear understanding of how they can purchase the variable contract.182 Additional information on purchases and premiums would appear in the statutory prospectus. For example, the statutory prospectus would also include information on the manner in which purchase or premium payments are credited, and the identity of each principal underwriter.183 We request comment generally on the disclosure on contract purchases that we propose would appear in the initial summary prospectus, and specifically on the following issues:
Are the proposed disclosure
requirements in the initial summary prospectus under the headings ‘‘Buying the Contract’’ (for variable annuity contracts) and ‘‘Premiums’’ (for variable life insurance contracts) clear and appropriate in light of the goals of the initial summary prospectus?
Would this disclosure be useful to
investors in connection with an initial purchase of a variable contract? Should this requirement include any additional, or any different, disclosure about purchases of variable contracts? For example, should it include one or more of the other disclosures required to be included in the statutory prospectus (e.g., in the case of variable annuity contracts, explanations of the manner in which purchase payments are credited and how accumulation unit value is determined, or in the case of variable life insurance contracts, sub-account valuation and determination of risk classification)? (f) Contract Lapse (for Variable Life Insurance Contracts) The initial summary prospectus for a variable life insurance contract would be required to include certain information about the possibility of contract lapse, under the heading ‘‘How Your Contract Can Lapse.’’ 184 Specifically, the initial summary prospectus would briefly describe when and under what circumstances a variable life insurance contract will lapse, any lapse options, the effect of the lapse and under what circumstances such a contract may be reinstated. Because inadvertent contract lapse could negate the insurance benefit of a policy to an investor, possibly at significant cost,185 understanding the risk of contract lapse is important when deciding to invest in a variable life insurance contract. This disclosure would include the same information on contract lapse that would appear in the contract statutory prospectus. We request comment generally on the disclosure on contract lapse that we propose would appear in the initial summary prospectus, and specifically on the following issues:
Are the proposed requirements in
the initial summary prospectus under the heading ‘‘How Your Contract Can Lapse’’ clear and appropriate in light of the goals of the initial summary prospectus?
Would this disclosure be useful to
investors in connection with an initial purchase of a variable life insurance contract? Should this proposed content requirement include any additional, or any different, disclosure about the possibility of contract lapse? (g) Surrenders or Withdrawals The initial summary prospectus would be required to include certain information about contract surrenders or withdrawals, under the heading ‘‘Surrendering Your Contract or Making Withdrawals: Accessing the Money in Your Contract.’’ 186 This would include

those of Form N–6. We have not proposed any changes to this item in Form N–6. This proposed requirement is similar to the requirement for mutual fund summary prospectuses to include disclosure on procedures for redeeming shares. See rule 498(b)(2); Item 6 of Form N–1A. 187See proposed Item 14(b) through (f) of Form N–3; proposed Item 13(b) through (f) of Form N– 4; proposed Item 12(b) through (e) of Form N–6. 188See proposed rule 498A(b)(5)(viii); see also Item 3 of Forms N–3, N–4, and N–6; proposed Item 4 of Forms N–3, N–4, and N–6. The initial summary prospectus fee information would be the same as the Fee Table included in the contract statutory prospectus, modified as necessary to describe only a single contract that the registrant currently offers for sale. See infra section II.A.1.b. 189 In addition, the Fee Table details the minimum and maximum total operating expenses the portfolio companies charge periodically, as well as an example intended to help the investor compare the cost of investing in different variable contracts. 190See supra section II.A.1.c.ii(b). 191For example, if the rate sheet is updating information in a summary prospectus or the statutory prospectus, the document should describe how the rate sheet works and the rate sheet itself should be affixed to the front of the document. The current rates should also be readily available on the website as part of the documents required to be posted online under proposed rule 498A and, as a best practice, separately on the website. 192See proposed rule 498A(b)(5)(ix); see also proposed Item 19 of Form N–3; proposed Item 18 of Form N–4; proposed Item 18 of Form N–6. Although these proposed Items would be new to Forms N–3, N–4, and N–6, each form currently requires disclosure of similar information. a brief summary on how to surrender (or partially surrender or make withdrawals from) a variable contract, including any limits on the ability to surrender, how withdrawal and surrender proceeds are calculated, and when they are payable. Given that variable contracts are longterm investments that may entail high surrender fees, it is important to clearly explain the withdrawal and surrender terms to new variable contract investors. Additional information on surrenders and withdrawals would appear in the statutory prospectus. For example, the statutory prospectus would also include more detailed information on partial surrenders and withdrawals, subaccount allocation, involuntary redemptions, and revocation rights (free look period).187 We request comment generally on the disclosure on surrenders and withdrawals that we propose would appear in the initial summary prospectus, and specifically on the following issues:

Are the proposed requirements in
the initial summary prospectus under the heading ‘‘Surrendering Your Contract or Making Withdrawals:
Accessing the Money in Your Contract’’ clear and appropriate in light of the goals of the initial summary prospectus?
Would this disclosure be useful to
investors in connection with an initial purchase of a variable contract? Should this proposed content requirement include any additional, or any different, disclosure about making contract surrenders and withdrawals? For example, should it include one or more of the other disclosures required to be included in the statutory prospectus (e.g., information on partial surrenders and withdrawals and revocation rights)? (h) Additional Information About Fees The proposed rule would require the initial summary prospectus to include the full Fee Table (including, for variable annuity contracts, the expense example), that would appear in the statutory prospectus, under the heading ‘‘Additional Information About Fees.’’ 188 The Fee Table provides detailed information on the fees and expenses investors will pay when buying, owning, and surrendering the contract, as well as those paid each year during the time the investor owns the contract.189 We are proposing certain amendments to the Fee Table for each type of variable contract as discussed below in section II.D.2.d. We are proposing to include the Fee
Table in both the statutory prospectus
and the initial summary prospectus because investor understanding of variable contract fees is particularly important given these products’ layered fee structure and typically higher costs relative to other investment products. The Fee Table is intended to complement and build upon the highlevel summary of contract fees and expenses in the Key Information Table by providing additional detail for those investors who may wish to review more comprehensive fee and expense information.190 We understand that some registrants currently prepare supplements to the contract prospectus that detail and modify certain fees and rates under the variable contract applicable to new investors (‘‘rate sheets’’). Current fees, withdrawal rates, and crediting rates associated with various contract benefits (for new sales) can change so frequently as to make filing of post-effective amendments to the registration statement with each change impractical. Instead, updated disclosure of current levels of these fees and rates is accomplished by filing a rate sheet as a supplement under rule 497 under the Securities Act. We do not believe that the proposed summary prospectus framework will affect the current practice of using rate sheets.191 We request comment generally on the Fee Table that we propose would appear in the initial summary prospectus, and specifically on the following issues:
Are the proposed requirements in
the initial summary prospectus under the heading ‘‘Additional Information About Fees’’ clear and appropriate in light of the goals of the initial summary prospectus?
Would this disclosure be useful to
investors in connection with an initial purchase of a variable contract? Would including the full Fee Table be consistent with the goal of providing a succinct summary of the contract’s key terms and benefits and most significant risks, in a presentation that would improve readability and increase readership? Are there any particular line-items of the Fee Table, for either variable annuities or variable life insurance that could be omitted? Would only including summary information of the type that we propose to appear in the Key Information Table, either with or without a cross-reference or link to the full Fee Table, be more useful or appropriate for investors? Alternatively, would including only the full Fee Table, and not also the summary fee information in the Key Information
Table, be more useful or appropriate for
investors?
Would registrants who elect to use
the initial summary prospectus continue to prepare rate sheets? Would there be any additional burdens preparing rate sheets in this context? Should the staff guidance be modified in any way to accommodate the summary prospectus framework? (i) Appendix: Portfolio Companies/ Investment Options Available Under the Contract Finally, an initial summary prospectus would be required to include an appendix, under the heading ‘‘Appendix: [Portfolio Companies/ Investment Options] Available Under the [Contract],’’ that provides summary information in a tabular form about the portfolio companies or investment options offered under the contract.192 The appendix would include separate columns for each portfolio company’s type (e.g., money market fund, bond fund, balanced fund, etc.) or investment objective, the name of the portfolio company and its adviser or subadviser (as applicable), the portfolio company’s expense ratio (expenses/average assets and, in the case of Form N–3, explicitly excluding optional benefit expenses), and its average annual total returns over the past 1-year, 5-year, and 10-year periods (in the case of Form N–3, explicitly excluding optional benefit

193See Instructions 2–5 to proposed Item 19 of Form N–3; Instructions 2–5 to proposed Item 18 of Form N–4; Instructions 2–5 to proposed Item 18 of Form N–6. For purposes of this discussion, we use the term ‘‘portfolio company’’ throughout, even though the
appendix for Form N–3 registrants would use the
term ‘‘investment option.’’ 194See Instruction 1(b) to proposed Item 19 of Form N–3; Instruction 1(a) to proposed Item 18 of Form N–4; Instruction 1(a) to proposed Item 18 of Form N–6. 195See Instruction 1(c) to proposed Item 19 of Form N–3; Instruction 1(c) to proposed Item 18 of Form N–4; Instruction 1(c) to proposed Item 18 of Form N–6. 196See proposed Item 19 of Form N–3; proposed Item 18 of Form N–4; proposed Item 18 of Form N– 6; proposed rule 498A(b)(5)(ix). 197For registrants on Forms N–4 and N–6, the legend would read as follows:
‘‘Before you invest, you should review the prospectuses for the [Portfolio Companies]. These prospectuses contain more information about the [Portfolio Companies] and their risks and may be amended from time to time. You can find the prospectuses and other information about the [Portfolio Companies] online at [ll]. You can request this information at no cost by calling [ll] or by sending an email request to [ll].’’ See Instruction 1(b) to proposed Item 18 of Forms N–4 and N–6. Registrants on Forms N–4 and N–6 not relying upon rule 498A(j) with respect to the portfolio companies that are offered under the contract may, but would not be required to, provide the next-to-last sentence of the first paragraph of the introductory legend to the table regarding online availability of the prospectuses. 198For registrants on Form N–3, the legend would read as follows:
‘‘More information about the [Investment Options] is available in [the Statutory Prospectus for the Contract], which can be requested at no cost by following the instructions on [the front cover
page or beginning of the Summary Prospectus].’’
See proposed rule 498A(b)(5)(ix).
199See Instruction 1(b) to proposed Item 18 of Forms N–4 and N–6; proposed rule 498A(b)(5)(ix). 200See proposed Item 18 of Form N–4; proposed Item 18 of Form N–6. 201See proposed Item 19 of Form N–3. 202 In the context of participant-directed individual account plans under the Employee Retirement Income Security Act of 1974 (which, similar to variable contracts, are long-term, taxadvantaged investment vehicles whereby the investor may direct his or her investment among investment alternatives), a similar disclosure requirement applies. See 29 CFR 2550.404a 5(d). 203See infra section II.B. 204See proposed rule 498A(b)(5)(ix). 205See text following note 525 (discussing proposed Item 20 of Form N–3); see also Item 4(b)(2) of Form N–1A. 206See rule 482(b)(3) (requiring, among other things: (1) A legend disclosing that the performance data quoted represents past performance; that past performance does not guarantee future results; that the investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less Continued expenses).193 Registrants would be instructed to only include portfolio companies that are currently offered under the contract.194 Additionally, if the availability of one or more portfolio companies varies by benefit offered under the contract, registrants would be required to include as another appendix a separate table indicating which portfolio companies were available under each of those benefits.195 A legend would precede the table. The first paragraph of the legend would state: ‘‘The following is a list of [Investment Options/Portfolio Companies] currently available under the [Contract], which is subject to change as discussed in the [Statutory Prospectus for the Contract].’’ 196 For registrants on Forms N–4 and N–6, the legend would also provide an internet address to a landing page, toll-free telephone number, and email address that investors could use to obtain portfolio company statutory and summary prospectuses.197 For registrants on Form N–3, the legend would direct investors to the cover page of the initial summary prospectus to request the statutory prospectus for the registrant containing more information about the investment options.198 The legend also could indicate, if applicable, that prospectuses and other information are available from a financial intermediary (such as an insurance agent or broker-dealer) distributing the contract.199 The second paragraph of the legend for variable contracts registered on Forms N–4 and N–6 would read as follows:
The performance information below reflects fees and expenses of the [Portfolio Companies], but does not reflect the other fees and expenses that your contract may charge. Performance would be lower if these charges were included. Each [Portfolio Company’s] past performance is not necessarily an indication of future performance.200 In contrast, because insurance charges are already reflected in the performance of the investment options for contracts registered on Form N–3, the second paragraph of the legend for variable annuities registered on Form N–3 would state:
The performance information below reflects contract fees and expenses that are paid by each investor. Each [Investment Option’s] past performance is not necessarily an indication of future performance. 201 Because the investment experience of a variable contract investor will largely depend on his or her selection of portfolio companies (or investment options in the case of a variable annuity registered on Form N–3), we believe it is important for investors to receive an overview of the portfolio companies and investment options available under the contract in a uniform tabular presentation that promotes comparison.202 Investors in contracts registered on Forms N–4 and N–6 currently receive portfolio company prospectuses at or shortly after the point of sale, as well as each portfolio company’s updated prospectus each year. As discussed below, we are proposing an optional delivery method, which would permit satisfaction of any portfolio company prospectus delivery obligations if the portfolio company summary and statutory prospectuses are posted at the website address specified on the variable contract summary prospectus.203 The appendix is designed to complement the portfolio company prospectuses in a layered disclosure approach to provide the investor with an ability to choose the amount and type of information he or she prefers to review. Alternatively, for variable contracts registered on Form N–3, registrants could omit the required appendix and instead provide more detailed disclosures for the investment options offered under the contract that would be required by proposed Item 20 of Form N–3.204 Proposed Item 20 would require narrative disclosure for each investment option regarding its investment objectives and principal investment strategies, principal risks of investing in the investment option, and a bar chart and table showing the performance of the investment option modeled after the risk/return bar chart and table that Form N–1A currently requires.205 We request comment generally on the
appendix that we propose would appear
in the initial summary prospectus, and specifically on the following issues:

Are the requirements of the
proposed appendix, and the associated proposed instructions, clear and appropriate in light of the goals of the initial summary prospectus? Should we modify them in any way?
Would the information included in
the appendix and its proposed tabular presentation be useful to investors in connection with the initial purchase of a variable contract? Would other or additional information, or a different presentation, be more useful to investors?
Are the particular disclosure items
that we have proposed for inclusion in the appendix useful and appropriate for consideration by investors, or should we revise, supplement, or replace those items? Alternatively, or in addition, should we require any other disclosures contemplated by rule 482 (e.g., a legend providing certain statements about the performance data and certain information about sales loads or performance fees)? 206

than their original cost; that current performance may be lower or higher than the performance data quoted; and (2) if a sales load or any other nonrecurring fee is charged, the maximum amount of the load or fee, and if the sales load or fee is not reflected, a statement that the performance data does not reflect the deduction of the sales load or fee, and that, if reflected, the load or fee would reduce the performance quoted).

The proposed instructions would
provide that if the availability of one or more portfolio companies varies by benefit offered under the contract, registrants must include as another
appendix a separate table indicating
which portfolio companies were available under each of those benefits. Should this information be provided in a separate table? Why or why not? Are there ways to present this information in a more streamlined and comprehensible manner for investors? If so, how?
Under our proposal, an initial
summary prospectus for a contract registered on Form N–3 could omit the
appendix and instead include the more
detailed disclosures about the investment options offered under the contract that would be required by proposed Item 20 of Form N–3. Alternatively, in order to increase comparability between initial summary prospectuses, should the appendix be required to be included in all initial summary prospectuses for contracts registered on Form N–3? Conversely, should the initial summary prospectus be required to contain the more detailed disclosures that would be required by proposed Item 20 of Form N–3? d. General Requests for Comment on the Initial Summary Prospectus In addition to the specific requests for comment above on the proposed scope and content requirements of the initial summary prospectus, we also request comment generally on the initial summary prospectus, and specifically on the following issues:
Is an initial summary prospectus an
appropriate vehicle to highlight the importance of key terms, benefits, and risks of a variable contract? What are the key considerations for an initial investment in the contract? Does the proposed initial summary prospectus capture key considerations that a typical contract investor would find salient? Should an initial summary prospectus include additional information an investor would need in order to make an informed investment decision, and if so, what would this information be? Would this defeat our goal of providing investors a succinct summary?
Should we exclude any of the
proposed initial summary prospectus disclosure? Should we require any additional information to appear in the initial summary prospectus, such as from the contract’s statutory prospectus, SAI, or Part C (‘‘Other Information’’) of the registration statement?
We are proposing to require an
initial summary prospectus to contain the information required by the proposed rule, and only that information, in a specified order to facilitate comparability (similar to the mutual fund summary prospectus model). Should all items in the initial summary prospectus be presented in the same order, under the headings that the proposed rule specifies? Would this promote comparability across products, and is comparability as feasible for variable products as it is mutual funds? Why or why not? If the items are not listed in the same order, could investors or investment professionals still easily compare different variable contracts? Is the proposed order appropriate, or should we consider a different order? Should the rule require ordered navigation links for electronic versions of the summary prospectus?
Should we, as proposed, limit the
information to be included in the initial summary prospectus, or should we allow registrants to include other information that is not specifically called for? We recognize that variable contracts are complex investment products, and some may have product features that are not contemplated by the current disclosure items. Should we permit registrants to disclose information not specifically required by the proposed rule to provide sufficient flexibility for the disclosure of future product developments or otherwise enhance disclosures to investors? Would that undermine the goal of comparability, or contribute to investor confusion? Are there other ways we could provide this flexibility?
Should we impose any page or
word limits on the initial summary prospectus (e.g., 10 pages or 2,500 words)? If so, what should the page or word limits be (e.g., how many pages or words, and should these limits apply to the whole initial summary prospectus or include or exclude certain sections of it)? Would page or word limits disadvantage certain types of registrants (e.g., variable contracts that offer a relatively high number of optional benefits) over others, or unduly limit investors’ ability to receive important disclosure information? Are there other ways we could encourage concise and investor-friendly disclosure?
Is the information that we propose
to require in the body or appendix of the initial summary prospectus appropriate? Should we include any additional information or eliminate any of the information that we have proposed to include? Should any information in the body (e.g., the ‘‘Additional Information About Fees’’ section) be moved from the body to an appendix or vice versa?
Would investors be more likely to
read an initial summary prospectus if we required the use of certain design elements—such as larger font sizes or greater use of white space, colors, or visuals—or provided additional guidance on such design elements? If so, what should this disclosure requirement be? Would any of the proposed content requirements particularly benefit from the use of such design elements?
Should registrants creating
electronic versions of the initial summary prospectus be required to include active hyperlinks for website addresses referenced in the electronic version, as would be required under our proposal? What concerns would be raised, if any, if those website addresses were third-party websites? Should registrants creating electronic versions of the initial summary prospectus be required to include active hyperlinks for any cross-references, as would be required under our proposal?
Should registrants creating
electronic versions of the initial summary prospectus be allowed to use alternatives to any tabular presentations, such as the table(s) included in
Appendix: Portfolio Companies/
Investment Options Available Under the Contract, provided the information is presented in an easy to read and comparable manner? If so, should there be additional conditions on the use of these alternatives? What should those conditions be?
Should we offer registrants greater
flexibility to design summary prospectuses that can be viewed on mobile devices, are interactive, have audio or video features, or otherwise make use of technology and research about effective disclosure methods? If so, how can we allow flexibility while ensuring that investors receive the information they need to make their investment decisions?
To what extent is the information
proposed to be required in the initial summary prospectus duplicative of information provided in other point-ofsale disclosure documents (including those required under other regulatory regimes)?
Would the initial summary
prospectus, as proposed, appropriately complement current disclosure practices by not unnecessarily duplicating disclosure topics investors receive through other channels, and

207As discussed above, investors generally must be provided with a prospectus when they make additional purchase payments or reallocate variable contract value. See supra notes 27 through 29 and accompanying text. We are proposing to provide that an updating summary prospectus that complies with the rule will be deemed to be a prospectus that is permitted under section 10(b) of the Securities Act and section 24(g) of the Investment Company Act for the purposes of section 5(b)(1) of the Securities Act. 208Proposed rule 498A(c). 209Proposed rule 498A(c)(1). 210Proposed rule 498A(c)(2). 211See supra section II.A.1.b. 212Proposed rule 498A(c)(2); see also supra
section II.A.1.b (an initial summary prospectus also
can describe more than one class of a currentlyoffered contract). 213A registrant generally should indicate in this
section, to the extent appropriate, whether certain
described contract changes are only applicable to certain contracts in the statutory prospectus. 214Multiple updating summary prospectuses (with very similar sounding names) could also make it difficult for investors to locate their specific updating summary prospectus on the insurer’s website. highlighting key risks that investors may not learn about through other channels?

Are there any aspects of the initial
summary prospectus that should be made to conform to parallel provisions in the updating summary prospectus or potential changes to those proposed parallel provisions? Conversely, are there any potential changes to the proposed updating summary prospectus that should not be made to the proposed initial summary prospectus?
Is the hypothetical initial summary
prospectus in Appendix A useful and illustrative of the proposed requirements? Does it appropriately show the level of detail that firms might provide, and are any of the design elements that the hypothetical initial summary prospectus uses particularly effective (or if they could be made more effective, how so)?

Updating Summary Prospectus
a. Overview
Today, variable contract investors are typically sent a copy of the updated current contract statutory prospectus each year.207 Proposed rule 498A would permit a person to satisfy contract prospectus delivery obligations with respect to existing investors by sending or giving an updating summary prospectus in lieu of the statutory prospectus.208 We are not proposing that registrants send an updated initial summary prospectus to investors each year, due in part to the cost to maintain and update separate initial summary prospectuses for currently-offered variable contracts and those no longer offered. Additionally, we believe that existing investors would benefit more from a brief summary of the changes to the contract reflected in the statutory prospectus than to the disclosures in the initial summary prospectus, which is designed for someone making an initial investment decision. We have therefore designed the updating summary prospectus to provide a brief description of any important changes with respect to the contract that occurred within the prior year, which will allow investors to better focus their attention on new or updated information relating to the contract. Additionally, the updating summary prospectus would include certain of the information required in the initial summary prospectus that we consider most relevant to investors when making additional investment decisions or otherwise monitoring their contract. Finally, a registrant may only use an updating summary prospectus if it uses an initial summary prospectus for each currently offered contract described under the contract statutory prospectus to which the updating summary prospectus relates.209 We believe that making the use of the updating summary prospectus contingent on use of the initial summary prospectus for each currently offered contract will encourage registrants to utilize the summary prospectus framework and provide a more consistent disclosure experience to investors. b. Scope of Disclosure To Be Included in Updating Summary Prospectus The proposed rule would permit the updating summary prospectus to describe one or more contracts covered in the statutory prospectus to which the updating summary prospectus relates.210 This scope is different than the initial summary prospectus, which the proposed rule would limit to only describing a single contract that the registrant currently offers for sale.211 Similar to the initial summary prospectus, however, the proposed rule also would permit an updating summary prospectus to describe more than one class of a contract.212 Given the limited subset of information provided in the updating summary prospectus, we believe permitting registrants to combine multiple contracts would not cause investor confusion in the same way that combining disclosure about multiple contracts in the initial summary prospectus might. Furthermore, we understand that there are generally not a significant number of changes that occur to an individual
contract yearover-year, and many of those changes (such as changes to the available portfolio companies or the addition of new optional benefits) typically apply across multiple contracts described in the same prospectus. We therefore believe the section describing contract changes, even if changes to multiple contracts are included, would not be overly lengthy, and would not prevent investors from reading or understanding the applicable disclosures.213 Finally, combining multiple contracts could make the updating summary prospectus significantly more efficient for registrants to produce and distribute.214 We request comment generally on the proposed scope requirements for the updating summary prospectus, and specifically on the following issues:

Is it appropriate to permit the updating
summary prospectus to include multiple contracts under the statutory prospectus to which the updating summary prospectus relates? Would this approach promote operational efficiency? What other benefits would this approach entail? What drawbacks would this approach entail? Would this approach discourage investors from reading the updating summary prospectus? Would it confuse investors, and if so, should the proposed rule incorporate any additional provisions (or should we issue guidance) to help mitigate potential confusion? Would it prevent investors from reading or understanding the disclosures, and if so, what additional rule provisions or guidance could help mitigate this? Would the proposed disclosure requirement make clear to an investor whether a particular disclosure about year-over-year changes applies to that investor’s contract? Should we require that an updating summary prospectus that includes disclosure about multiple contracts be formatted or presented in a certain way to help promote clarity to investors regarding whether a particular disclosure in the document concerns an investor’s particular contract? Are there any other additions to the updating summary prospectus that would help promote clarity to investors on this point?
Alternatively, what would be the
benefits of requiring registrants to create a separate updating summary prospectus for each contract, similar to the requirement for the initial summary prospectus? Would this alternate approach be operationally burdensome, and if so, why? Would it enhance investor understanding? Would it reduce investor confusion?
Should we restrict the number of
contract classes that may be described in an updating summary prospectus? Why or why not?
c. Preparation of the Updating Summary
Prospectus
The following chart outlines the information that would be required in an updating summary prospectus under proposed rule 498A. Along with specifying required cover page

215Proposed rule 498A(c)(6).
216Registrants on Form N–3 could omit the
appendix specified by proposed Item 19 of Form N–
3, and instead provide the more detailed disclosures about the investment options offered under the contract required by proposed Item 20 of Form N–3. See infra note 517 and accompanying text. 217Proposed rule 498A(c)(3)(i) through (v). 218See supra note 79 (discussing requirements of the registrant’s internet address and contact information). 219Proposed rule 498A(c)(3)(vi). 220Proposed rule 498A(b)(2)(vi); see also supra note 79. The legend in the updating summary prospectus would note that ‘‘an updated prospectus’’ is available online, whereas the initial summary prospectus would note that it summarizes key features of the contract. 221Proposed rule 498A(c)(3)(vi); see also proposed rule 498A(b)(2)(vi)(A). 222See infra section II.A.6. 223Proposed rule 498A(c)(3)(vii); see also supra note 86. 224Proposed rule 498A(c)(4). As in the case of the initial summary prospectus, this requirement is intended to enable Commission staff and others to more easily link the updating summary prospectus with other filings associated with the contract. 225Proposed rule 498A(c)(5). 226Rule 481(c). disclosures, the proposed rule references particular disclosure items from Forms N–3, N–4, and N–6 (as proposed to be amended). The information would be required to appear in the same order, and under the relevant corresponding headings, as the proposed rule specifies.215
TABLE 3—OUTLINE OF THE UPDATING SUMMARY PROSPECTUS
Heading in updating Summary prospectus Proposed item of Form N–3 Proposed item of Form N–4 Proposed item of Form N–6 Cover Page:
Identifying Information .................................................................................. ................................ ................................ ................................
Legends ........................................................................................................ ................................ ................................ ................................
EDGAR Contract Identifier ........................................................................... ................................ ................................ ................................
Table of Contents (optional) ........................................................................ ................................ ................................ ................................
Content:
Updated Information About Your Contract .................................................. ................................ ................................ ................................
Important Information You Should Consider About the [Contract] .............. 3 ............................. 3 3
Appendix: Portfolio Companies Available Under the Contract .................... 19 or 20 216 ............ 18 18
i. Cover Page and Table of Contents
Identifying Information. Under the proposed rule, the following information would be required to appear on the front cover page or at the beginning of the updating summary prospectus:

The depositor’s name;
the registrant’s name;
the name of the contract(s), and the class
or classes, if any, to which the updating summary prospectus relates;
a statement identifying the document as
an ‘‘Updating Summary Prospectus’’; and
the approximate date of the first use of
the updating summary prospectus.217 Legend. The cover page or beginning of the updating summary prospectus would be required to include the following legend:
You should read this Summary Prospectus carefully, particularly the section titled Important Information You Should Consider About the [Contract]. An updated prospectus for the [name of Contract] is currently available online, which contains more information about the [Contract], including its features, benefits, and risks. You can find the prospectus and other information about the [Contract] online at [ll]. You can also obtain this information at no cost by calling [ll] or by sending an email request to [ll].218 Additional general information about certain investment products, including [variable annuities/variable life insurance contracts], has been prepared by the Securities and Exchange Commission’s staff and is available at Investor.gov.219 Like the cover page or beginning of the initial summary prospectus, the cover page or beginning of the updating summary prospectus would be required to include identifying information about the variable contract, as well as a legend including certain general information that would be applicable to all variable contracts. The portions of the proposed legend that describe how to obtain further information about the contract, as well as the Investor.gov website, are identical to the parallel portions of the legend that would appear on the cover
page or beginning of the initial summary
prospectus.220 As with the initial summary prospectus, a registrant could modify this required legend so long as the modified legend includes comparable information.221 Similar to the initial summary prospectus, if a registrant incorporates any information by reference into the updating summary prospectus, the proposed rule would require the registrant to include in the legend certain information about the document(s) from which the information was incorporated.222 Like the initial summary prospectus, the cover page for the updating summary prospectus would also be required to include a legend indicating that the Securities and Exchange Commission has not approved or disapproved of the contract or the summary prospectus.223 We do not believe that the free look period legend that would appear on the cover page or beginning of the initial summary prospectus would be appropriate in the context of the updating summary prospectus, because the free look period is not applicable to additional investments after the initial purchase. EDGAR Contract Identifier. We are also proposing to require that the EDGAR contract identifier for each contract covered by the updating summary prospectus be included on the bottom of the back cover page or last
page of the updating summary
prospectus in a type size smaller than that generally used in the prospectus (e.g., 8-point modern type).224
Table of Contents. The proposed rule
would permit an updating summary prospectus, like the initial summary prospectus, to include a table of contents.225 A table of contents must show the page number of the various sections or subdivisions of the prospectus and must immediately follow the cover page in any prospectus delivered electronically.226 We request comment generally on the proposed requirements for the cover
page of the updating summary
prospectus, and specifically on the following issues:
Is the information that we propose to
require on the cover page or beginning of the updating summary prospectus appropriate? Should we include any additional information or eliminate any of the information that we have proposed to include in these parts of the updating summary prospectus?
Is the proposed legend sufficient to
notify investors of the availability and significance of the contract statutory prospectus and other information about the variable contract and how to obtain this information? For example, should the legend

227Proposed rule 498A(c)(6).
228See supra note 93.
229Proposed rule 498A(c)(6)(i). A change that has affected availability of portfolio companies (or investment options) would include changes in the portfolio companies (or investment options) offered under the contract or available in connection with any optional benefit. See also proposed Item 19 of Form N–3, and proposed Item 18 of Forms N–4 and N–6. 230Proposed rule 498A(c)(6)(i); see also proposed Item 4 of Forms N–3, N–4, and N–6. 231Proposed rule 498A(c)(6)(i); see also proposed Item 11 of Forms N–3; proposed Item 10 of Forms N–4 and N–6. 232Proposed rule 498A(c)(6)(i); see also proposed Item 12 of Forms N–3; proposed Item 11 of Forms N–4 and N–6. 233Proposed rule 498A(c)(6)(ii). Any additional information included should not, by its nature, quantity, or manner of presentation, obscure or impede understanding of the information that the proposed rule would require. 234Proposed rule 498A(c)(6)(i). 235Proposed rule 498A(c)(6)(i)(A). 236Proposed rule 498A(c)(6)(i)(B). include greater detail about the information that is available?

Does the proposed legend adequately
inform investors of the various means for obtaining additional information about a variable contract? For example, are the proposed requirements for the website address where additional information is available adequate to ensure that the website and the additional information will be easy to locate?
As proposed, should we permit
registrants to modify the required legend, provided the modified legend includes comparable information?
Should the requirement in proposed rule
498A to include the EDGAR contract identifier for each contract covered by the updating summary prospectus on the bottom of the back cover page or last page of the updating summary prospectus be revised to list another identifier? If so, what identifier should be listed, and why?
Should registrants be permitted to
include a table of contents in the updating summary prospectus? Instead, should a table of contents be required for any updating summary prospectus? Does rule 481(c) under the Securities Act provide appropriate requirements for a table of contents included in an updating summary prospectus?
ii. Content of the Updating Summary
Prospectus
Proposed rule 498A specifies the content and order thereof required in an updating summary prospectus.227 An updating summary prospectus must contain the information required by the proposed rule in the specific order detailed in section II.A.2.c. Similar to the initial summary prospectus and the summary prospectus for mutual funds, adhering to these content requirements is one condition that an updating summary prospectus must satisfy in order to be deemed to be a prospectus that is permitted under section 10(b) of the Securities Act and section 24(g) of the Investment Company Act for the purposes of section 5(b)(1) of the Securities Act.228 To aid market participants in understanding the types of disclosures we propose to require,
Appendix B to this release contains a
hypothetical updating summary prospectus for a variable annuity separate account with a registration statement filed on Form N–4. This hypothetical updating summary prospectus is provided solely for illustrative purposes and is not intended to imply that it reflects a ‘‘typical’’ updating summary prospectus. (a) Description of Changes to the Contract The updating summary prospectus would be required to include a concise description of any change with respect to the contract made after the most recent updating summary prospectus or statutory prospectus was sent or given to investors that has affected the availability of portfolio companies (or investment options under a variable annuity registered on Form N–3) under the contract,229 or the statutory prospectus disclosure relating to the Fee
Table,230 the standard death benefit,231
and the other benefits available under the contract.232 The updating summary prospectus also could include a concise description of any other changes to the contract that the registrant wishes to disclose, provided they occurred within the same time period.233 These contract changes would be described under the heading ‘‘Updated Information About Your [Contract].’’ 234 This legend would be required to follow the heading:
The information in this [Updating Summary Prospectus] is a summary of certain [Contract] features that have changed since the [Updating Summary Prospectus] dated [date]. This may not reflect all of the changes that have occurred since you entered into your Contract.235 We designed this disclosure requirement in light of the fact that disclosures in a contract statutory prospectus do not change frequently, and we believe providing investors with notice and a brief description of any changes that do occur may be more informative than repeating all the disclosures year-over-year. We believe that notice of these changes is particularly helpful, given that currently investors must determine which, if any, disclosures relevant to their particular contract have changed each year they receive the contract statutory prospectus. After receiving notice and a brief description of certain changes, an investor who then wishes to obtain more information on specific changes can consult the contract statutory prospectus to review related disclosures in more detail. We believe that highlighting certain key changes with respect to the contract in the updating summary prospectus will provide important information to investors that they can use in considering whether to continue making additional purchase payments or reallocate contract value. We would require the disclosure of changes with respect to these particular disclosure topics (Fee Table, the standard death benefit, other benefits available under the contract, and portfolio companies available under the contract) because these are the areas where we understand contract-related changes are most likely to occur, and that may be of most interest to investors. We believe that permitting—but not requiring—a concise description of any additional changes will provide flexibility to registrants to highlight for investors any additional changes. The requirement to disclose contract-related changes to investors is particularly relevant for variable contracts, since the length of statutory prospectus disclosure may hinder investors in identifying important year-over-year changes to contract features. In providing a concise description of a contract-related change in the updating summary prospectus, registrants must provide enough detail to allow investors to understand the change and how it will affect them.236 For example, this could include stating that a fee has changed from 1.5% to 1.7%, rather than stating that the fee has changed or increased, or specifically identifying each optional benefit that has changed (with a brief explanation of how), rather than generically stating that certain optional benefits are new or no longer available. As another example, if a portfolio company’s expense ratio has changed, a registrant generally should describe this in the body of the updating summary prospectus even though expense ratio information would also appear in the required appendix to the updating summary prospectus,
in order to highlight this change to investors. We request comment generally on the brief description of certain contractrelated changes that we propose would appear in the updating summary prospectus, and specifically on the following issues:
Would this proposed disclosure
requirement be useful to investors? Would understanding the information that would appear in an updating summary prospectus in response to the proposed requirement be

237Proposed rule 498A(c)(6)(iii). This disclosure would be the same information required by Item 3 of Forms N–3, N–4, and N–6. 238See supra section II.A.1.c.ii.(b). 239Proposed rule 498A(c)(6)(iv). This information on portfolio companies or investment options would be the same information required by proposed Item 19 of Form N–3 and proposed Item 18 of Forms N–4 and N–6. 240Paralleling a similar requirement for the initial summary prospectus, if the appendix includes the information required by Item 19 of Form N–3, the
appendix would also include the following
introductory legend: ‘‘The following is a list of [Investment Options] currently available under the [Contract], which is subject to change as discussed in the [Statutory Prospectus for the Contract]. More information about the [Investment Options] is available in [the Contract Statutory Prospectus], which can be requested at no cost by following the instructions on [the front cover page or beginning of the Summary Prospectus].’’ See proposed Item 19 of Form N–3; proposed rule 498A(c)(6)(iv). 241See proposed rule 498A(c)(6)(iv); see also text following note 525 (discussing proposed Item 20 of Form N–3). relevant and helpful to an investor who is considering whether to continue making additional purchase payments, or reallocate contract value? Would disclosure of changes to multiple contracts confuse the reader or discourage reading the document, and if so, what additional rule provisions or guidance could help mitigate this?

Is the scope of changes that a registrant
may discuss in the updating summary prospectus appropriate? Are there other topics that should be described in the updating summary prospectus (e.g., changes that affect the contract’s risks or potential conflicts of interest)? Should the proposed rule instead require a registrant to provide a concise description of ‘‘significant changes,’’ ‘‘material changes,’’ or some other standard instead of prescribing specific disclosure topics? Is there a better way of identifying these specific disclosure topics, and if so, what would this be?
Is it appropriate to allow registrants to
discuss any other changes that have been made to the contract during the same time period in this section? Should registrants also be allowed to discuss matters that do not directly involve the contract (e.g., upcoming tax law changes or merger and acquisition activity involving the registrant)? Why or why not?
Is the proposed requirement that a
registrant include a ‘‘concise description’’ of each change clear and appropriate? Would registrants understand what level of disclosure they should include? Would any additional clarification in the rule text or Commission guidance be helpful? (b) Key Information The updating summary prospectus also would be required to include the same Key Information Table that would appear in the initial summary prospectus.237 As discussed above, this
table would streamline certain
important concepts about the variable contract in a presentation that is designed to be easy to read and navigate.238 Because investors may make additional investments in the variable contract, we propose to require this disclosure in the updating summary prospectus to remind them of the contract’s fees and expenses, risks, restrictions, tax implications, and investment professional compensation. Furthermore, we believe that an investor who continues to make investments in the variable contract (or to reallocate contract value)—not just an initial investor in the contract—should receive the benefit of this disclosure in a presentation that is intended to improve readability and readership. Besides the brief description of contract-related changes and portfolio company/investment option appendix discussed below, an updating summary prospectus would include only this Key Information Table as summary disclosure about the contract’s key information, and would not also include the additional disclosure that the initial summary prospectus would include (for example, additional information about standard and optional contract benefits, or the contract Fee Table). We believe this is appropriate in the context of an updating summary prospectus for several reasons. First, unless the investor invested prior to the registrant relying on rule 498A, the investor already will have received the initial summary prospectus (and have had access to the statutory prospectus), which includes this extra detail. Additionally, the updating summary prospectus draws on layered disclosure concepts, where the investor can access the more detailed statutory prospectus electronically (or in paper format on request) to complement the disclosure included in the updating summary prospectus. An updating summary prospectus that describes multiple contracts could contain a separate Key Information
Table for each of the contracts, or use
a different presentation approach that consistently discloses the required information for each contract in the required order. For example, if the only Key Information Table disclosure that would vary by contract were the fee information, a prospectus that describes multiple contracts could include a single Key Information Table that discloses separate fee information in the ‘‘Fees and Expenses’’ line-items for each contract. We request comment generally on including the Key Information Table in the updating summary prospectus, and specifically on the following issues:
Should we require including the
proposed Key Information Table in the updating summary prospectus? Would this
table provide a succinct summary of the
contract’s key information for investors who make ongoing purchase payments, or who reallocate contract value? If not, why not?
Is the location of the proposed Key
Information Table within the updating summary prospectus appropriate? If not, where should it be located?
Should the table include, as proposed,
the same line-items as the Key Information
Table that would appear in the initial
summary prospectus? Instead should we require a modified version of the table in the updating summary prospectus, and if so, how should we modify the table? For example, is it appropriate or necessary for the table that appears in the updating summary prospectus to include a line-item on investment professional compensation? Is it important to require the disclosure that investors should only exchange their contract if they determine, after comparing the features, fees, and risks of both contracts, that it is preferable for them to purchase the new contract rather than continue to own the existing contract?
Should the presentation of the proposed
table in the updating summary prospectus
differ from the proposed presentation for the initial updating prospectus? If so, why, and what would be a better alternate presentation?
Should we mirror the approach taken
with the initial summary prospectus where cross-references in the Key Information Table for electronic versions of the updating summary prospectus would link directly to the location in the statutory prospectus where the subject matter is discussed in greater detail? If so, why? What would be a better approach?
Are there any particular instructions for
the Key Information Table that we should modify for the updating summary prospectus? (c) Appendix: Portfolio Companies Available Under the Contract Finally, the updating summary prospectus would be required to include an appendix, under the heading ‘‘Appendix: [Portfolio Companies/ Investment Options] Available Under the [Contract],’’ that provides summary information about the portfolio companies offered under the contract.239 This requirement for the
appendix would be identical to the
requirement for the appendix in the initial summary prospectus.240 Like the proposed requirement for the initial summary prospectus appendix, Form N–3 registrants could omit this
appendix and instead provide the more
detailed disclosures about the investment options offered under the contract that would be required by proposed Item 20 of Form N–3.241 Because the selection of portfolio companies or investment options will directly affect the performance, and

242 15 U.S.C. 77e(b)(2) (stating that it shall be unlawful for any person to carry or cause to be carried through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus that meets the requirements of Securities Act section 10(a)); see also supra note 27 (noting that the term ‘‘statutory prospectus’’ means a prospectus that meets the requirements of section 10(a) of the Securities Act). Because the requirements of section 5(b)(2) of the Securities Act are applicable to ‘‘any person,’’ its obligations are applicable to financial intermediaries through whom variable contracts are sold, as well as variable contract issuers. 243See supra notes 60 through 63 and accompanying text. 244See supra note 242 (discussing the prohibition against carrying or delivering a security without otherwise accompanying it or preceding it with a statutory prospectus). 245Proposed rule 498A(f)(1); see also supra note 207 and accompanying text. often the available optional benefits, of the contract, we believe that it is necessary to provide basic information about the portfolio companies to ongoing investors in variable contracts. This disclosure is intended to remind investors of one of the most important decisions they face during the life cycle of a contract—that is, whether and where to allocate additional purchase payments and reallocate contract value among the portfolio companies or investment options available to them. We request comment generally on the
appendix that we propose to require in
the updating summary prospectus, and specifically on the following issues:

Are the requirements of the proposed
appendix clear and appropriate in light of the
goals of the updating summary prospectus?
Would the information that would be
included in this appendix be useful to an investor who is considering whether to continue making additional purchase payments, or reallocate contract value? Would other or additional information be more useful to investors? For example, should the appendix identify portfolio companies that have been added, or portfolio companies that have been removed or closed to additional investment, during the period covered by the update?
Should we, as proposed, permit a Form
N–3 registrant to omit the appendix and instead include the more detailed disclosures about the investment options offered under the contract that would be required by proposed Item 20 of Form N–3? Are the considerations regarding the inclusion of the
appendix in a Form N–3 registrant’s updating
summary prospectus the same or different as in the context of the initial summary prospectus? d. General Requests for Comment on the Updating Summary Prospectus In addition to the specific requests for comment above on the proposed content requirements and scope of the updating summary prospectus, we also request comment generally on the updating summary prospectus, and specifically on the following issues:
Should we consider any alternative
approaches to the proposed framework of two distinct summary prospectuses (the initial summary prospectus and the updating summary prospectus)? For example, should all variable contract investors receive a summary prospectus with identical content? As another example, should the proposed rule provide that only initial contract purchasers would receive a summary prospectus, and afterwards, investors who make additional purchase payments, or who reallocate contract value, would receive no summary prospectus (or receive only a notice that the statutory prospectus is available online)?
Should we permit the use of an updating
summary prospectus if a registrant does not use an initial summary prospectus for each currently offered contract described under the contract statutory prospectus to which the updating summary prospectus relates?
Does the information in the proposed
updating summary prospectus capture the information that is most likely to change from year to year, and that is most important for investors when considering whether to make additional purchase payments, or reallocate contract value? Should any of the information that we propose to require in the updating summary prospectus not be required? Should we require disclosure of any additional information (such as additional information that we propose to include in the initial summary prospectus) in the updating summary prospectus?
Should we consider changing the
proposed order in which the disclosure items would appear in the updating summary prospectus?
Should we impose any page or word
limits on the updating summary prospectus (e.g., 10 pages or 2,500 words)? If so, what should the page or word limits be (e.g., how many pages or words, and should these limits be on the whole updating summary prospectus or certain sections of it)? Are there other ways we could encourage concise and investor-friendly disclosure?
Is the information that we propose to
require in the body and appendix of the updating summary prospectus appropriate? Should we include any additional content requirements or modify or eliminate any of the content requirements? Should any information in the body be moved to an
appendix, or vice versa?
Would investors be more likely to read
an updating summary prospectus if we required the use of certain design elements— such as larger font sizes or greater use of white space, colors, or visuals—or provided additional guidance on such design elements? Would any of the proposed content requirements particularly benefit from the use of such design elements?
Would the updating summary
prospectus, as proposed, appropriately complement current disclosure practices by not unnecessarily duplicating disclosure topics investors receive through other channels, and highlighting key risks that investors may not learn about through other channels?
Should registrants creating electronic
versions of the updating summary prospectus be required to include active hyperlinks for website addresses referenced in the electronic version, as would be required under our proposal? What concerns would be raised, if any, if those website addresses were third-party websites? Should registrants creating electronic versions of the initial summary prospectus be required to include active hyperlinks for any cross-references, as would be required under our proposal?
Should we offer registrants greater
flexibility to design summary prospectuses that can be viewed on mobile devices, are interactive, have audio or video features, or otherwise make use of technology and research about effective disclosure methods? If so, how can we allow such flexibility while still ensuring that investors receive the information they need to make their investment decisions?
Are there any aspects of the updating
summary prospectus that should be made to conform to parallel provisions in the initial summary prospectus or potential changes to those proposed parallel provisions? Conversely, are there any potential changes to the proposed initial summary prospectus that should not be made to the proposed updating summary prospectus?
Is the hypothetical updating summary
prospectus in Appendix B useful and illustrative of the proposed requirements? Does it appropriately show the level of detail that firms might provide?

Legal Effect of Use of Summary
Prospectus for Variable Contracts
Section 5(b)(2) of the Securities Act
makes it unlawful to carry or cause to be carried a security for purposes of sale or for delivery after sale ‘‘unless accompanied or preceded’’ by a statutory prospectus.242 Proposed rule 498A would provide that, for variable contract securities in an offering registered on Forms N–3, N–4, or N–6, the use of a summary prospectus could satisfy this section 5(b)(2) obligation under certain conditions. As under rule 498, use of the summary prospectus to satisfy a registrant’s section 5(b) obligation would be voluntary.243 First, a person relying on the proposed rule would be required to send or give a summary prospectus to an investor no later than the time of the ‘‘carrying or delivery’’ of the contract security.244 This summary prospectus would be an initial summary prospectus in the case of an initial purchase of a variable contract, or an updating summary prospectus in the case of additional investments in a variable contract previously purchased.245 Second, the summary prospectus could not be bound together with any other materials, except that we are permitting portfolio company summary and statutory prospectuses to be bound together with the contract summary

246Proposed rule 498A(f)(2).
247Proposed rule 498A(f)(2)(i) and (ii). The rule would permit binding these materials together so long as: (1) All of the underlying portfolio companies whose prospectuses are bundled together are available to the investor to whom they are sent or given; and (2) a table of contents identifying each portfolio company summary and/ or statutory prospectus that is bound together (and the page number on which each document is found), is included at the beginning or immediately following a cover page of the bound materials. 248Proposed rule 498A(f)(3). 249Proposed rule 498A(f)(4) (in addition, a Form N–3 registrant would also be required to post its most recent annual and semi-annual reports to shareholders to the website); see also infra section II.A.4. 250As discussed below, the proposed rule also includes additional requirements (such as the requirement to send a copy of the contract statutory prospectus upon request) whose violation would result in a violation of the proposed rule, but would not result in a violation of section 5(b)(2). See infra note 298 and accompanying text. 251Proposed rule 498A(g). 252Section 2(a)(10) of the Securities Act [15 U.S.C. 77b(a)(10)(a)] provides that a communication sent or given after the effective date of the registration statement (other than a prospectus permitted under subsection (b) of section 10) shall not be deemed a prospectus if it is proved that prior to or at the same time with the communication a written prospectus meeting the requirements for a statutory prospectus at the time of the communication was sent or given to the person to whom the communication was made. 253See rule 498(d). 254See, e.g., section 17(a) of the Securities Act [15 U.S.C. 77q(a)]; section 10(b) of the Exchange Act [15 U.S.C. 78j(b)]; section 34(b) of the Investment Company Act [15 U.S.C. 80a-33(b)]. prospectus,246 subject to certain conditions.247 Third, the summary prospectus also would be required to meet the proposed rule’s content requirements for an initial summary prospectus or updating summary prospectus (as appropriate).248 Finally, the initial summary prospectus, updating summary prospectus, contract statutory prospectus, and contract SAI must be publicly accessible, free of charge, on a website in the manner that the proposed rule specifies.249 Failure to comply with any of these requirements would prevent a person from relying upon the proposed rule to meet its
section 5(b)(2) prospectus delivery
obligations. Absent satisfaction of the
section 5(b)(2) obligation by other
available means, a section 5(b)(2) violation would result.250 The proposed rule also would provide that a communication relating to an offering registered on Forms N–3, N–4, or N–6 that a person sends or gives after the effective date of a variable contract’s registration statement (other than a prospectus that section 10 of the Securities Act permits or requires) would not be deemed a prospectus under section 2(a)(10) of the Securities Act if:
(1) It is proved that prior to or at the same time with such communication a summary prospectus was sent or given to the person to whom the communication was made; (2) the summary prospectus meets the same binding requirements that we discuss in the immediately-preceding paragraph; (3) the summary prospectus that was sent or given satisfies the requirements for the initial summary prospectus or the updating summary prospectus, as applicable; and (4) the initial summary prospectus, updating summary prospectus, contract statutory prospectus, and contract SAI are publicly accessible, free of charge, on a website in the manner that the proposed rule specifies.251
Section 2(a)(10) of the Securities Act
provides that certain communications accompanied or preceded by a statutory prospectus are not deemed to be ‘‘prospectuses’’ for purposes of the Securities Act.252 This provision of the proposed rule, which is modeled on a corresponding provision of rule 498,253 extends similar treatment to communications accompanied or preceded by a summary prospectus if all the provision’s conditions are met. These communications remain subject to the general antifraud provisions of the federal securities laws.254 Because we believe that all investors should receive the benefit of the succinct, investor-friendly disclosure that is included in the variable contract summary prospectus, all of the disclosure items that would appear in the summary prospectus also would be required to appear in the statutory prospectus. In that respect, all variable contract investors, regardless of whether the product they choose has a summary prospectus, would have the benefit of improved disclosures in the statutory prospectus. We request comment generally on the proposal to permit a new option for prospectus delivery for variable contracts, and specifically on the following issues (in addition, we are requesting comment on certain parallel provisions of rule 498):

Should we permit a person to satisfy its
prospectus delivery obligations under the Securities Act with respect to variable contracts in the manner provided in the proposed rule? Would this approach provide investors with material information about the variable contract while providing adequate protections?
Are there other delivery approaches that
would be more effective than the proposed approach? For example, should we permit a person to satisfy its prospectus delivery obligations by filing a statutory prospectus with the Commission and by posting it online without using a summary prospectus?
Is the proposed approach appropriate
given the current demographics of variable contract investors? For example, does the proposed approach adequately protect investors who have no internet access or limited internet access or who prefer not to receive information about their variable contract investments over the internet? As another example, given the high percentage of investors who use an investment professional when purchasing a variable contract (and who might learn about the contract through discussions with investment professionals), is there another approach that would be more effective? Should we make any other changes with respect to prospectus delivery obligations? Does the proposed approach appropriately balance the objectives of the proposed summary prospectus framework with protecting investors who have no or limited access to the internet?
Should investors have the ability to opt
out of the rule permanently and thereafter receive a paper copy of any statutory prospectus? How could this be implemented in practice? For example, how would a registrant that had no prior relationship with an investor be apprised of the investor’s decision to opt out?
The proposed rule would not permit the
summary prospectus to be bound together with any materials other than prospectuses for the portfolio companies that are available under the contract. This approach is modeled on rule 498(c). Do registrants currently rely on rule 498(c) to bind the variable contract’s statutory prospectus with the prospectuses or summary prospectuses for the underlying portfolio companies? Since reliance on the proposed rule would be optional, should we continue to permit binding to be consistent with rule 498(c)? Since we anticipate that most registrants will rely on the optional delivery method for portfolio company prospectuses as described in section II.B below, should the rule permit a variable contract summary prospectus to be bound with prospectuses and summary prospectuses of portfolio companies, or is such a provision unnecessary?
Under proposed rule 498A, use of the
summary prospectus would be voluntary. Should we make use of the summary prospectus regime mandatory for all variable contract registrants? If so, why? Would inconsistent use of the summary prospectus create confusion, or make comparison of variable contract products more difficult for investors? Would a mandatory approach adequately protect investors who have no or limited internet access or who prefer not to receive information about their investments over the internet? Should we first adopt the voluntary summary prospectus regime and consider whether the summary prospectus should be mandated in the future, and if so, what methods or approaches should we consider? What would be registrants’ primary considerations in determining whether to adopt the proposed voluntary summary prospectus regime? Would registrants be more likely to adopt the regime if the portions of the statutory prospectus that are also summary prospectus disclosures were segregated and placed at the beginning of the statutory prospectus?
If we were to adopt a summary
prospectus framework for variable contracts,

255See rule 498(c)(4), (d)(4), (e), and (f). 256See 2012 Financial Literacy Study, supra note 39, at iv, xix. 257Proposed rule 498A(h)(1); see also rule 498(e)(1). 258Proposed rule 498A(h)(1). 259Proposed rule 498A(h)(2)(i). 260Rule 498(e)(2)(i). 261As in the parallel provisions of the rule governing mutual fund summary prospectuses, the ‘‘human-readable’’ condition is intended to make clear that posted information must be presented in human-readable text, rather than machine-readable software code, when accessed through an internet browser and that it must be printable in humanreadable text. This condition does not impose any further requirements relating to user-friendliness of the presentation. See 2009 Summary Prospectus Adopting Release, supra note 33, at 85; see also infra note 274 and accompanying and following text (discussing provisions that are meant to enhance investors’ understanding of special terms when they view the summary prospectus online, as well as other technological tools associated with online disclosure (e.g., fee calculators, pop-up explanations) that would present further opportunities to promote investor understanding). 262Proposed rule 498A(i)(3); see also rule 498(f)(3) (parallel provision in the rule governing the use of mutual fund summary prospectuses). how should we evaluate the effectiveness of the new framework? What methods or approaches should we use to evaluate the rule, and what areas of the new framework should we focus on in any such review?

Should registrants that elect to rely on
rule 498A be required to send current investors a notice explaining the new delivery approach before sending the first updating summary prospectus? Would investors benefit from receiving such a notice? If so, should investors receive a separate notice about the transition, or should different methods of notifying investors be permitted? For example, should registrants be permitted to add the notice as an insert or legend to other documents they are already sending investors?

Online Accessibility of Contract
Statutory Prospectus and Certain Other Documents Relating to the Contract The proposed rule would permit investors who receive a succinct, userfriendly initial or updating summary prospectus to access more detailed information about the variable contract, either by reviewing the information online, or by requesting the information to be sent in paper or electronically. These provisions parallel provisions in the rule governing the use of mutual fund summary prospectuses.255 In our experience, layered disclosure for mutual funds has benefitted both investors and registrants, and we are proposing a similar framework for variable contracts. We believe that permitting variable contract investors to access the contract statutory prospectus in several ways (online and by physical or electronic delivery) maximizes the accessibility and usability of the information, as indicated by investors’ preference for access to both online and paper resources.256 a. Required Online Contract Documents Under the proposal, a variable contract’s current initial summary prospectus, updating summary prospectus, statutory prospectus, and SAI, and, in the case of a registrant on Form N–3, the registrant’s most recent annual and semi-annual reports to shareholders under rule 30e–1 under the Investment Company Act (together, the ‘‘required online contract documents’’), would be required to be available online. This approach operationalizes the layered disclosure framework that undergirds the proposed rule, with the summary prospectus provided in paper (or electronically) to investors, and additional information about the contract securities available online. The required online contract documents generally comprise the same set of documents that the mutual fund summary prospectus rules require to be posted online, and provide additional important detail about the contract that investors can access if they wish. The required online contract documents only reference the registrant’s annual and semi-annual shareholder reports for Form N–3 registrants because Form N– 4 and Form N–6 registrants do not have their own shareholder reports, but instead transmit the portfolio companies’ annual and semi-annual shareholder reports to the investors in their trust accounts. As with similar provisions in the mutual fund summary prospectus rule, these required online contract documents would be required to be publicly accessible, free of charge, at the website address that the cover page of the summary prospectus specifies, on or before the time that the person relying on the proposed rule provides the summary prospectus to investors.257 Moreover, a current version of each of the required online contract documents would be required to remain on that website for at least 90 days following either:

The time of the ‘‘carrying or delivery’’ of
the contract security if a person is relying on the proposed rule to satisfy its section 5(b)(2) prospectus delivery obligations; or
If a person is relying on the proposed
rule to send communications that will not be deemed to be prospectuses, the time that the person sends or gives the communication to investors.258 This requirement is designed to provide continuous access to the information from the time the summary prospectus is sent or given until at least 90 days after the date of delivery of a security or communication in reliance on the proposed rule. This is the timeframe for the availability of online information under the mutual fund summary prospectus rule, and we are proposing that it be the same in the proposed rule because of market participants’ familiarity with this timeframe, and because there may be operational efficiencies for certain registrants in having the timeframe be the same under both summary prospectus frameworks. Moreover, we believe this proposed timeframe appropriately balances the costs of maintaining information online with investors’ interests in having the flexibility to access this online information after receiving the summary prospectus (for example, if they would like to review a topic presented therein in more detail in the statutory prospectus that is available online, after they have had the opportunity to read and digest the summary prospectus). b. Formatting Requirements for Required Online Contract Documents The proposed rule would direct that the required online contract documents be presented in a manner that is humanreadable and capable of being printed on paper in human-readable format.259 This formatting requirement is a condition to reliance on the rule to satisfy a person’s delivery obligations under section 5(b)(2) of the Securities Act and the provision that a communication shall not be deemed a prospectus under section 2(a)(1) of the Securities Act. The rule governing mutual fund summary prospectuses also requires this formatting approach.260 The ‘‘human-readable’’ presentation requirement is designed to impose a minimum standard of usability comparable to that of a paper document, although we understand that the electronic version could include additional features that might enhance the usability of the electronic version relative to the paper version.261 For example, regarding usability, all portions of the document should be human-readable such that when an investor views the document on an internet browser, the text does not get cut off based on the screen size. In addition, the proposed rule would mandate that the online materials be presented in a format that is convenient for both reading online and printing on paper.262 The failure to comply with these ‘‘convenient for reading and printing’’ formatting requirements would not, however, be a condition of reliance on the rule, because whether a particular format is convenient for

263See 2009 Summary Prospectus Adopting Release, supra note 33, at nn.272 and 273 and accompanying text (relevant factors include the manner in which the online version renders charts, tables, and other graphics; the extent to which the online materials include search and other capabilities of the internet to enhance investors’ access to information and include access to any software necessary to view the online version; and the time required to download the online materials). 264Proposed rule 498A(i)(4); see also rule 498(f)(5) (parallel provision in the rule governing the use of mutual fund summary prospectuses). 265Proposed rule 498A(h)(2)(ii) and (iii). 266See rule 498(e)(2)(ii) and (iii). As discussed below, the parallel provisions of proposed rule 498A also include similar linking requirements for the portfolio company documents that the proposed rule would require to appear online if a person were to rely on the rule’s new delivery option for portfolio company prospectuses. In this release, the term ‘‘substantively identical’’ is meant to refer to sets of provisions that do not include the same words verbatim, but where the only differences between the provisions are those that do not affect the substance of the requirement at issue. For example, parallel provisions in rule 498 and 498A where only the internal crossreferences differ. 267Proposed rule 498A(h)(2)(ii). The linked table of contents may be outside the document (e.g., in a separate section or panel of the screen), and need not be the table of contents that is contained within the document itself, as long as the linked table of contents for the statutory prospectus conforms to our rules’ requirements for the table of contents that would be required to appear within the document). See rule 481(c) under the Securities Act. Mutual funds commonly implement this feature using a left navigation or ‘‘bookmark’’ design style. While such design styles continue to be popular (and we anticipate that some insurers relying on proposed rule 498A might also employ this design style), the increased use of mobile devices and applications has led to the development of new and evolving design styles. Any navigation style should provide the functionality that is required by the rule. 268Proposed rule 498A(h)(2)(iii). 269 Id. Under the latter option, links would either have to be available at both the beginning and end of the summary prospectus, or would be required to remain continuously visible to persons accessing the summary prospectus. This requirement is designed to promote the links’ prominence and accessibility to investors. 270Rule 421(d) of the Securities Act; see also proposed General Instruction B.4(c) to Form N–3; proposed General Instruction B.4(c) to Form N–4; proposed General Instruction B.4(c) of Form N–6. 271Proposed rule 498A(e). For example, the summary prospectus could include a glossary or a list of definitions of special terms that appear throughout the document. Or, as
another example, if a special term appears in only one section of the summary prospectus, the summary prospectus could include a definition for this term on the page, or in the section, where this term appear (for example, in a box to the side of the main text, or at the bottom of the page). Additionally, there are certain technological solutions that are available for electronic versions of the summary prospectus, such as moving or ‘‘hovering’’ the computer’s pointer or mouse over the term, or linking directly back and forth between each special term and the corresponding entry in a glossary or list of definitions. See infra note 274 and accompanying and following text. 272See proposed General Instruction C.3(d) to Form N–3; proposed General Instruction C.3(d) of Form N–4; proposed General Instruction C.3(d) to Form N–6; see also Item 2 of current Forms N–3 and N–4. 273Because variable contract prospectuses must describe the products’ insurance and investment features, they generally contain more technical terms than mutual fund disclosure documents, which only describe investment features. 274For example, investors could view the definitions of special terms by moving or ‘‘hovering’’ the computer’s pointer or mouse over the term, or selecting the term on a mobile device. 275Proposed rule 498A(h)(2)(iv). reading online and printing depends on a number of factors and must be decided on a case-by-case basis.263 In order to provide certainty to market participants, we are therefore not proposing that this requirement be a condition of reliance on the rule, and thus the failure to comply with this requirement would not negate a person’s ability to rely on the rule in order to satisfy a person’s delivery obligations under section 5(b)(2) of the Securities Act.264 Such a failure could, however, constitute a violation of Commission rules.
c. Linking Within and Between
Documents
The proposed rule also includes requirements for linking within the electronic versions of the contract statutory prospectus and SAI that are available online, and also for linking between electronic versions of contract summary and statutory prospectuses that are available online.265 The proposed requirements, which are substantively identical to parallel provisions in the rule governing mutual fund summary prospectuses,266 are designed to promote the usability of the information that appears in these documents. The first linking requirement would allow the reader to move directly between a table of contents of the contract statutory prospectus or SAI and the related sections of that document, by a single mouse click or mobile-device tap.267 The second linking requirement would allow the reader to move back and forth between each section of the summary prospectus and any related
section of the contract statutory
prospectus and contract SAI that provides additional detail.268 This backand-forth movement could occur either directly from the summary prospectus to the relevant section of the statutory prospectus or SAI, or indirectly by linking from the summary prospectus to a table of contents in the statutory prospectus or SAI, in which case two mouse clicks or mobile-device taps would be required.269 d. Definitions of Special Terms, and Online Viewing of Special Terms The summary prospectus content requirements reference information that is required to appear in the contract statutory prospectus, which in turn must be written using plain English principles.270 We recognize, however, that it may be particularly challenging to accurately describe a variable contract without using certain terms that, while technically accurate, may be confusing or unfamiliar to retail investors. Accordingly, the proposed rule would require a summary prospectus to define any ‘‘special terms’’ elected by the registrant, using any presentation that clearly conveys their meaning to investors.271 This requirement reflects the proposed instructions in Forms N– 3, N–4, and N–6 (as well as current, similar instructions in these forms to define ‘‘special terms’’ in a glossary or index).272 The registrant would determine which terms would constitute special terms. We generally believe that a special term is a term with which a new contract investor typically may not be familiar, and that would be important for the investor to understand key features of the contract. We believe the proposed requirement for special terms in the contract summary prospectus, like the current and proposed requirements for special terms in the contract statutory prospectus, is appropriate in the context of variable contracts, as variable contract disclosure documents tend to include industry-specific language in order to describe the sometimes complex features of these products.273 Glossaries or other means of defining these terms could help a retail investor better understand these products’ terms and features, as discussed further below. In order to leverage technology to help investors understand the variable contract, the proposed rule includes provisions that are meant to enhance investors’ understanding of special terms when they view the summary prospectus online. Specifically, the proposed rule would require that investors either be able to view the definition of each special term used in an online summary prospectus upon command,274 or to move directly back and forth between each special term and the corresponding entry in any glossary or list of definitions that the summary prospectus includes.275 This approach, which today is a common convention for many electronically-available documents, is an example of how technology can enhance our layered approach to disclosure and help investors who access the document online grasp the complexities of variable contract features. Registrants may wish

276Proposed rule 498A(h)(3).
277See rule 498(e)(3).
278Proposed rule 498A(i)(3).
279See supra note 262 and accompanying text. 280Proposed rule 498A(i)(4). 281See supra notes 263 and 264 and accompanying text. 282Proposed rule 498A(f)(4) (section 5(b)(2) transfer of the contract security is satisfied if, among other things, the conditions in proposed rule 498A(h) are satisfied). 283Such events might, for example, include system outages or other technological issues, natural disasters, acts of terrorism, or pandemic illnesses. 284Proposed rule 498A(h)(4); see also rule 498(e)(4). 285 Id.; see also 2009 Summary Prospectus Adopting Release, supra note 33, at nn.92 and 93. This safe harbor generally would not be available to a registrant that repeatedly fails to comply with the rule’s website posting requirements or that is not in compliance with the requirements over a prolonged period. Id. at n.293. 286See supra notes 261 and 263 and accompanying text. to consider whether other technological tools associated with their online disclosure (e.g., fee calculators, pop-up explanations) would present further opportunities to promote investor understanding. e. Ability To Retain Documents The proposed rule also would require that persons accessing the website that appears on the summary prospectus cover page be able to permanently retain, free of charge, an electronic version of each of the required online contract documents. Like the online version of these documents, the retainable version of the documents must be in a format that is: (1) Humanreadable and capable of being printed on paper in human-readable format; and (2) permits persons accessing the downloaded documents to move directly back and forth between each
section heading in a table of contents of
that document and the section of the document referenced in that section heading.276 The permanently retained document does not have to be in a format that allows an investor to move back and forth between the summary prospectus and the statutory prospectus and SAI, because of possible technical difficulties associated with maintaining links between multiple downloaded documents. These proposed conditions are substantively identical to parallel provisions in the rule governing mutual fund summary prospectuses.277 In addition, the proposed rule would mandate that the electronic versions of the documents that may be permanently retained must be in a format that is convenient for both reading online and printing on paper.278 Like the ‘‘convenient for reading and printing’’ online formatting requirements,279 the failure to comply with these formatting requirements for retained electronic documents would not be a condition for reliance on the rule.280 Since the convenience of these formatting requirements must be decided on a caseby-case basis, we believe this proposed approach would help provide certainty to market participants who seek to rely on the proposed rule to satisfy prospectus delivery obligations.281 f. Safe Harbor for Temporary Noncompliance Compliance with the conditions in the proposed rule regarding the online availability of the required online contract documents (including the formatting and linking requirements for these documents, the requirements associated with the use of special terms in these documents, and the ability to retain these documents permanently) is generally required in order to rely on the proposed rule to meet prospectus delivery obligations under section 5(b)(2) of the Securities Act.282 Such a failure to comply with any of these conditions could result in a violation of
section 5(b)(2) unless the contract
statutory prospectus is delivered by means other than reliance on the rule. We recognize, however, that there may be times when, due to events beyond a person’s control, the person may temporarily not be in compliance with the proposed rule’s conditions regarding the availability of the required online contract documents.283 The proposed rule therefore contains a safe harbor provision for temporary noncompliance, which is substantively identical to a parallel provision in the rule governing mutual fund summary prospectuses.284 This provision provides that the conditions regarding the availability of the required online contract documents will be deemed to be met, even if the required online contract documents are temporarily unavailable, provided that the person has reasonable procedures in place to ensure that those materials are available in the required manner. A person relying on the proposed rule to satisfy prospectus delivery obligations would be required to take prompt action to ensure that those materials become available in the manner required as soon as practicable following the earlier of the time when the person knows, or reasonably should have known, that the documents were not available in the manner required.285 We request comment generally on the conditions in the proposed rule regarding the availability of the required online contract documents, and specifically on the following issues:

Should we require the online posting of
the required online contract documents in the manner that the proposed rule specifies? Should we require that the required online contract documents be available on the insurance company’s website as opposed to a third-party website? Should the website include an archive of older versions of these documents (not just the current versions)? If so, what information should be in the archive, and how long should such materials be required to be archived online?
Should we require, as proposed, that
persons accessing this website be able to permanently retain, through downloading or otherwise, free of charge, an electronic version of such documents? Should we require that downloaded documents retain links that enable a user to move readily between related passages of multiple documents? Would these requirements pose any technological, financial, or other challenges for persons relying on the proposed rule?
Does the proposed 90-day timeframe for
the availability of online information appropriately balance the costs of maintaining information online with investors’ interests in having the flexibility to access this online information after receiving the summary prospectus? Would there be operational efficiencies for certain registrants in having the timeframe be the same under the variable contract summary prospectus framework and the mutual fund summary prospectus framework? How long do registrants typically maintain information online that is required under the mutual fund summary prospectus rules? As a matter of practice, is information generally maintained for a full year from the date of the summary prospectus?
Should we provide additional guidance
regarding what might constitute a ‘‘humanreadable’’ format for providing the required online contract documents, as well as a ‘‘convenient’’ format for both reading these documents online and printing them on paper? 286 Or should persons relying on the proposed rule have the flexibility to determine how best to comply with this or other technological requirements that the proposed rule contemplates? Is it necessary for the proposed rule to include separate provisions regarding the ‘‘human-readable’’ website presentation of the required online contract documents, as well as the ‘‘convenient for reading and printing’’ presentation? Is it appropriate that, of these two provisions, the former should be a condition to relying on the rule to satisfy
section 5(b)(2) prospectus delivery
requirements, whereas the latter should not? If we were to modify these provisions, should we also propose to modify the parallel provisions in the rule governing mutual fund summary prospectuses? Should we instead retain one of these provisions, and if so which? If the final rule retains only one of these provisions, should we propose to modify rule 498 to similarly only retain just that provision?
Although the proposed rule specifies
that the materials posted online must be in

287See infra section II.E.
288Proposed rule 498A(i)(1) (permitting an investor to request either a paper copy of the required online contract documents, or an electronic copy of such documents); see also rule 498(f)(1) (parallel provision in the rule governing the use of mutual fund summary prospectuses); proposed Item 1(b)(1) of Forms N–3, N–4, and N– 6 (requiring the prospectus to provide a toll-free telephone number for investors to call to request the SAI, to request other information about the contract, and to make investor inquiries). 289Proposed rule 498A(i)(1). a human-readable format, should we also require that the materials be posted online in a machine-readable format to promote the gathering and dissemination of information by data aggregators, or to facilitate the review, analysis, and comparison by investors and other data users? For example, should we require the materials to be posted online to use Inline XBRL, as we are proposing to require for certain disclosures in statutory prospectuses that are filed with the Commission? 287 Why or why not?

Are the proposed linking requirements
appropriate and useful? Will these requirements help investors to navigate effectively within and between these documents? If not, why not? Are there other ways we can improve the usability of these documents? What are some options for enabling the linking requirements? Are the proposed linking requirements sufficiently technology-neutral and flexible enough to accommodate future technological developments?
Should persons accessing the summary
prospectus be able to view the definition of special terms upon command? Is the term ‘‘special terms’’ sufficiently clear, and is the proposed requirement that the document permit a person to ‘‘view the definition of each special term . . . upon command’’ sufficiently clear? Are the examples in the proposed rule text of what it means to view a term upon command (e.g., by moving or ‘‘hovering’’ the computer’s pointer or mouse over the term, or selecting the term on a mobile device) helpful? What are some options for enabling the ‘upon command’ features? Are there other examples we should include?
Should we require both the initial
summary prospectus and the updating summary prospectus to define special terms? Should the updating summary prospectus, for example, be exempt from this requirement given that such documents are likely to be relatively brief and may only include a few defined terms? Are there other considerations that would create operational complications to requiring the updating summary prospectus to define special terms, such as any burden associated with updating definitions from year to year?
Should we require registrants to
electronically format the summary prospectus to allow investors to move directly back and forth between each defined term and the corresponding entry in a ‘‘glossary’’ section, if any? Should we extend this requirement to the contract statutory prospectus, or other required online contract documents? Is this functionality appropriate and useful? Is there a reason we should permit this capability, but not require it? What are some technology options that would enable investors to move directly back and forth between each term and the glossary?
How can we encourage insurers to make
fuller use of innovative technology to enable more interactive, user-friendly summary prospectus disclosure, while still creating a short, easy-to-read document that includes the proposed content? Are there potential tools that we should encourage or require insurers to use in order to make their disclosures more interactive and understandable? Should the proposed rule incorporate any additional requirements for technological tools to promote further investor understanding? For example, should we require that the required online contract documents be accompanied with any other technological tools (e.g., additional embedded hyperlinks, fee calculators, popup explanations, tools to sort or compare optional benefits or portfolio companies) that encourage interactivity and could help investors understand the features and risks of their contracts?
Should we mandate that the required
online contract documents be available in formats that are compatible with mobile devices such as smartphones and tablets, or that are optimized for use with these types of technology platforms? Is the language of the proposed rule broad enough to contemplate current and future technology platforms? Should we incorporate any special provisions in the proposed rule, or provide guidance, regarding design features that could promote investor understanding of information that investors view on smartphones and tablets—for example, placement and prominence of certain disclosure (e.g., in terms of size, color, and graphic treatment), designing disclosure so that ‘‘scrolling’’ is not necessary in order to find certain disclosure elements, and including certain explicit instructions on disclosure that appears online and on mobile device platforms (e.g., ‘‘click here’’ or ‘‘see below’’) to assist investors in navigating the required online contract documents? Should we require persons relying on the proposed rule to make available the information in formats that serve individuals that may be visually impaired, or other formats that promote accessibility, including alternatives that use languages other than English? Should we consider other ways to provide for greater accessibility, portability, and utility of the required online contract documents?
Does the proposed rule appropriately
provide a safe harbor to address the possibility of inadvertent technological problems? Should persons relying on the proposed rule who have technological issues that prevent them from complying with the online posting requirements of the rule for a period of time be required to disclose on the website that the information was not available for a time in the manner required and explain the reasons for the failure to comply? If not, why not?
Are those aspects of the proposed rule
that mirror the approaches taken in the rule governing the use of mutual fund summary prospectuses (e.g., required online documents, formatting requirements, linking, ability to retain online documents, safe harbor for temporary noncompliance) appropriate in the context of variable contract disclosure? Are there differences between the respective disclosure frameworks for mutual funds versus variable contracts, or operational aspects associated with these different types of investment products, that warrant a different approach? If so, what modifications should we consider?
How else could we modify the proposed
summary prospectus regime to take greater advantage of modern technology to modernize current disclosure practices for variable contracts? For example, should insurers consider employing technology to require a retail investor to scroll through the entirety of the summary prospectus before entering the next stage in the sales process, accessing a different part of the insurer’s website to obtain more information, or checking a box to submit the application to purchase a variable contract? Are there other ways that technology could be used to encourage investors to read the summary prospectus?
Does the proposal sufficiently encourage
electronic design and delivery? Are there other ways we can modify the requirements to make clear that paper-based delivery is not the only permissible or desired delivery format?
Are there other requirements that we
should consider for insurers that are offering variable contracts to retail investors? Should we require that certain disclosures be presented in a manner reasonably calculated to draw retail investor attention to it? Are there other ways to ensure that retail investors receive the information they need to clearly understand the features, costs and risks of the variable contract they are considering?

Other Requirements for Summary
Prospectus and Other Contract Documents Under the proposed rule, an investor who receives a contract summary prospectus and who would also like to review the required online contract documents would be able to choose whether to review these documents online or to receive that information directly, in paper or electronic format as requested by the investor. Accordingly, the proposed rule would require a registrant (or financial intermediary distributing the contract) to send a paper or electronic copy of the required online contract documents to any person requesting such a copy.288 The person must send requested paper documents at no cost to the requestor, by U.S. first class mail or other reasonably prompt means, within three business days after receiving the request. The proposed rule also would require a registrant or intermediary to send electronic copies of these documents upon request within three business days.289 The proposed rule

290 Id.
291See rule 498(f)(1). We understand that persons relying on rule 498 have effective processes in place to handle requests for paper or electronic delivery of mutual fund materials that are available online, within the three-business-day time period that the rule specifies. See Comment Letter of the Investment Company Institute on Investment Company Reporting Modernization, File No. S7– 08–15 (Mar. 14, 2016) (stating that fund firms have ‘‘specific, highly effective processes in place to handle requests under Rule 498’’); see also Investment Company Reporting Modernization, Investment Company Act Release No. 31610 (May 20, 2015) [80 FR 33590 (June 12, 2015)] (‘‘Investment Company Reporting Modernization Proposing Release’’). 292Proposed rule 498A(i)(2); see also rule 498(f)(2) (parallel provision in the rule governing the use of mutual fund summary prospectuses). 293The Commission’s rationale was similar for the parallel provision in the rule governing mutual fund summary prospectuses. See 2009 Summary Prospectus Adopting Release, supra note 33, at n.217 and accompanying text. 294See similar discussion in 2009 Summary Prospectus Adopting Release, supra note 33, at n.220 and accompanying text. 295See proposed rule 498A(i)(4). A parallel requirement would also apply to statutory prospectuses. See proposed General Instruction C.3.(i) to Forms N–3, N–4, and N–6. 296 Id.; see also rule 105 of Regulation S–T [17 CFR 232.105] (prohibiting hyperlinking to websites, locations, or other documents that are outside of the EDGAR system). 297Commenters expressed this concern about the parallel requirement in the rule governing mutual fund summary prospectuses, when it was proposed. See Comment Letter of the Investment Company Institute on Enhanced Disclosure and New Prospectus Delivery Option for Registered OpenEnd Management Investment Companies, File No. S7–28–07 (Feb. 28, 2008). 298Proposed rule 498A(i)(5); see also rule 498(f)(5) (parallel provision in the rule governing the use of mutual fund summary prospectuses). The proposed rule’s requirements would mandate that (1) the required online documents be presented in a format that is convenient for reading and printing, and (2) a person be able to retain electronic versions of these documents in a format that is convenient for reading and printing, also are not conditions to relying on the rule to satisfy prospectus delivery obligations. See supra notes 262 and 278 and accompanying text. would also provide that the requirement to send an electronic copy of a document may be satisfied by sending a direct link to the online document; provided that a current version of the document is directly accessible through the link from the time that the email is sent through the date that is six months after the date that the email is sent and the email explains both how long the link will remain useable and that, if the recipient desires to retain a copy of the document, he or she should access and save the
document.290 Collectively, these requirements are intended to ensure that an investor has prompt access to the required information in a format that he or she prefers. The three-business-day time period for sending the required online contract documents mirrors the parallel provision of the mutual fund summary prospectus rule.291 Under the proposed approach, investors who prefer paper copies of prospectuses but do not have ready access to the internet (or the ability to print out the statutory prospectus that is made available online) would not be able to elect in advance to receive paper copies of all future statutory prospectuses unless a registrant chose to give investors that option. Assuming no such accommodation, investors would need to follow the summary prospectus legend’s instruction on how to request paper delivery each time a summary prospectus is available. Those that do not take the additional step of requesting paper delivery would not receive the statutory prospectus in their preferred format. While we recognize that this could provide a challenge for these investors, we nonetheless believe that the proposed approach appropriately balances the interests of the number of variable contract investors whom we believe would benefit from the convenience of online documents against the number of those whom we believe prefer paper. In addition to the requirement to provide certain documents upon request in paper or electronically, the proposed rule also requires that a contract summary prospectus must be given greater prominence than any materials that accompany the summary prospectus.292 We believe that this requirement is important to prevent any accompanying sales or other materials from obscuring the contract summary prospectus, and to highlight for investors the concise presentation of the summary prospectus, and the salience of the information included therein.293 Generally, we believe that the greater prominence requirement would be satisfied if the placement of the contract summary prospectus makes it more conspicuous than any accompanying materials (e.g., the summary prospectus is on top of a group of papers that are provided together, or listed first if presented on a website together with other materials related to the contract).294 The proposed rule would also require any website address or cross-reference that is included in an electronic version of the summary prospectus (i.e., electronic versions sent to investors or available online) to be an active hyperlink.295 This instruction is intended to ensure that investors viewing electronic versions of the prospectus are able to easily access website addresses and cross-referenced materials that are referenced in the prospectus. This requirement would not apply to summary prospectuses that are filed on the EDGAR system.296 The failure to comply with each of these additional requirements would not be a condition of reliance on the rule, in order to provide greater certainty to
market participants who seek to rely on the rule. For example, market participants could be concerned that the three-business-day requirement could be violated on account of weather issues or other forces outside of the control of a person seeking to rely on the rule. Similarly, market participants could be concerned if compliance with the greater prominence requirement were a condition to rely on the proposed rule, because whether one is in compliance with this requirement could entail a certain degree of subjectivity.297 Thus, we are proposing that the failure to comply with either requirement would not negate a person’s ability to rely on the rule to satisfy a person’s delivery obligations under section 5(b)(2) of the Securities Act.298 This failure would, however, constitute a violation of Commission rules. We request comment generally on the requirements we discuss in this section, and specifically on the following issues:

Should persons relying on the proposed
rule be required to send the required online contract documents to any person requesting such documents within three business days after receiving such a request? Would a different period be appropriate? Should compliance with this requirement be a condition to reliance on the proposed rule? If not, why not?
Does the proposed rule effectively
promote investors’ ability to request paper copies of the required online contract documents? Are there any changes to the proposed rule that we should consider to make the process for requesting paper copies of such documents more convenient for investors? Should we require registrants to make available to investors a way to opt into the automatic annual delivery of future statutory prospectuses in a paper format without having to specifically request the documents each year? What would be the operational challenges of this approach to registrants? Should we allow registrants to give investors the option of automatic delivery of future statutory prospectuses in paper?
Should the rule require that the
summary prospectus be given greater prominence that any materials that accompany the summary prospectus? If not, why not? Does this requirement pose any challenges to registrants? How might a summary prospectus be given greater prominence than any materials that accompany the summary prospectus when being delivered or made available electronically?
Should compliance with any or all of the
proposed requirements discussed in this

299Proposed rule 498A(d)(2); see also rule 498(b)(3)(ii). 300See 2009 Summary Prospectus Adopting Release, supra note 33, at paragraph accompanying n.327. 301Proposed rule 498A(d)(2) references rule 30e– 1, which applies only to management companies (Form N–3 registrants). While Form N–4 and Form N–6 registrants must transmit the portfolio companies’ annual and semi-annual shareholder reports to the investors in their trust accounts (see rule 30e–2 under the Investment Company Act), we would not expect a registrant would wish to incorporate by reference information from a portfolio company shareholder report into the contract prospectus even if such information by reference was permissible. Accordingly, we do not reference rule 30e–2 in the proposed rule. 302Proposed rule 498A(d)(2)(ii); see also supra sections II.A.1 (describing proposed content requirements for the initial summary prospectus) and II.A.2 (describing proposed content requirements for the updating summary prospectus). 303Proposed rule 498A(d)(2)(iii). 304Cf. Item 10(d) of Reg. S–K [17 CFR 229.10(d)] (‘‘Except where a registrant or issuer is expressly required to incorporate a document or documents by reference . . . reference may not be made to any document which incorporates another document by reference if the pertinent portion of the document containing the information or financial statements to be incorporated by reference includes an incorporation by reference to another document.’’). General Instruction D.2 to current Form N–6 makes Item 10(d) of Regulation S–K applicable to incorporation by reference into a variable life insurance contract’s statutory prospectus. 305Proposed rule 498A(d)(2)(i) (referencing proposed rule 498A(h), among other paragraphs in the proposed rule); see also supra section II.A.4. 306Proposed rule 498A(b)(2)(vi)(C) and 498A(c)(3)(vi). 307 Id. This requirement mirrors the requirements of rule 498(b)(1)(v)(B), and is similar to the requirements of rule 411(d) under the Securities Act [17 CFR 230.411(d)], which requires that information incorporated by reference ‘‘be clearly identified in the reference by page, paragraph, caption or otherwise.’’ Rule 411 is also subject to the 2017 FAST Act Modernization rulemaking proposal (which includes proposed amendments to the Commission’s rules on incorporation by reference). See FAST Act Modernization and Simplification of Regulation S–K, Securities Act Release No. 10425 (Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (‘‘2017 FAST Act Proposal’’). We requested that comments on the 2017 FAST Act Proposal be submitted by January 2, 2018. 308 Id.; see also supra discussion in section II.A.4 and 5. 309See supra note 300 and accompanying text. 310Proposed rule 498A(d)(1); see also rule 498(b)(3)(i) (parallel provision in the rule governing the use of mutual fund summary prospectuses); General Instruction G of current Forms N–3 and N– 4; General Instruction D of current Form N–6 (permitting a registrant to incorporate by
reference all or part of the SAI into the prospectus without delivering the SAI with the prospectus).
section be a condition of reliance on the rule?
That is, should failure to comply with these requirements result in a violation of section 5(b)(2) of the Securities Act? Alternatively, should the failure to comply with these requirements be a violation of Commission rules that does not result in an inability to rely on the rule or a violation of section 5(b)(2)?

The proposed rule would require any
website address or cross-reference that is included in an electronic version of the summary prospectus (i.e., electronic versions sent to investors or available online) to be an active hyperlink. To what extent, if any, would this requirement present challenges or add costs or burdens with respect to the use of summary prospectuses, given that active links are not required in EDGAR filings (and active links to websites, locations, and documents outside of the EDGAR system are expressly prohibited pursuant to rule 105 of Regulation S–T [17 CFR 232.105])?

Incorporation by Reference
a. Permissible Incorporation by Reference The proposed rule would permit a registrant to incorporate by reference into the summary prospectus information contained in the contract statutory prospectus and SAI, subject to certain conditions.299 Much like with the mutual fund summary prospectus, we do not intend the variable contract summary prospectus to be a selfcontained disclosure vehicle, but rather one element in a layered disclosure regime.300 Any information incorporated by reference would be separately made available to investors, either electronically or in paper. A Form N–3 registrant also could incorporate by reference into the summary prospectus information from its reports to shareholders that the registrant has incorporated by reference into its statutory prospectus.301 A registrant would not be permitted to incorporate by reference into the summary prospectus information from any other source. Moreover, a registrant could not incorporate by reference any information that would be required to appear in the contents of the initial summary prospectus or the updating summary prospectus.302 Information could be incorporated by reference into the summary prospectus only by reference to the specific document that contains the information, and not by reference to another document that incorporates the information by reference.303 For example, if a contract statutory prospectus were to incorporate the contract SAI by reference, the summary prospectus could not incorporate information in the SAI simply by referencing the statutory prospectus but would be required to reference the SAI directly.304 The proposed rule would permit incorporation by reference only if the registrant satisfies the rule’s conditions that prescribe the means by which the required online contract documents must be made available to investors.305 In addition, if a registrant incorporates information by reference into a summary prospectus, the summary prospectus legend must specify the type of document (e.g., statutory prospectus) that contains the incorporated information and the date of the document.306 If a registrant incorporates a part of a document by reference into the summary prospectus, the summary prospectus legend must clearly identify the part by page, paragraph, caption, or otherwise.307 The legend would also explain that the incorporated information may be obtained, free of charge, in the same manner as the contract statutory prospectus.308 The conditions on the availability of information that is incorporated by reference into the contract summary prospectus, and on identifying the information that is incorporated by reference, are intended to facilitate access to this information. Parallel conditions exist in the rule governing mutual fund summary prospectuses. Based on our experience, we believe that investors have found this approach to be useful. Therefore, we are proposing similar conditions for incorporation by reference for variable contract summary
prospectuses.309 A registrant that fails to comply with any of the above conditions is not permitted to incorporate information by reference into its summary prospectus. A registrant that does comply with these conditions, however, including the conditions for providing the documents that include the incorporated information online, would not also be required to send or give the incorporated information to investors together with the summary prospectus.310 The contract summary prospectus, together with information incorporated therein by reference, would be subject to liability under sections 12(a)(2) and 17(a)(2) of the Securities Act.

311See rule 159 under the Securities Act. Under section 12(a)(2) of the Securities Act, sellers have liability to purchasers for offers or sales by means of a prospectus or oral communication that includes an untrue statement of material fact or omits to state a material fact that makes the statements made, based on the circumstances under which they were made, not misleading. Section 17(a)(2) of the Securities Act is a general antifraud provision, which makes it unlawful for any person in the offer and sale of a security to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 312Proposed rule 498A(d)(3); see also rule 498(b)(3)(iii) (parallel provision in the rule governing the use of mutual fund summary prospectuses); 2009 Summary Prospectus Adopting Release, supra note 33, at nn.106 through 110. 313See 2009 Summary Prospectus Adopting Release, supra note 33, at nn.109 and 110 (discussing further considerations of liability under sections 12(a)(2) and 17(a)(2) of the Securities Act, as well as reliance under section 19(a) of the Securities Act). 314See proposed Item 34(r) of Form N–3; proposed Item 28(o) of Form N–4; proposed Item 29(r) of Form N–6. The filing process and format of these documents would be dictated by current Commission rules, including its rules on electronic submissions and exceptions. See, e.g., rule 101 of Regulation S–T [17 CFR 232.101] (providing, among other things, that registration statements and prospectuses filed pursuant to the Securities Act shall be submitted in electronic format). 315See 2009 Summary Prospectus Adopting Release, supra note 33, at n.73. The contents of a mutual fund summary prospectus consist of the information required or permitted by Items 2–8 of Form N–1A, which constitutes the summary section of the statutory prospectus. See rule 498(b)(2). 316See, e.g., Items 2 and 3 of Forms N–3, N–4, and N–6. 317See, e.g., proposed Item 11(a) of Form N–3; proposed Item 10(a) of Form N–4; proposed Item 10(a) of Form N–6; proposed Item 12(a) of Form N– 3; proposed Item 11(a) of Form N–4; proposed Item 11(a) of Form N–6. (These are the proposed ‘‘Standard Death Benefit’’ and ‘‘Other Benefits Available Under the Contract’’ disclosure items for Forms N–3, N–4, and N–6.). While only certain information of the statutory prospectus is required to be included in the summary prospectus, proposed rule 498A permits the summary prospectus to incorporate by reference some or all of the information contained in the statutory prospectus or SAI. 318For example, in the initial summary prospectus, the Fee Table would be located towards the end of the prospectus, with more summary type of fee information would be provided earlier in the summary prospectus as part of the Key Information
Table. In contrast, the Fee Table in the statutory
prospectus is closer to the front of the document, where it has been traditionally located. b. Effect of Incorporation by Reference Rule 159 under the Securities Act provides that any information ‘‘conveyed’’ to a purchaser after the time of sale will not be taken into account, for purposes of determining whether a prospectus or oral statement included an untrue statement of material fact at the time of sale for purposes of sections 12(a)(2) and 17(a)(2) of the Act.311 The proposed rule would provide that, for purposes of rule 159, information is conveyed to a person not later than the time the person receives a summary prospectus, if that information is incorporated by reference into the summary prospectus in accordance with the proposed rule’s conditions.312 This addresses the question of when information that is incorporated by reference into the contract summary prospectus is conveyed for purposes of liability under sections 12(a)(2) and 17(a)(2) of the Securities Act.313 We request comment generally on the proposal to permit incorporation by reference into the summary prospectus and specifically on the following issues:

Should we permit the contract statutory
prospectus, SAI, and shareholder reports to be incorporated by reference into the summary prospectus? Are there special considerations in the case of variable contracts that warrant different incorporation by reference provisions than those under rule 498? For example, is there any other information we should permit registrants to incorporate by reference into the proposed contract summary prospectuses? Should we permit a registrant to incorporate by reference any information that is required to be included in the summary prospectuses? If so, should this approach vary based on the type of summary prospectus (initial summary prospectus versus updating summary prospectus)?
Should we require, as proposed, that
materials incorporated by reference into the summary prospectuses be available online? Are there additional or different conditions we should impose on the ability to incorporate by reference into the summary prospectus?
The proposed rule would provide that,
for purposes of rule 159, information is conveyed to a person not later than the time the person receives a summary prospectus, if that information is incorporated by reference into the summary prospectus in accordance with the proposed rule’s conditions. Is this proposed provision, which mirrors the approach taken in the rule governing mutual fund summary prospectuses, also appropriate for variable contracts? Are there differences between mutual funds and variable contracts that warrant an alternative approach? If so, what modifications should be considered? Should the proposed provision apply to both types of summary prospectus (initial and updating)? Are there any modifications that would be appropriate depending on the type of summary prospectus?

Filing Requirements for the Summary
Prospectus a. Preliminary Form of Summary Prospectus We are proposing to require that registrants file a preliminary form of any contract summary prospectus (initial or updating summary prospectus) that the registrant intends to use on or after the effective date of the registration statement as an exhibit to the registration statement (‘‘preliminary summary prospectus’’).314 Registrants would only be required to provide the preliminary summary prospectus exhibit in connection with the filing of an initial registration statement, or in connection with a pre-effective amendment or a post-effective amendment filed in accordance with paragraph (a) of rule 485 under the Securities Act. We believe that it is important that Commission staff have the opportunity to review a variable contract’s summary prospectus for compliance with the proposed rule and the relevant form requirements prior to its first use. However, we note that this approach differs from the approach regarding mutual fund summary prospectuses. The Commission elected not to require the filing of a mutual fund summary prospectus prior to first use because the content of the summary prospectus would be essentially identical to the content of the summary section of the statutory prospectus, which is filed prior to its first use.315 In contrast, the proposed rule does not require the variable contract statutory prospectus to contain a standalone summary section from which a summary prospectus is created. In addition, while some variable contract summary prospectus disclosures would be identical to those in the statutory prospectus,316 others would include only part of the information required in the statutory prospectus.317 For example, the proposed rule would require an initial summary prospectus only to describe the features and options of the contract that the registrant currently offers, while the statutory prospectus could include information regarding contracts that the registrant no longer sells to new investors. The initial summary prospectus and updating summary prospectus would also present certain information in a different order than might appear in the contract statutory prospectus.318 Furthermore, certain disclosure requirements differ depending on whether the summary prospectus is an initial summary prospectus or an updating summary prospectus. We do not believe that registrants would need to visually identify or otherwise segregate those portions of the statutory prospectus that are also summary prospectus disclosures, and we recognize that doing so could impede the effective presentation of information in a contract statutory prospectus to investors.

319Proposed amended rule 497(k).
320A summary prospectus filed with the Commission would be publicly available; however, a registrant could not rely on this availability to satisfy the requirements to post the document online. See supra section II.A.4. 321See rule 497(k). 322 15 U.S.C. 77j(b) and 77k. Under section 11 of the Securities Act [15 U.S.C. 77k], purchasers of an issuer’s securities have private rights of action for untrue statements of material facts or omissions of material facts required to be included in the registration statement or necessary to make the statements in the registration statement not misleading. Congress provided a specific exception from liability under section 11 for summary prospectuses under section 10(b) of the Securities Act in order to encourage the use of summary prospectuses. L. Loss & J. Seligman, Securities Regulation, § 2–b–5 (3d ed. 2006) (citing S. Rep. 1036, 83d Cong., 2d Sess. 17–18 (1954) and H.R. Rep. 1542, 83d Cong., 2d Sess. 26 (1954)). 323Section 10(b) of the Securities Act (‘‘A prospectus permitted under this subsection shall, except to the extent the Commission by rules or regulations deems necessary or appropriate in the public interest or for the protection of investors otherwise provides, be filed as part of the registration statement but shall not be deemed a
part of such registration statement for purposes of
section 11.’’).
324See 2009 Summary Prospectus Adopting Release, supra note 33, at n.344 and accompanying text. 325 Id. at nn.111 and 112; see also rule 498(f)(4). 326See rule 498(b)(3). 327See supra section II.A.1.b. The updating summary prospectus could include information that does not appear in the related contract statutory prospectus if the updating summary prospectus discloses changes to the contract that the issuer has made after the most recent updating summary prospectus or statutory prospectus was sent or given to investors. See supra
section II.A.2.b.ii(a); see also proposed rule
498A(c)(6)(i) and (ii). This information that only appears in the updating summary prospectus therefore would not be deemed a part of the registration statement for purposes of section 11 of the Securities Act. For example, if a particular fee has changed from x% to y%, while the disclosure of the current fee rate (y%) would appear in both the updating summary prospectus and the related statutory prospectus, the earlier fee rate (x%) and the fact that the fee was changed would likely not be disclosed in the statutory prospectus. 328See proposed rule 498A(d); see also rule 498(b)(3) (parallel provisions in the rule governing the use of mutual fund summary prospectuses). 329See section 12(a)(2) of the Securities Act; see also discussion supra note 311. 330See, e.g., section 17(a) of the Securities Act;
section 10(b) of the Exchange Act; section 34(b) of
the Investment Company Act.
331 15 U.S.C. 77h; H.R. Rep. 1542, 83d Cong., 2d Sess., 1954 U.S.C.C.A.N. 2973, 2982 (1954) (noting that the Commission’s authority to suspend the use of a defective summary prospectus under section 10(b) ‘‘is intended to supplement the stop-order powers of the Commission under [S]ection 8’’). 332 15 U.S.C. 77j(b). b. Definitive Form of Summary Prospectus In addition to requiring registrants to file a preliminary summary prospectus with the Commission prior to use, we are also proposing amendments to rule 497 under the Securities Act that would require a registrant to file a definitive form of summary prospectus after it is first used.319 This would ensure that the Commission receives a copy of every summary prospectus in use.320 This is consistent with the filing requirement for mutual fund summary prospectuses under rule 497.321
c. Investor Protection and Liability
Under Section 11 of the Securities Act
Section 10(b) of the Securities Act
provides that a prospectus permitted under that section must, unless Commission rules provide otherwise, be filed as part of the registration statement but would not be deemed a part of the registration statement for purposes of
section 11 of the Securities Act.322
Accordingly, a summary prospectus that is filed as part of the registration statement (e.g., as an exhibit or otherwise) would not be deemed a part of the registration statement for purposes of section 11 of the Securities Act.323 Some commenters in connection with the mutual fund summary prospectus proposal expressed concerns that the mutual fund summary prospectus would not be subject to section 11 liability, suggesting that this would result in a diminution of funds’ liability under that section.324 The Commission stated in response that while section 11 prescribes that the mutual fund summary prospectus will not itself be deemed a part of the registration statement for purposes of section 11, all of the information in the summary prospectus will be subject to liability under section 11, either because the information is the same as information contained in the statutory prospectus or because the information is incorporated by reference from the registration statement. The Commission noted that:
(1) The final rule required the information contained in a summary prospectus that is used to satisfy prospectus delivery obligations must be the same as the information contained in the summary section of the fund’s statutory prospectus; 325 and (2) information may be incorporated by reference into a summary prospectus only if it is contained in the fund’s statutory prospectus, SAI, or has been incorporated into the statutory prospectus from the shareholder report.326 For similar reasons, it is our view that while a variable contract summary prospectus under the proposed rule would not itself be deemed a part of the registration statement for purposes of
section 11, the information in the
summary prospectus will generally be subject to liability under section 11. While proposed rule 498A would not have a comparable provision to that in rule 498 requiring that the information in the summary prospectus must be the same as in the statutory prospectus, we believe that the substance of the information itself would be the same, even though the language in both documents relating to the information may not be identical. For example, the language of the initial summary prospectus could differ from the language used in the statutory prospectus because proposed rule 498A requires that the initial summary prospectus may only describe a single contract that the registrant currently offers for sale, whereas we understand that certain contract statutory prospectuses include disclosure about contract features and options that the registrant may no longer offer to new investors. Nevertheless, the substance of the information for any currentlyoffered features and options would be the same.327 In addition, proposed rule 498A would have the same provisions regarding information permitted to be incorporated into the summary prospectus as those in rule 498.328 The summary prospectus would be subject to liability under section 12(a)(2) of the Securities Act 329 and the general antifraud provisions of the federal securities laws.330 In addition, a summary prospectus would be subject to the stop order and other administrative provisions of section 8 of the Securities Act.331 This is in addition to the Commission’s power under
section 10(b) of the Securities Act to
prevent or suspend the use of the summary prospectus, regardless of whether or not it has been filed.332 We request comment generally on the proposed filing requirements for the variable contract summary prospectus and specifically on the following issues:

Should we require filing of the
preliminary form of any contract summary prospectuses? If not, what alternatives should we consider to facilitate staff review of the summary prospectus disclosures, and would investors be adequately protected if staff did not have the opportunity to review a summary prospectus pre-use? Should we only require the initial summary prospectus (or updating summary prospectus) to be filed prior to first use?
Should we require post-use filing of the
summary prospectus? Should only the initial summary prospectus (or updating summary prospectus) be filed after use?
If the updating summary prospectus
includes a description of a contract change that is not similarly described in the related

333Proposed rule 498A(a).
334Proposed rule 498A(a)(1). We understand that this is how the term is commonly used in industry practice. See also rule 18f–3 (permitting registered investment companies to issue multiple classes of voting stock); Part A (‘‘Definitions’’) of the General Instructions to Form N–1A (defining ‘‘class’’ as ‘‘a class of shares issued by a Multiple Class Fund that represents interests in the same portfolio of securities under rule 18f–3 [17 CFR 270.18f–3] or under an order exempting the Multiple Class Fund from sections 18(f), 18(g), and 18(i) [15 U.S.C. 80a– 18(f), 18(g), and 18(i)]’’). 335See Forms N–3 and N–4 Adopting Release, supra note 28, at n.49 and accompanying text (‘‘Of course, delivery of a prospectus of an underlying company in which a contractowner actually invests will be required pursuant to section 5(b)(2) of the 1933 Act’’). 336We understand that while some insurers have invested in infrastructure to deliver only those prospectuses to which an investor allocates contract value, most insurers have not. 337See supra note 32 and accompanying text. 338See, e.g., Forms N–3 and N–4 Adopting Release, supra note 28, at n.48 and accompanying text (suggesting that under certain circumstances, the prospectus delivery obligation for underlying portfolio companies would rest with the insurance company); see also rule 22c–2(c)(1) under the Investment Company Act (defining a ‘‘financial intermediary’’ for purposes of the rule to include a UIT that invests in a fund in reliance on section 12(d)(1)(E) under the Investment Company Act) [17 CFR 270.22c–2(c)(1)]. 339Proposed rule 498A(j). 340Proposed rule 498A(j)(1)(i). 341Proposed rule 498A(j)(1)(ii). 342Proposed rule 498A(j)(1)(iii). 343Proposed rule 498A(j)(2). statutory prospectus (for example, the updating summary prospectus describes the fact that there was a change and the nature of the change), or otherwise includes content or wording differences compared to the statutory prospectus, would this adversely affect investor protection (for example, if certain information were not deemed to be
part of the registration statement for purposes
of section 11 of the Securities Act), and if so, how? Should we require the statutory prospectus to include the same description of contract changes contained in the related updating summary prospectus? Why or why not?

Should the summary prospectus be
subject to the stop order and other administrative provisions of section 8 of the Securities Act? Why or why not?
Should the contract summary prospectus
be deemed a part of the registration statement for purposes of section 11 of the Securities Act? Why or why not?

Definitions in the Proposed Rule
Proposed rule 498A includes a section of definitions for certain terms used throughout the rule.333 These definitions generally: (1) Identify specific prospectuses described in the proposed rule (e.g., ‘‘initial summary prospectus’’); (2) mirror the existing definitions used in Forms N–3, N–4, and N–6 (e.g., ‘‘variable annuity contract’’ as used in Forms N–3 and N–

or other rules (e.g., ‘‘statement of
additional information’’ as used in rule 498); or (3) combine other defined terms in the proposed rule (e.g., ‘‘summary prospectus’’). In addition, in recognition that today a variable contract may offer classes with the same currentlyavailable features and options but different characteristics (e.g., differences in the length of the surrender periods) and/or different pricing structures, we are also proposing to define ‘‘class’’ to mean a class of a contract that varies principally with respect to distributionrelated fees and expenses.334 We request comment generally on the definitions used in the proposed rule and specifically on the following issues:

Should we include any additional, or
exclude any proposed, defined terms?
Should we modify the definitions of any
defined terms? For example, does the proposed definition of ‘‘class’’ adequately distinguish among classes of a variable contract? B. Optional Method To Satisfy Portfolio Company Prospectus Delivery Requirements

Current Delivery Practices for
Portfolio Company Prospectuses The Commission has interpreted
section 5(b)(2) of the Securities Act to
require the delivery of a portfolio company prospectus to any variable contract investor that allocates his or her purchase payments to that portfolio company, including on any exchange of contract value from one portfolio company to another.335 Since variable contracts generally offer exchange privileges permitting an investor to reallocate his or her investment from one underlying portfolio company to another, we understand that, typically, prospectuses for all underlying portfolio companies are delivered to investors to avoid the administrative burden of tracking whether an investor has already received the current prospectus.336 We also understand that summary prospectuses, as opposed to statutory prospectuses, for the underlying portfolio companies are typically delivered. As with contract prospectuses, portfolio company prospectuses may be delivered electronically pursuant to the Commission’s guidance.337 Because the identity of investors is known by the insurance company and not the underlying portfolio companies, delivery of prospectuses for underlying portfolio companies is typically effected by the insurance company rather than the portfolio company.338 Based on a staff review of participation agreements between insurance companies and underlying portfolio companies, we understand that there is diversity in practice as to whether the insurance company or portfolio company bears the printing and mailing costs associated with portfolio company prospectus deliveries.
New Option To Satisfy Prospectus
Delivery Requirements a. Overview The proposed rule would provide an optional method for satisfying portfolio company prospectus delivery obligations by making portfolio company summary and statutory prospectuses available online, with certain key information about the portfolio companies provided in the contract’s summary prospectus.339 This new option would be available to Form N–4 and Form N–6 registrants, but would not be available to Form N–3 registrants because they do not have underlying portfolio companies. As proposed, this option would allow satisfaction of prospectus delivery obligations with respect to a portfolio company, if: (1) An initial summary prospectus is used for each currently offered contract described under the related registration statement; 340 (2) a summary prospectus is used for the portfolio company (only if the portfolio company is registered on Form N– 1A); 341 and (3) the portfolio company’s current summary prospectus, statutory prospectus, SAI, and most recent shareholder reports are posted online under similar posting requirements for the variable contract’s summary prospectuses and other documents.342 In addition, the proposed rule would provide that any communication related to a portfolio company, other than a prospectus permitted or required under
section 10 of the Securities Act, would
not be deemed a prospectus if the above conditions are satisfied.343 As discussed above, we are concerned that the volume of disclosure materials variable contract investors currently receive may prevent them from reading the materials or fully understanding these products. While the proposed variable contract summary prospectus framework is intended to provide investors with key information relating to the contract’s terms, benefits, and risks in a concise and more readerfriendly format, we are concerned that investors may not read or understand information if the variable contract summary prospectus is accompanied by hundreds of pages of underlying

344 Variable annuity contracts offer an average of 59 portfolio companies as investment options. See supra note 8. While we intended mutual fund summary prospectuses to be three to four pages in length, rule 498 does not provide page length or similar restrictions and some summary prospectuses have been as long as 19 pages. See Request for Comment on Fund Retail Investor Experience, supra note 39, at n. 27 and accompanying text. If we conservatively estimate that each portfolio company summary prospectus is four pages in length, an investor who purchases a variable contract that offers 59 portfolio companies would receive 236 pages of portfolio company disclosure materials, in addition to the contract prospectus. 345A contract summary prospectus would include an appendix that would provide for each portfolio company its name, type or investment objective, adviser and subadviser, expense ratio, and average annual returns for the past year, five years, and ten years. See supra discussion at section II.A.1.c.ii(i); see also infra section II.D.2.r (discussing our proposal to include this appendix also in variable contracts’ statutory prospectuses). Registrants on Form N–3, who would not be relying upon this optional method to satisfy portfolio company prospectus delivery obligations, would have the option of omitting the appendix and instead providing more detailed disclosures for the investment options offered under the contract that would be required by proposed Item 20 of Form N–
3. See supra note 204 and accompanying text.
In addition, each summary prospectus would also include a Key Information Table that would provide certain disclosures about portfolio company risks and investment restrictions. See supra discussion at
section II.A.1.c.ii(b)(ii); see also infra section
II.D.2.c (discussing the Key Information Table in proposed Forms N–3, N–4, and N–6). 346Approximately 97% of sales of variable annuities are made through sales agents. See IRI Fact Book, supra note 8, at 168. Only a small percentage of investors purchase their variable contracts directly from the issuing insurance company. See Insurance Information Institute, Facts

Statistics: Distribution Channels, available at
https://www.iii.org/fact-statistic/facts-statisticsdistribution-channels (in 2013, 4% of new individual life insurance sales were directly sold). In comparison, only 50% of households owning mutual funds purchased their funds through sales agents. See Investment Company Institute, Profile of Mutual Fund Shareholders, 2017 (Oct. 2017), at Fig. 3.1, available at https://www.ici.org/pdf/rpt_17_ profiles17.pdf. 347Proposed rule 498A(j)(1)(i). 348See supra note 198 and accompanying text. 349See supra section II.A.1.c.(ii)(i). 350Proposed rule 498A(j)(1)(ii). 351For example, this online option would reduce—or fully eliminate—the cost savings associated with printing and mailing a summary prospectus as opposed to the statutory prospectus, since those summary prospectuses would be posted online instead of being printed and mailed. 352See 2009 Summary Prospectus Adopting Release, supra note 33, at paragraph accompanying n.195. 353Proposed rule 498A(j)(1)(iii). 354Proposed rule 498A(h)(2)(i); proposed rule 498A(j)(1)(iii). In addition, the materials must be presented on the website in a format or formats that are convenient for reading online and printing on paper. Proposed rule 498A(i)(3)(i); proposed rule 498A(j)(1)(iii). 355Proposed rule 498A(h)(2)(ii). 356Proposed rule 498A(j)(1)(iii); proposed rule 498A(h)(3). In addition, persons must be able to permanently retain these materials in a format or formats that are convenient for reading online and printed on paper. Proposed rule 498A(j)(1)(iii); proposed rule 498A(i)(3)(ii). 357Proposed rule 498A(j)(1)(iii); proposed rule 498A(i)(1). 358Proposed rule 498A(j)(1)(iii); proposed rule 498A(h)(4). 359Rule 497 under the Securities Act. portfolio company prospectuses.344 To address this issue, the proposed option for satisfying portfolio company prospectus delivery requirements would provide investors with certain key summary information about underlying portfolio companies in an appendix to the contract summary prospectus.345 If an investor desires more detailed information about a particular portfolio company, prospectuses and other documents relating to the portfolio company would be available online and in paper or electronically upon request. The vast majority of investors purchase variable contracts from sales persons, as opposed to purchasing directly from insurance companies.346 We understand these sales agents assist investors in many ways, including providing information about underlying portfolio companies and sometimes recommending that investors allocate their contract value into specific portfolio companies. We anticipate that this would continue following our proposal, and that sales agents would assist investors in understanding key facts about the portfolio companies, obtaining portfolio company prospectuses, and understanding the proposed portfolio company prospectus delivery framework. For this reason, we believe that sales agents would play a significant role in continuing to provide
information about portfolio companies to investors, even if investors were to no longer receive paper copies of portfolio company prospectuses. b. Conditions As a condition to relying on the new option, we would require the related variable contract to use an initial summary prospectus for each currently offered contract described under the related registration statement.347 We believe that this condition would help promote the use of contract summary prospectuses. Also, the initial summary prospectus content requirements (as well as the requirements for the updating summary prospectus) would ensure that investors receive disclosure regarding: (1) The online availability of the portfolio company prospectuses; 348 and (2) key summary information about each of the portfolio companies.349 As a second condition, a portfolio company that is registered on Form N– 1A must use a summary prospectus.350 If we were to permit the satisfaction of delivery obligations by making portfolio company prospectuses (and other documents) available online, portfolio companies that are mutual funds and ETFs would have less incentive to use a summary prospectus.351 We believe it is important to make available both a summary prospectus and the statutory prospectus for a portfolio company to continue the current layered disclosure approach for portfolio companies whereby investors have the option to choose the amount and type of information to review. This condition also would continue to provide investors with summary information about the portfolio company that we believe they are more likely to use and understand.352 Finally, to rely on the new option, the portfolio company’s current summary and statutory prospectus, SAI, and most recent annual and semi-annual shareholder reports would be required to be posted online under similar conditions for the posting of variable contract materials:

The materials are publicly accessible,
free of charge, at the website address specified on the cover page or beginning of the summary prospectuses for the variable contract, for the time period specified in proposed rule 498A(h)(1); 353
The materials are presented on the
website in a format, or formats, that are human-readable and capable of being printed on paper in human-readable format,354 and permit persons accessing the materials to move directly back and forth between each
section heading in a table of contents and the
corresponding section of the document; 355
Persons accessing the materials must be
able to permanently retain, free of charge, an electronic version of such materials in a format, or formats, that is human-readable and permits persons accessing the materials to move directly back and forth between each
section heading in a table of contents and the
corresponding section of the document; 356
Requested materials must be sent in
paper or electronically upon request within three business days after receiving a request; 357 and
The safe harbor specified in paragraph
(h)(4) of the proposed rule would be available if the required materials are temporarily unavailable at the specified website.358
c. Interim Amendments to Portfolio
Company Prospectuses
When a portfolio company supplements or otherwise amends its summary or statutory prospectus between annual updates, the amendment is typically filed with the Commission pursuant to rule 497 under the Securities Act.359 In addition, we understand that the amendment is typically delivered to investors, either

360For investors who received a summary prospectus for a portfolio company, we understand that amendments are typically delivered to investors only if the amendments relate to the summary prospectus and summary section portion of the statutory prospectus. 361The appendix would include the following legend: ‘‘The following is a list of [Portfolio Companies] currently available under the [Contract], which is subject to change as discussed in [the Statutory Prospectus for the Contract]. Before you invest, you should review the prospectuses for the [Portfolio Companies]. These prospectuses contain more information about the [Portfolio Companies] and their risks and may be amended from time to time. You can find the prospectuses and other information about the [Portfolio Companies] online at []. You can also request this information at no cost by calling [_ ] or by sending an email request to [_].’’ See proposed Item 18 of Forms N–4 and N–6. 362The proposed rule would not affect the requirements to deliver other materials specified under other rules or terms of exemptive orders. See, e.g., rule 35d–1 under the Investment Company Act (requiring a registered investment company with a name suggesting investment in certain investments or industries, or investment in countries or geographic regions, to adopt a policy to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in investments suggested by its name, and if not a fundamental policy, to provide investors with at least 60 days prior notice of any change in that investment policy. 363See supra note 28 and accompanying text. by special mailing or by including it with another mailing, such as with the account statement or confirmation.360 As discussed above, the proposed new option for satisfying portfolio company prospectus delivery requirements would require that current portfolio company summary prospectuses and statutory prospectuses be posted online. If a portfolio company amends its prospectus between annual updates, the updated prospectus must be posted online. The proposed rule would not, however, include any separate requirement to deliver portfolio company prospectus amendments to investors. We believe that requiring delivery of prospectus amendments to investors who had not been delivered the prospectus itself could cause investor confusion. Instead, the proposed legend to the summary prospectus appendix listing all the portfolio companies available under the contract would include a statement that investors should review the prospectuses before making an investment decision and that they may be amended from time to time.361 In addition, we note that if an interim amendment to a portfolio company prospectus affects the information provided in the variable contract summary prospectus (e.g., a change to the type/investment objective or expense ratio of the portfolio company provided in the required appendix to the contract summary
prospectus), then investors would receive notice of the change through an amendment to the contract summary prospectus which would be delivered to investors.362 We request comment generally on the proposal to permit a new option for satisfying portfolio company prospectus delivery requirements, and specifically on the following issues (in addition, we are requesting comment on certain parallel provisions of rule 498):

Should the rule permit the use of the new
option for satisfying portfolio company prospectus delivery requirements? Should this aspect of the proposed rule be optional as proposed or required if the variable contract uses a summary prospectus?
The rule as proposed would only permit
the use of the new option for portfolio company prospectuses if the related variable contract uses an initial summary prospectus for each currently offered contract described under the related registration statement. Should we permit the use of the new option even if the related variable contract does not use a summary prospectus? Why or why not?
The rule as proposed would only permit
the use of the new option if the portfolio company uses a summary prospectus. This would effectively require a portfolio company to use a summary prospectus if it does not already do so. If we were to permit the satisfaction of delivery obligations by making portfolio company prospectuses (and other documents) available online, would portfolio companies still have an incentive to use a summary prospectus? Should we permit the use of the new option even if the portfolio company does not otherwise use a summary prospectus? Why or why not?
Should we modify any of the proposed
conditions related to the new option for satisfying portfolio company prospectus delivery requirements, or add any additional conditions? For example, should we—as proposed—specify that these materials must be available at the same website address as the variable contract materials that appear online, or should there be flexibility regarding the website address on which the portfolio company materials appear? As another example, although the proposed rule specifies that the materials posted online must be in human-readable format, should we also require that the materials be posted online in machine-readable format to promote the gathering and dissemination of information by data aggregators?
If we change any of the proposed
conditions related to the new option, should we make parallel changes regarding the use of contract summary prospectuses? Should we similarly make any changes to rule 498 under the Securities Act governing mutual fund summary prospectuses for consistency or other reasons?
Should we modify the proposed linking
requirements in any way with respect to portfolio company documents encompassed by the online accessibility and delivery upon demand requirements of the proposed rule?
Do the separate requirements of rule 498
regarding mutual fund summary prospectus documents create any confusion that should be addressed by proposed rule 498A?
Under the rule as proposed, persons
relying on the new delivery option would not be required to deliver interim prospectus supplements to investors. Should we instead require that interim prospectus supplements be delivered? Would confusion result if investors were to receive prospectus supplements when they had not previously received portfolio company prospectuses? Are there ways to mitigate any such confusion?
Would the proposed legend on the initial
and updating summary prospectuses provide sufficient notice to investors that portfolio company prospectuses may be amended from time to time? Why or why not? Should we revise the legend to include alternate or additional information? Should a similar legend also appear on the cover page of the contract summary prospectus, as well as in the
appendix to the summary prospectus as
proposed? Alternatively, should we require that a separate notice be given to investors to alert them of the online availability of prospectus supplements? If so, what information should that notice contain? Should that notice be filed with the Commission?
Should the final rules provide that a
communication relating to a portfolio company (other than a prospectus permitted or required under section 10 of the Securities Act) is not deemed to be a prospectus under section 2(a)(10) of the Securities Act under the conditions specified by the rule? Should we amend any of the conditions related to this provision?
C. Discontinued Variable Contracts
An insurance company may choose to stop offering a variable contract to new investors while continuing to accept additional payments from existing investors. Each additional purchase payment under a variable contract is considered a ‘‘sale’’ under section 5 of the Securities Act requiring delivery of a current prospectus, and variable contract issuers generally maintain current prospectuses for their products through the filing of annual posteffective amendments to the registration statements.363 As the number of contracts outstanding declines over time, the proportion of fixed costs per contract and other burdens associated with maintaining a current registration statement and mailing prospectuses increase over a diminishing asset base. Unlike other types of registered investment companies that can liquidate

364See, e.g., Great-West Life and Annuity Insurance Company, SEC Staff No-Action Letter (pub. avail. Oct. 23, 1990) (‘‘1990 Letter’’); MML Bay State Life Ins. Co., SEC Staff No-Action Letter (pub. avail. Apr. 12, 1990); Transamerica Occidental Life Insurance Co., SEC Staff No-Action Letter (pub. avail. Mar. 16, 1990); Connecticut Mutual Life Insurance Company, SEC Staff NoAction Letter (pub. avail. Mar. 7, 1990). The staff declined to extend its no-action position to variable annuities funded by managed separate accounts. See Provident National Assurance Company, SEC Staff No-Action Letter (pub. avail. June 2, 1987); Great-West Life Assurance Company, SEC Staff No-Action Letter (pub. avail. June 4, 1987). 365See Metropolitan Life Insurance Co., SEC Staff No-Action Letter (pub. avail. Apr. 26, 1995) (‘‘Metropolitan Letter’’). 366 In the 1990 Letter, the staff stated that it would no longer respond to no-action requests ‘‘in this area unless they raise novel issues or involve more than 5,000 variable annuity or variable life insurance contracts.’’ However, there are four Staff Letters concerning contracts where the number of investors exceeded 5,000. See Metropolitan Letter (42,910 investors); Monarch Life Insurance Co., SEC Staff No-Action Letter (pub. avail. June 9, 1992) (‘‘Monarch Letter’’) (5,900 investors); New York Life Insurance and Annuity Corp., SEC Staff No-Action Letter (pub. avail. Nov. 15, 1989) (13,713 investors); Security Benefit Life Insurance Company, SEC Staff No-Action Letter (pub. avail. July 2, 1987) (28,019 investors). 367Some of the circumstances identified in which the staff would not recommend enforcement action varied slightly across the Staff Letters over time, specifically with respect to the delivery and availability of the insurance company’s audited financial statements. The circumstances discussed below reflect those identified in the most recent Staff Letters. 368With respect to variable annuities, the depositor’s updated audited financial statements would be available upon request. See, e.g., Metropolitan Letter; Monarch Letter. 369The Staff Letters specifically identified a registrant’s filing of reports on Form N–SAR as one of the set of applicable circumstances. Form N–SAR was recently rescinded and succeeded by Form N– CEN. See Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (‘‘Investment Company Reporting Modernization Adopting Release’’), at n.744 and accompanying text. 370Our understanding is based on staff review of filings with the Commission and discussions with industry participants. 371The number of registration statements is based on a count of unique Securities Act registration statements and amendments filed on EDGAR. The number of registration statements representing contracts that provide alternative disclosures instead of the contract statutory prospectus, as described in the Staff Letters, was based on the number
of Form N–4 and Form N–6 filers that did not file a registration statement or amendment in 2017, but made other regulatory filings, such as filings on Form 24f–2 (the form used by variable insurance contracts to pay registration fees to the Commission). 372Sections 11 and 12(a)(2) of the Securities Act and section 34(b) of the Investment Company Act. See supra discussion at notes 311 (discussing
section 12(a)(2) liability) and 322 (discussing
section 11 liability). In addition, section 34(b) of the
Investment Company Act also imposes liability for misstatements in a registration statement, however, unlike sections 11 and 12(a)(2), there is no private right of action available to aggrieved investors. See Bellikoff v. Eaton Vance Corp., 481 F.3d 110 (2d Cir. 2007). 373See, e.g., section 17(a) of the Securities Act;
section 10(b) and rule 10b–5 under the Exchange
Act. There may also be additional remedies for investors, for example, under state insurance law, state securities law, and contract law. when assets are reduced to such a level that continuing the fund is not viable, an insurance company is unable to liquidate or otherwise terminate a variable contract. We understand that an insurance company may sometimes seek to encourage investors to exchange into new contracts or make buyout offers, but it cannot unilaterally terminate an investor’s contract. Staff No-Action Letters Beginning in 1977, the staff of the Division of Investment Management issued a series of no-action letters stating that the staff would not recommend enforcement action if issuers did not update the variable contract registration statement and deliver updated prospectuses to existing investors, so long as certain conditions were met, including sending alternative disclosures to investors (each, a ‘‘Staff Letter,’’ and collectively, the ‘‘Staff Letters’’).364 The last Staff Letter was issued in 1995.365 The Staff Letters generally were limited to Securities Act registration statements for contracts that are no longer offered to new purchasers and that have fewer than 5,000 investors (or participants in the case of group contracts).366 The Staff Letters also identified a set of circumstances in which the staff would not recommend enforcement action once the registration statement is no longer updated: 367

There are no material changes made to
the contract;
Investors are provided the following
disclosures:
Æ The portfolio companies’ current prospectuses (or summary prospectuses) and any updates thereto, annual and semi-annual reports, proxy materials, and any other periodic reports or other shareholder materials for the portfolio companies; Æ Confirmations of transactions in accordance with rule 10b–10 under the Exchange Act; Æ Within 120 days after the close of the fiscal year, updated audited financial statements of the registrant, and in the case of variable life insurance contracts, the depositor’s updated audited financial statements; 368 and Æ At least once a year, a statement of the number of units and values in each investor’s account.
The registrant files periodic reports with
the Commission pursuant to section 30 of the Investment Company Act (i.e., reports on Form N–CEN); 369 and
New contracts are not offered to the
public, and the registrant does not contemplate such an offering in the future. Liability As of the end of calendar year 2017, we understand that more than half of variable contract Securities Act registration statements may provide the alternative disclosures that the Staff Letters describe: 370 Status 371 Variable annuity Variable life insurance Grand total Registration Statements That Are Updated Annually ................................................................. 500 221 721 Registration Statements Operating Under Staff Letters .............................................................. 521 334 855 Total Number of Registration Statements ............................................................................ 1,021 555 1,576 Providing the alternative disclosures described in the Staff Letters may have the effect of potentially limiting issuers’ liability under certain provisions of the federal securities laws requiring a registration statement or prospectus to contain whatever information may be necessary or appropriate to avoid material misstatements or omissions.372 Although these alternative disclosures may not be subject to liability under sections 11 or 12 of the Securities Act, or section 34(b) of the Investment Company Act, they are subject to provisions prohibiting material misstatements in the offer or sale of a security.373 Commission Position on Existing Contracts Whose Issuers Provide Alternative Disclosures to Investors In proposing the new variable contract summary prospectus disclosure framework, we acknowledge the industry practice of providing alternative disclosures (which are

374The Commission’s position on Alternative Disclosure Contracts would be an agency statement of general applicability with future effect designed to implement, interpret, or prescribe law or policy. This position would be consistent with the Staff Letters up to the effective date of any final rule and effectively would moot those letters. The Commission’s longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties. See, e.g., Statement by Chairman Jay Clayton Regarding Staff Views. Securities and Exchange Commission (Sept. 13, 2018), available at https://www.sec.gov/news/ public-statement/statement-clayton-091318. We note, however, that if a material change is made with respect to an Alternative Disclosure Contract, the registration statement for that contract would be required to be updated, and the contract would no longer be permitted to operate as an Alternative Disclosure Contract. 375Under proposed rule 498A, investors would not receive the portfolio company prospectuses if the registrant were to elect to rely on the new optional method to satisfy portfolio company prospectus delivery requirements. See supra section II.B.2. 376See supra note 366. significantly different from the requirements of the proposed summary prospectus regime) under specific circumstances that the Staff Letters identify. In light of this proposal as well as other developments with respect to layered disclosure, we believe that it is useful to consider the appropriate disclosure framework for the types of contracts that have historically relied on the alternative disclosures. If the proposed summary prospectus framework is adopted, the Commission would take the position that if an issuer of an existing contract that provides alternative disclosures does not file post-effective amendments to update a variable contract registration statement and does not provide updated prospectuses to existing investors, this would not provide a basis for enforcement action so long as investors receive the alternative disclosures. The Commission would take this position in recognition of the industry’s practice that has developed in light of the Staff Letters, the costs and burdens that issuers of contracts operating in accordance with the Staff Letters currently incur, and the costs and burdens that issuers would incur under the proposed summary prospectus framework. Therefore, under the Commission’s position, the Commission would permit contracts operating in the manner that the Staff Letters describe as of the effective date of any final summary prospectus rules (hereinafter referred to as the ‘‘Alternative Disclosure Contracts’’) to continue to operate in such manner.374 For all other contracts, the Commission’s position would not be applicable, and therefore variable contract issuers would be required to file post-effective amendments to update their registration statements and provide
updated prospectuses under current regulatory requirements, and could avail themselves of the summary prospectus framework as adopted. As a general matter, we believe that all variable contract investors should receive the same information. In this regard, our position with respect to Alternative Disclosure Contracts would be limited to the current universe of Alternative Disclosure Contracts, which will diminish in number over time. Our position is also based on our belief that the proposed summary prospectus framework could give investors more pertinent information to monitor their contract investment than the alternative disclosures. For example, the updating summary prospectus would include a brief description of certain changes to the contract that occurred during the previous year, as well as certain key information about the contract. We believe that investors could find this document to be more useful and userfriendly than the separate account financial statements that investors receive under the alternative disclosures. Additionally, under the proposed summary prospectus regime, investors would receive key summary information about the portfolio companies (with the portfolio company prospectuses available online) instead of receiving the portfolio company prospectuses as they do currently.375 This proposed layered disclosure approach could provide an additional tool to investors to access the level of information about portfolio companies that best serves their information needs. We solicit comment on the following issues regarding the Alternative Disclosure Contracts:

Would adoption of a summary
prospectus framework and related form amendments effectively relieve some of the current burdens and costs on variable contract issuers of updating registration statements, and delivering updated prospectuses, such that the Commission’s position on Alternative Disclosure Contracts would not be necessary? If not, to what extent would the burdens and costs of maintaining an updated registration statement and compliance with the proposed summary prospectus regime (to the extent that a registrant chooses to rely on proposed rule 498A) exceed that of providing the disclosure related to the Alternative Disclosure Contracts?
Does the proposed summary prospectus
regime give investors more pertinent information to use to help them make informed investment decisions, compared to the information investors holding Alternative Disclosure Contracts would receive?
Are fees and charges for variable
contracts currently established based on an expectation that the insurer will be able to provide alternative disclosures at some point, such as if a product launch is unsuccessful or if the insurer stops selling new contracts so that the number of investors diminishes over time? Would the Commission’s position on Alternative Disclosure Contracts have other effects relating to new variable contracts? For example, would it cause insurers to be less willing to introduce new products?
Would the Commission’s position on
Alternative Disclosure Contracts result in any variable contract design changes? Would the length of registration statements or prospectuses increase or decrease? If so, why? What would be the effect, if any, on contract disclosure?
Under the Commission’s position on
Alternative Disclosure Contracts, which contracts should be able to provide alternative disclosures? For example, should the Commission’s position be limited to Alternative Disclosure (i.e., contracts operating in the manner that the Staff Letters describe) as of the effective date of the adoption of final variable contract summary prospectus rules? Should the ability to provide alternative disclosures be limited to contracts with a maximum of 5,000 investors (or participants in the case of group contracts)? 376 Instead of limiting the number of investors, should a different approach be considered, such as limiting relief based on aggregate contract value, the length of time since a contract was last offered to new investors, the costs of updating a registration statement per contract, or the expected cost of updating a registration statement per $1,000 of contract value? If so, what limits should be imposed and why, and what is the benefit of these alternatives over using the number of investors? Alternatively, should the ability to provide alternative disclosures apply to all contracts outstanding at (1) the time of adoption, (2) the effective date, or (3) the compliance date, for final variable contract summary prospectus rules? Why?
What percentage of insurers currently
delivers the alternative disclosures for at least one contract? What percentage of the variable contract business (in terms of number of contact owners and aggregate contract value) provides alternative disclosures? What are the size ranges of registration statements for those contracts that deliver alternative disclosures (both in terms of number of investors and in terms of aggregate contract value)?
What number of investors, or aggregate
contract value, would make providing alternative disclosures more cost-effective than annually updating a registration statement under the current variable contract prospectus delivery regime?
What are the cost savings, if any,
associated with providing alternative disclosures? What are the sources of the cost savings?
Which current items of variable annuity
and variable life insurance registration

377See supra note 367.
378The changes that would necessitate disclosure under this alternative are broader than one of the circumstances that the Staff Letters identify—that there be no material changes to the contract. With respect to the annual notice, even if there are no changes to the contract between the insurance company and the investor, there may still be material changes to the offering that must be disclosed, such as changes in investment options, investment restrictions, fees, and other matters. 379As under proposed rule 498A, a registrant also could provide a concise description of any other change that has been made to the contract, in addition to the changes that the proposed rule would require be described. See proposed rule 498A(c)(6)(ii); see also supra note 233 and accompanying text. 380See supra note 329 and accompanying text (discussing the liability provisions applicable to summary prospectuses under proposed rule 498A). statements are the most difficult or timeconsuming for variable contract issuers to update? Why are these items difficult or time-consuming to update?

How frequently do material changes to
the variable contract occur that would require an issuer that is delivering alternative disclosures to update its registration statement? What specific types of contract changes are considered to be material? What types of contract changes are considered to be non-material, such that the issuer would not update its registration statement in response to this condition? How are investors notified of any non-material changes? Are there types of contract changes where it is difficult to determine whether an issuer should update its registration statement? If so, please identify those types of changes.
Do insurers currently host on their
websites the alternative disclosure documents that are delivered to investors? Why or why not?
Do investors that receive alternative
disclosures contact their insurance company looking for information at a greater frequency than investors who receive a prospectus annually? What information are these investors looking for?
Some of the circumstances that the Staff
Letters identify vary depending on the noaction letter.377 Under which circumstances are issuers providing alternative disclosures? We request comment generally on how investors and financial professionals view the alternative disclosures, and specifically on the following issues:
Investors that have variable contracts
with registrants that provide alternative disclosures would receive different disclosure documents, and hence different sets of information, than they would receive under the proposed summary prospectus regime. Which approach do you believe is most beneficial for investors and why?
To the extent that there are no material
changes to a variable contract, what information about the contract—if any—do investors need to receive on an ongoing basis to monitor their investments in the contract and understand how the contract operates? If there are no material changes, would it be useful to investors to receive disclosure repeating key information of the contract each year, and/or to receive summary information about the portfolio companies each year?
Are investors able to effectively
understand financial statements that are provided as alternative disclosures, and are they useful in helping investors monitor their investments?
An updated contract statutory
prospectus, which investors typically receive annually, describes the variable contract but does not include insurance company or separate account financial statements. Investors holding contracts whose issuers provide alternative disclosures, however, receive the separate account financial statements annually, and in some cases the insurance company’s financials. Assuming there are no changes to the contract in a given year, do investors have a preference as to which information they would rather receive? Is there other information that investors would like to receive? Other Approaches to the Framework for Discontinued Contracts If the Commission takes the position described in the prior subsection with respect to Alternative Disclosure Contracts, it would permit continued operation of Alternative Disclosure Contracts (i.e., issuers with contracts that are operating as described in the Staff Letters on the effective date of the final rules permitting use of a variable contract summary prospectus). All other variable contract issuers would operate under the new summary prospectus framework. That is, they would be required to file post-effective amendments to update their registration statements and provide updated prospectuses under current regulatory requirements, and could avail themselves of the summary prospectus framework as adopted. We are also considering two alternative approaches for discontinued contracts. Each of these alternative approaches would involve modifying, and codifying by rule, the disclosure framework the Staff Letters identify. Each of these alternative approaches could be implemented in two different ways:
Method One (Apply New Approach Only
to Discontinued Contracts Going Forward):
Permit Alternative Disclosure Contracts to continue operating as they currently do under the Commission position described above. For future discontinued contracts, adopt final rules codifying certain practices the Staff Letters identify and apply those rules on a going forward basis.
Method Two (Apply New Approach to
All Discontinued Contracts): Adopt final rules codifying certain practices the Staff Letters identify and apply those rules to all discontinued contracts (including Alternative Disclosure Contracts). We request comment on the Commission position described above, as well as the proposed approaches described below. We also request comment on whether an alternative approach should be implemented using method one or method two. Approach 1 (Codification of Practices under Staff Letters with Modifications):
Under Approach 1, the Commission would adopt final rules providing that a registrant would not have to comply with certain requirements to update the variable contract registration statement and deliver updated contract prospectuses to existing investors, so long as the registrant complies with the following conditions:
Investors would receive an annual notice
that includes information that is comparable to that which would be provided in an updating summary prospectus. Specifically, this notice would include: (1) The Key Information Table that would appear in an updating summary prospectus; (2) a brief description of any material 378 changes to the offering relating to fees, the standard death benefits, other benefits available under the contract, and portfolio companies available under the contract; 379 (3) a table that would include the same information about portfolio companies that would appear in the proposed appendix to the updating summary prospectus; and (4) legends informing investors that additional information about their contract—including the registrant’s financial statements (the depositor’s financial statements in the case of variable life insurance contracts) and portfolio company prospectuses and periodic reports to shareholders—is available online. Because this notice would not be a section 10(b) prospectus, it (unlike a summary prospectus under proposed rule 498A) would not be subject to liability under section 12(a)(2) of the Securities Act, although it would remain subject to the general antifraud provisions of the federal securities laws.380 The notice would be posted to the insurance company’s website.
The financial statements provided to
investors under the alternative disclosures in the Staff Letters would be filed with the Commission, posted to the insurance company’s website, and delivered to an investor upon request;
Registrants would be permitted to use
the optional method to satisfy portfolio company prospectus delivery requirements as provided under proposed rule 498A; and
Investors would continue to receive
portfolio company shareholder reports and proxy materials. Issuers would be able to rely on Approach 1 if the contract is no longer offered to new purchasers, there are under 5,000 investors, and there have been no material changes during the period since the most recent update. Approach 1 reflects our belief that the proposed summary prospectus framework could give investors more pertinent information to use to help them make informed investment decisions, compared to the information

381See supra paragraph following note 374. 382See, e.g., supra note 364. Certain registrants that file on Forms S–1 or S–3 are permitted to update their registration statements by reference to Exchange Act reports filed after the effective date of the registration statement (‘‘forward incorporation by reference’’). 383See supra paragraph following note 374. 384See supra sections II.A.4 through 6. We assume for purposes of this discussion that the relevant requirements in these sections—for example, the formatting requirements and relevant linking requirements discussed in these sections— would be requirements under Approach 2. 385One important distinction is that, under the Staff Letters, one of the set of circumstances in which the staff has stated that it would not recommend enforcement action is if there are no material changes to the contract between the investor and insurance company. However, even if there are no material changes to the contract, there may still be material changes to the offering that is described in the registration statement. See supra note 378. These material changes to the offering generally should be described in any updating summary prospectus or similar notice. See supra note 29 (discussing current requirements for updating variable contract registration statements). 386See supra note 372 and accompanying text (noting that providing the alternative disclosures described in the Staff Letters may have the effect of potentially limiting issuers’ liability under certain provisions available under the federal securities laws). 387See supra section II.A.3. under the circumstances that the Staff Letters identify.381 This approach seeks to provide many of the benefits to investors associated with the summary prospectus framework while limiting the burden of updating registration statements relating to contracts that are only offered to a limited number of investors. Approach 2 (Permit Registration Statements to be Updated via Forward Incorporation by Reference). As a variation on the framework for Approach 1, we also request comment on whether the Commission should adopt final rules that would:

Permit the registrant to rely on a
modified version of rule 498A that would:
Æ Require that investors receive an annual notice that includes information that is comparable to that which would be provided in an updating summary prospectus, as described in Approach 1; Æ Require that the contract statutory prospectus and SAI be made available online and delivered to an investor upon request; and Æ Permit registrants to use the proposed rule’s optional method to satisfy portfolio company prospectus delivery requirements;
Require the filing of separate account
(including accumulation unit values for variable annuities) and depositor financials with the Commission, permit issuers to incorporate these documents by reference into the registration statement (even if they are filed after the effective date of the registration statement),382 and require these financial statements to be posted to the insurance company’s website, and delivered to an investor upon request; and
Require that investors receive portfolio
company shareholder reports and proxy materials. As with Approach 1, issuers would be able to rely on Approach 2 if the contract is no longer offered to new purchasers, there are under 5,000 investors, and there are no material changes to the contract. Also, like Approach 1, Approach 2 reflects our belief that the proposed summary prospectus framework could give investors more pertinent information to use to help them make informed investment decisions, compared to the alternative disclosures received by investors under the circumstances that the Staff Letters identify.383 However, Approach 2 would be more similar to the proposed summary prospectus regime in certain respects, in terms of the requirements for the information that is (1) delivered to all investors (with the annual notice under Approach 2 substituting for the summary prospectus), (2) made available online, and (3) delivered to those investors who so request.384 This approach seeks to provide many of the benefits to investors associated with the summary prospectus framework and reduce the burden of updating registration statements for contracts that are only offered to a limited number of investors. Approach 2 differs from Approach 1 chiefly in that Approach 2 would require a registrant to maintain a current registration statement and make the statutory prospectus and SAI available online. However, under Approach 2, the registrant would only update the registration statement when there are material changes to the offering, since updated financial statements would be permitted to be forward incorporated by reference into the registration statement.385 Approach 2 therefore could reduce some of the burdens associated with maintaining a current registration statement. Since Approach 2 would entail the maintenance of a current registration statement, the liability provisions available under the federal securities laws would apply to Approach 2 to the same extent as under the current variable contract prospectus delivery regime 386 and under the proposed summary prospectus regime for registrants that choose to rely on proposed rule 498A.387 While the disclosures required under Approaches 1 and 2 are similar and both include certain protections under the federal securities laws against material misstatements or omissions, disclosures under Approach 2 may not limit potential issuer liability to investors. The following Table 4 summarizes the frameworks under the Staff Letters, Approaches 1 and 2, and the proposed summary prospectus framework under proposed rule 498A for certain documents to either be: (1) Delivered to all investors; (2) made available online; or (3) delivered to those investors who so request.
TABLE 4—DOCUMENTS AVAILABLE TO VARIABLE CONTRACT INVESTORS
Staff letters and commission position Approach 1 Approach 2 Summary prospectus framework under proposed rule 498A Contract Statutory Prospectus *. N/A388 Required to be available online and delivered (in paper or electronic format) upon request. Contract SAI * .................... N/A Required to be available online and delivered (in paper or electronic format) upon request. Contract Part C Information *. N/A Filed with registration statement (available on EDGAR). Initial Summary Prospectus N/A Delivered to all new investors.

388While the contract prospectus (and SAI and
Part C information) would have been filed with the
Commission earlier in the contract’s life cycle, under the Staff Letters’ framework and Approach 1, these documents are not updated annually, and registrants would not make these documents available to investors either online or in paper format. 389These include updated audited financial statements of the registrant, and in the case of variable life insurance contracts, the depositor’s updated audited financial statements. See supra note 368 and accompanying text. 390The financial statements are part of the contract SAI, and proposed rule 498A would require a registrant relying on the rule to make the SAI available online. See proposed rule 498A(h)(1); proposed Item 26 of Form N–4; proposed Item 27 of Form N–6. Approaches 1 and 2 separately would require financial statements to be filed with the Commission, posted to the insurance company’s website, and delivered to an investor upon request. See supra text following note 380; supra note 382 and accompanying text. 391See supra section II.B.2; see also supra bullets accompanying notes 378–382. 392See id. 393See rule 415(a)(5) under the Securities Act.
TABLE 4—DOCUMENTS AVAILABLE TO VARIABLE CONTRACT INVESTORS—Continued
Staff letters and commission position Approach 1 Approach 2 Summary prospectus framework under proposed rule 498A Updating Summary Prospectus *. N/A Delivered to all existing investors. Alternative Notice to Investors *. N/A .................................... Delivered to all investors (would include information that is comparable to that which would be included in the updating summary prospectus). N/A. Financial Statements * 389 .. Delivered to all investors .. Required to be available online and delivered (in paper or electronic format) upon request, and also available on EDGAR.390 Portfolio Company Prospectuses *. Delivered to all investors .. Delivered to investors, or, if the new option to satisfy portfolio company prospectus delivery is relied-upon,391 required to be available online and delivered (in paper or electronic format) upon request. Portfolio Company Shareholder Reports. Delivered to all investors .. Delivered to all investors, or, if the new option to satisfy portfolio company prospectus delivery is relied-upon,392 required to be available online and delivered (in paper or electronic format) upon request. Portfolio Company Proxy Materials. Delivered to all investors.

Updated at least annually.
We request comments on the framework for discontinued contracts:388 389 390 391 392

Should the Commission codify either
Approach 1 or Approach 2? Why or why not? If so, which approach should the Commission codify? Would either of Approach 1 or Approach 2 facilitate the disclosure of useful information to investors in a better way than the information they would receive under the proposed summary prospectus regime? What are the benefits and drawbacks for investors of permitting Approach 1 or Approach 2, instead of requiring issuers to update the registration statement consistent with the proposed summary prospectus regime?
Would either of Approach 1 or Approach
2 provide more useful information to investors than the information investors holding Alternative Disclosure Contracts would receive? If so, how?
What number of investors or aggregate
contract value would make reliance on Approach 1 or Approach 2 more costeffective than annually updating a registration statement, both under current disclosure requirements and under the proposed summary prospectus regime?
What are the expected cost savings, if
any, associated with reliance on Approach 1 or Approach 2 as compared to: (1) The current disclosure regime; (2) the disclosures provided with respect to Alternative Disclosure Contracts; and (3) the proposed summary prospectus regime? What are the anticipated sources of the cost savings? Are there challenges that issuers would face in preparing and providing the information to investors that each alternative would require, and if so, what would these challenges (and any associated costs) be? Are there changes to the alternatives that we should consider in order to address those challenges? If so, what changes, and how would those changes affect investors’ ability to make informed decisions?
Under Approach 1 and Approach 2,
investors would annually receive a notice that is substantially similar to the proposed updating summary prospectus. Should this notice be modified in any way? If so, how?
Under Approach 1 and Approach 2,
should the conditions incorporate a more precise definition of material changes that would require a registration statement to be updated? If so, what should the definition of material changes be? For changes to a registration statement that are not a material change to the contract, should we include a condition that the changes be posted on the insurance company’s website and filed with the Commission? If so, what would be the costs associated with this condition? If not, why not?
Under Approach 1, should the mostrecently-updated prospectus and registration
statement be made available to investors either by request or online? If not, why not? If we did require these documents to be made available online or by request, what kind of legend should appear on the cover page of these documents to make it clear to investors that these documents have not been updated, and that the contract has undergone no material changes, since the date of the document? Is there other information we should also require to be made available online (such as current investment restrictions associated with optional benefits, or a current Fee Table that shows both maximum and current contract fees)?
Under Approach 1, certain materials
would be required to be made available online. Should the web posting requirements be the same as those that proposed rule 498A would prescribe? Are there modifications that should be considered with respect to contracts relying on Approach 1? If so, what are those modifications and why are they necessary?
Should a condition of Approach 1 be
that audited financial statements of the registrant (and in the case of variable life insurance contracts, the depositor’s audited financial statements) be filed with the Commission? If not, why not? What would be the additional costs associated with this condition?
The approach in Approach 2, where a
registration statement can refer to financial information that may be filed in the future avoiding the need to annually file a posteffective amendment to a registration statement, is permitted by other SEC registration forms, such as Form S–3. However, Securities Act rules still require that an updated registration statement be filed with the Commission once every three years.393 Should such a requirement apply under Approach 2? Why? Instead, should we require a new prospectus to be filed every

394See supra note 29 and accompanying text. 395Under the Staff Letters, one of the set of circumstances under which the staff has stated that it would not recommend enforcement action is that investors are provided prospectuses for the underlying portfolio companies. However, because a managed separate account prospectus describes both the offering of the contract and the investment options, it is not possible to provide the investment option prospectuses separate from the separate account prospectus. 396While the proposed General Instructions in Forms N–3 and N–4 would be structured like the General Instructions in current Form N–6, there are certain new instructions that we are proposing to add to each of the forms. See, e.g., proposed General Instructions C.3.(a), C.3.(b), C.3.(c), C.3.(e), and C.3.(h) to Forms N–3, N–4, and N–6, each described infra. 397 In 2017, the Commission proposed amendments to its rules on incorporation by reference as part of a broader proposal to modernize and simplify certain disclosure requirements in Regulation S–K (and related rules and forms) to implement Section 72003 of the Fixing America’s Surface Transportation Act. See 2017 FAST Act Proposal, supra note 307. We would amend any references to these rules in the General Instructions to Forms N–3, N–4, and N–6 to reflect any rules that the Commission may adopt based on that proposal. 398The disclosure that proposed Items 2 and 3 would require also would appear at the beginning of the initial summary prospectus. See supra note 75 and accompanying text. three years? If not, why not? In between updates to a registration statement, issuers typically file stickers reflecting certain changes.394 Instead of requiring updated registration statements or prospectuses after a certain period of time, should we limit the number of stickers before an updated registration statement or prospectus must be filed? If so, what should be the limit?

Should Approach 2 be permitted for all
registration statements even if the contract is still offered to new purchasers, has over 5,000 investors, or may have had material changes since the most recent prospectus update? What would be the benefits to registrants and investors of permitting forward incorporation by reference, as under Approach 2, for all variable contract registration statements? Or, would this result in changes to variable contract disclosure practices that would impede investors’ ability to understand their variable contracts in any way? Other Considerations
How do Approach 1 and Approach 2
compare to the requirement to update a registration statement, and to the circumstances that the Staff Letters identify, with respect to the liability provisions available to investors under the federal securities laws? Are there changes to Approach 1 and Approach 2 that should be considered to further protect investors?
Approaches 1 and 2 contemplate that the
codified relief would be available only to Form N–4 and Form N–6 registrants (as the conditions associated with portfolio company disclosure would be applicable only to Form N–4 and Form N–6 registrants, and not also Form N–3 registrants).395 Should the Commission’s position on Alternative Disclosure Contracts or Approaches 1 or 2 be extended to managed separate accounts? If yes, how should the conditions be modified to accommodate managed separate accounts? For example, should we consider an approach similar to rule 8b–16(a) under the Investment Company Act where updated information about the contract (including audited financial statements for the insurance company) and the investment options are included in the separate account’s annual shareholder report?
Should the Commission’s position on
Alternative Disclosure Contracts or Approaches 1 or 2 be extended to annuity contracts registered with the Commission under the Securities Act only and filed on Forms S–1 and S–3? If yes, how should the conditions be modified to accommodate these contracts?
If the Commission were to codify
Approach 1 or Approach 2, should issuers that are operating in the manner described in the Staff Letters, as of the effective date of the adoption of final variable contract summary prospectus rules, be permitted to continue operating in this manner? Or should the Commission instead require all issuers— including those that are operating in the manner described in the Staff Letters as of the effective date of the adoption of final variable contract summary prospectus rules—to satisfy the conditions under Approach 1 or Approach 2? If commenters believe that the latter approach is appropriate, should Approach 1 or Approach 2 be available to only those contracts that are no longer offered to new purchasers, make no material changes, for contracts with fewer than a certain number of investors, or for some other group of contracts? Why? D. Proposed Amendments to Registration Forms We are proposing amendments to Forms N–3, N–4, and N–6 to update and enhance the disclosures to investors in variable contracts, and to implement the proposed summary prospectus framework. These proposed amendments include new disclosure requirements to reflect the evolution of variable contract features, including, in particular, the prevalence of optional benefits that insurers offer under these contracts. In addition, we are proposing amendments to provide greater consistency among the registration forms for variable contracts. Form N–6, which was adopted in 2002 and is the newest variable contract form, served as a model for many of the proposed revisions to Forms N–3 and N–4. Accordingly, we are proposing fewer changes to Form N–6 than the other forms. Certain investors who are considering variable annuities may also be considering variable life insurance (and vice versa). We believe a consistent presentation could reduce investor confusion and promote investor understanding through common disclosure across types of variable products on elements that we consider useful in explaining variable contracts’ features and risks. Also, we believe that more uniformity of disclosures across variable contract types may make it easier for investors to compare similar products. Similarly, we believe that increasing consistency of disclosure requirements among registration forms could increase efficiencies among sponsors of variable contracts that register on multiple of these registration form types, and other market participants.

General Instructions
We are proposing amendments to the General Instructions of Forms N–3, N– 4, and N–6 regarding the preparation and filing of registration statements. The proposed General Instructions would, like the General Instructions in current Form N–6,396 be structured to include four parts: (A) Definitions; (B) Filing and Use of Form; (C) Preparation of the Registration Statement; and (D) Incorporation by Reference.397 With the exception of General Instruction C.3, these amendments are organizational in nature and incorporate minor changes that are not intended to significantly alter the content of the current General Instructions for these forms. Proposed General Instruction C.3 would provide substantive requirements for the preparation of the registration statement, including instructions relating to the organization, presentation, and prospectuses permitted to be included in a registration statement. The instruction would parallel Instruction C.3 of current Form N–6 in substance, except as described below. Proposed General Instruction C.3.(a) would require that the disclosures in response to Item 2, Item 3, and Item 4 of the registration forms appear in numerical order at the front of the prospectus, and not be preceded by anything other than a cover page (Item 1), a glossary, or a table of contents. We believe that these disclosures should appear at the beginning of the prospectus because they contain the most salient information about a variable contract’s key features, costs, and risks.398 Additionally, the instruction would provide that, if the discussion of the information that Items 2 or 3 requires also responds to disclosure requirements in other items of the prospectus, a registrant need not include additional disclosure that repeats this information. Proposed General Instruction C.3.(b) would provide that, except in response to Items 2 and 3, a registrant would be

399See, e.g., Kleimann Presentation, supra note 106 (encouraging, for example, the use of questionand-answer format, the use of headings to make structure clear, using a strong design grid to organize elements, making line length readable, and using common words and sentence constructions as ways of designing disclosure to promote readability). 400The examples clarify that a contract that does not offer optional benefits would not be essentially identical to one that does. Similarly, group and individual contracts would not be essentially identical. However, contracts that vary only due to state regulatory requirements would be essentially identical. 401The examples clarify that a registrant could determine it is appropriate to include multiple prospectuses in a registration statement in the following situations: (1) The prospectuses describe the same contract that is sold through different distribution channels; (2) the prospectuses describe contracts that differ only with respect to underlying funds offered; or (3) the prospectuses describe both the original and an ‘‘enhanced’’ version of the same contract (where the ‘‘enhanced’’ version modifies the features or options that the registrant offers under that contract). 402The examples clarify that a prospectus may present all of the Item 2 information for several contracts, followed by all of the Item 3 information for the contracts, and followed by all of the Item 4 information for the contracts. Alternatively, the prospectus may present Items 2, 3, and 4 for each of several contracts sequentially. Other presentations also could be acceptable if they are consistent with the form’s intent to disclose the information required by Items 2, 3, and 4 in a standard order at the beginning of the prospectus. As guidance, we believe that regardless of the presentation method chosen, when disclosing information relating to one of several contracts, registrants should clearly identify to which contract the information relates. 403See proposed General Instruction C.3.(h) to Forms N–3, N–4, and N–6; see also proposed Items 3, 4, 5, 12, 19, and 20 of Form N–3; proposed Items 3, 4, 5, 11, and 18 of Form N–4; proposed Items 3, 4, 5, 11, and 18 of Form N–6. 404See proposed General Instruction C.3.(i) to Forms N–3, N–4, and N–6. 405 Id.; see also rule 105 of Regulation S–T [17 CFR 232.105] (prohibiting hyperlinking to websites, locations, or other documents that are outside of the EDGAR system). 406See supra section II.A.5. permitted to include information in the prospectus or SAI that is not otherwise required, so long as it is not incomplete, inaccurate, or misleading and does not, because of its nature, quantity, or manner of presentation, obscure or impede understanding of the information that is required to be included. This instruction is intended to provide flexibility to registrants to include contextual and other information that could aid investors’ understanding of variable contracts and assist them
in making informed investment decisions. Proposed General Instruction C.3.(c) would encourage registrants to use, as appropriate, question-and-answer presentations, tables, side-by-side comparisons, captions, bullet points, numeric examples, illustrations or similar presentation methods.399 We believe that these alternative ways of presenting information could increase readability and that this proposed instruction could encourage registrants to use these presentation options, where appropriate. Proposed General Instruction C.3.(d) includes in substance the requirements of Item 2 (Definitions) of current Forms N–3 and N–4. The changes conform this instruction to the language in the parallel current General Instruction of Form N–6, which we believe will improve readability and consistency across form types. Proposed General Instruction C.3.(e) would provide new guidance in each of the forms addressing when a registrant may describe multiple contracts in a single prospectus, and include multiple prospectuses in a single registration statement. First, proposed General Instruction C.3.(e)(i) would provide that registrants may describe multiple contracts in a single prospectus when the contracts are ‘‘essentially identical.’’ Whether the contracts are essentially identical would depend on the facts and circumstances. The proposed instruction includes examples to provide guidance on this point.400 Similarly, proposed General Instruction C.3.(e)(ii) would further provide that a registrant may combine multiple prospectuses in a single registration statement when the prospectuses describe contracts that are essentially identical. The proposed instruction also includes examples to provide guidance on this point.401 We believe these examples are generally consistent with current industry practice. While proposed paragraph (a) of General Instruction C.3 requires registrants to disclose the information required by Items 2, 3, and 4 in numerical order at the front of the prospectus and generally not to precede the items with other information, proposed General Instruction C.3.(e)(iii) would provide that, as a general matter, registrants providing disclosure in a single prospectus for more than one contract, or for contracts sold in both the group and individual markets, may depart from this requirement as necessary to present the required information clearly and effectively (although the order of information required by each item must remain the same). The proposed instruction would include examples to provide guidance on this point.402 Proposed paragraph (h) of General Instruction C.3, which would require variable contracts to use the Inline XBRL format for the submission of certain required disclosures in the variable contract statutory prospectus,403 is discussed in more detail in Section II.E below. Proposed paragraph (i) of General Instruction C.3 would require any website address or cross-reference that is included in an electronic version of the
statutory prospectus (i.e., electronic versions sent to investors or available online) to be an active hyperlink.404 This instruction is intended to ensure that investors viewing electronic versions of the prospectus are able to easily access website addresses and cross-referenced materials that are referenced in the prospectus. This requirement would not apply to statutory prospectuses that are filed on the EDGAR system.405 We request comment generally on the proposed amendments to the General Instructions of Forms N–3, N–4, and N– 6 and specifically on the following issues:

Would the proposed instructions provide
clear guidance to registrants when preparing or amending a registration statement? Should any of the proposed instructions be modified or not be included? For example, proposed paragraph (i) of General Instruction C.3 would require any website address or crossreference that is included in an electronic version of the statutory prospectus to be an active hyperlink. Should we broaden that requirement to also apply to the SAI and Part C of the registration statement? Would broadening the requirement in this manner result in any synergies or redundancies with the requirements of proposed rule 498A(h)(2)(iii)? 406 Additionally, to what extent, if any, would the proposed requirement regarding active hyperlinks present challenges or add costs or burdens with respect to the use of statutory prospectuses, given that active links are not required in EDGAR filings (and active links to websites, locations, and documents outside of the EDGAR system are expressly prohibited pursuant to rule 105 of Regulation S–T [17 CFR 232.105])? Are there additional instructions that we should include? Should any current instructions not be included in the revised forms?
Are the proposed definitions listed as
Part A of the General Instructions clear, or
should they be modified? Are there additional definitions that we should include in proposed Part A of the General Instructions?
Are the proposed instructions in Part B
of the General Instructions relating to the filing and use of the registration forms clear, or should they be modified? For example, proposed General Instruction B.2.(b) to Forms N–3, N–4, and N–6 provides that for registration statements or amendments filed only under the Investment Company Act, registrants need not respond to certain items of the forms. Those registration statements generally relate to contracts offered to institutional investors who are seeking to provide coverage for their key personnel, and

407For example, institutional investors generally negotiate benefits coverage on a custom basis, and therefore prospectuses regarding contracts offered to institutional investors may not include any discussion regarding death benefits. therefore certain disclosures that would be relevant to retail investors are less significant.407 Should that instruction in each of the forms be updated to either add any additional items to, or remove any of the items from, this proposed list of exclusions?

Would the proposed instructions in Part
C of the General Instructions result in clearer and more concise disclosure to investors? Are there other instructions that we should include to encourage registrants to use plain English principles or otherwise promote clear and concise disclosure?
Would other requirements improve the
utility and accessibility of the statutory prospectus for retail investors? Are there any areas in the document where requiring the use of a specific check-the-box approach, bullet points, tables, charts, graphs or other graphics or text features would be helpful in presenting any of the information or making it more engaging to retail investors? Should we include requirements for font size, margins and paper size? Should we restrict certain types or sizes of font, color choices or the use of footnotes?
Is the requirement of proposed General
Instruction C.3.(a) that Items 2, 3, and 4 appear in numerical order at the front of the prospectus appropriate? Should we specify that any other items appear at the front of the prospectus? Should all of the portions of the statutory prospectus that are also summary prospectus disclosures be segregated and placed at the beginning of the statutory prospectus to aid in the effective presentation of information for investors in contracts whose issuers choose not to rely on proposed rule 498A?
Are the instructions in proposed General
Instruction C.3.(e) on when registrants may describe multiple contracts in a single prospectus, and include multiple prospectuses in a single registration statement, clear and appropriate? Is it clear when contracts are ‘‘essentially identical,’’ or would additional clarification (either in the form text, or provided as Commission guidance) be helpful? Are the examples that the proposed form instructions include useful and appropriate? Are they generally consistent with current industry practice? Should we modify or expand these examples in any way? Would some alternative standard for when a single prospectus may describe multiple contracts, or for when a single registration statement may include multiple prospectuses, be more appropriate than the proposed ‘‘essentially identical’’ standard?
Should a registrant only be permitted to
describe a single contract in a prospectus, and if so, what parameters should dictate what a single contract is? Likewise, should a registrant only be permitted to include one prospectus in a registration statement? What is industry practice in terms of describing multiple contracts in a single prospectus, and combining multiple prospectuses into a single registration statement? What are the benefits and costs of this practice, both to members of the industry as well as to investors?
Should we, as proposed, permit
registrants that are providing disclosure for more than one contract in a single prospectus, or for contracts sold in both the group and individual markets, to depart from the instruction to disclose the information required by Items 2, 3, and 4 in numerical order to present the required information clearly and effectively (provided the order of information required by each item remains the same)? Should this instruction be modified in any way?
Should the instructions in proposed Part
D of the General Instructions regarding the use of incorporation by reference be modified in any way?

Part A (Information Required in a
Prospectus)
Table 5 shows how our proposed
amendments would amend the item requirements of Part A of the variable contract registration forms.
TABLE 5—PROPOSED AMENDMENTS TO PART A OF FORMS N–3, N–4, AND N–6
Item description Proposed item No. Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Front and Back Cover Pages (in Forms N–3 and N–4, currently ‘‘Cover Page’’).

Form N–3: Item 1 (currently
Item 1).
Form N–4: Item 1 (currently
Item 1).
Form N–6: Item 1 (currently
Item 1).
Revised .................................... Revised .................................... Revised.
Overview of the Contract ......... • Form N–3: Item 2 .................
Form N–4: Item 2 .................
Form N–6: Item 2 .................
New Item (also in ISP) ............ New Item (also in ISP) ............ New Item (also in ISP). Definitions ................................ N/A (currently, Item 2 in Forms N–3 and N–4). Revised (incorporated in General Instructions). Revised (incorporated in General Instructions). N/A (incorporated in General Instructions).
Key Information ........................ • Form N–3: Item 3 .................
Form N–4: Item 3 .................
Form N–6: Item 3 .................
New Item (also in ISP, USP) ... New Item (also in ISP, USP) ... New Item (also in ISP, USP). Fee Table (in Form N–3, currently ‘‘Synopsis or Highlights,’’ in Form N–4, currently ‘‘Synopsis,’’ and in Form N–6, currently ‘‘Risk/ Benefit Summary: Fee
Table’’).
Form N–3: Item 4 (currently
Item 3).
Form N–4: Item 4 (currently
Item 3).
Form N–6: Item 4 (currently
Item 3).
Revised (also in ISP) ............... Revised (also in ISP) ............... Revised (also in ISP). Condensed Financial Information.
Form N–3: Item 33 (currently
Item 4).
Form N–4: Item 27 (currently
Item 4).
Revised and moved to SAI ...... Revised and moved to SAI ...... N/A. Principal Risks of Investing in the Contract (in Form N–6, currently ‘‘Risk/Benefit Summary: Benefits and Risks’’).
Form N–3: Item 5 .................
Form N–4: Item 5 .................
Form N–6: Item 5 (currently
Item 2).
New Item .................................. New Item .................................. Revised Item. In Form N–3: General Description of Registrant, Insurance Company, and Investment Options (currently ‘‘General Description of Registrant and Insurance Company’’). In Forms N–4 and N–6: General Description of Registrant, Depositor, and Portfolio Companies.
Form N–3: Item 6 (currently
Item 5).
Form N–4: Item 6 (currently
Item 5).
Form N–6: Item 6 (currently
Item 4).
Revised .................................... Revised .................................... Revised.

TABLE 5—PROPOSED AMENDMENTS TO PART A OF FORMS N–3, N–4, AND N–6—Continued
Item description Proposed item No. Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Management ............................ • Form N–3: Item 7 (currently Item 6). Revised .................................... N/A ........................................... N/A. Charges (in Form N–3, currently ‘‘Deductions and Expenses,’’ in Form N–4, currently ‘‘Deductions’’).

Form N–3: Item 8 (currently
Item 7).
Form N–4: Item 7 (currently
Item 6).
Form N–6: Item 7 (currently
Item 5).
Revised .................................... Revised .................................... Revised. General Description of Contracts (in Form N–4, currently ‘‘General Description of Variable Annuity Contracts’’).
Form N–3: Item 9 (currently
Item 8).
Form N–4: Item 8 (currently
Item 7).
Form N–6: Item 8 (currently
Item 6).
Revised .................................... Revised .................................... Revised. Annuity Period ......................... • Form N–3: Item 10 (currently Item 9).
Form N–4: Item 9 (currently
Item 8).
Revised .................................... Revised .................................... N/A. Premiums ................................. • Form N–6: Item 9 (currently Item 7). N/A ........................................... N/A ........................................... Unchanged (part also in ISP). Standard Death Benefit (in Forms N–3 and N–4, currently ‘‘Death Benefit,’’ and in Form N–6, currently ‘‘Death Benefits and Contract Values’’).
Form N–3: Item 11 (currently
Item 10).
Form N–4: Item 10 (currently
Item 9).
Form N–6: Item 10 (currently
Item 8).
Revised (part also in ISP) ....... Revised (part also in ISP) ....... Revised (part also in ISP). Other Benefits Available Under the Contract.
Form N–3: Item 12 ...............
Form N–4: Item 11 ...............
Form N–6: Item 11 ...............
New Item (part also in ISP) ..... New Item (part also in ISP) ..... New Item (part also in ISP). Purchases and Contract Value • Form N–3: Item 13 (currently Item 11).
Form N–4: Item 12 (currently
Item 10).
Form N–6: N/A .....................
Revised (part also in ISP) ....... Revised (part also in ISP) ....... N/A. Surrenders and Withdrawals (in Forms N–3 and N–4, currently ‘‘Redemptions,’’ in Form N–6, currently ‘‘Surrenders, Partial Surrenders, and Partial Withdrawals’’).
Form N–3: Item 14 (currently
Item 12).
Form N–4: Item 13 (currently
Item 11).
Form N–6: Item 12 (currently
Item 9).
Revised (part also in ISP) ....... Revised (part also in ISP) ....... Unchanged (part also in ISP).
Loans ....................................... • Form N–3: Item 15 ...............
Form N–4: Item 14 ...............
Form N–6: Item 13 (currently
Items 10 and 23).
New Item .................................. New Item .................................. Revised. Lapse and Reinstatement ........ • Form N–6: Item 14 (currently Item 11). N/A ........................................... N/A ........................................... Unchanged (also in ISP). Taxes ....................................... • Form N–3: Item 16 (currently Item 13).
Form N–4: Item 15 (currently
Item 12).
Form N–6: Item 15 (currently
Item 12).
Revised .................................... Revised .................................... Unchanged. Legal Proceedings ................... • Form N–3: Item 17 (currently Item 14).
Form N–4: Item 16 (currently
Item 13).
Form N–6: Item 16 (currently
Item 13).
Revised .................................... Revised .................................... Unchanged.
Table of Contents of the SAI ... N/A (currently, Item 15 of Form
N–3 and Item 14 of Form N–

Eliminated ................................ Eliminated ................................ N/A.
Financial Statements ............... • Form N–3: Item 18 ...............

Form N–4: Item 17 ...............
Form N–6: Item 17 (currently
Item 14).
New Item .................................. New Item .................................. Unchanged. In Form N–3: Investment Options Available Under the Contract. In Forms N–4 and N–6: Portfolio Companies Available Under the Contract.
Form N–3: Item 19 ...............
Form N–4: Item 18 ...............
Form N–6: Item 18 ...............
New Item (also in ISP, USP if disclosures from Item 20 are not included). New Item (also in ISP, USP) ... New Item (also in ISP, USP). In Form N–3: Additional Information About Investment Options Available Under the Contract.
Form N–3: Item 20 ............... New Item (also in ISP, USP if
disclosures from Item 19 are not included). New Item .................................. New Item.

408We are proposing to eliminate the Table of Contents of the SAI that is required by Item 15 of current Form N–3 and Item 14 of current Form N–
4. We do so to streamline the prospectus and avoid
duplicative disclosure with the SAI, which separately requires a Table of Contents. See infra
section II.D.3. 409Proposed Item 1(a)(5) of Forms N–3; proposed
Item 1(a)(4) of Forms N–4 and N–6. 410Proposed Item 1(a)(8) of Form N–3; proposed Item 1(a)(7) of Forms N–4 and N–6; see also supra note 84 and accompanying text. 411Proposed Item 1(a)(10) of Form N–3; proposed Item 1(a)(8) of Forms N–4 and N–6; see also supra note 83 and accompanying text. The proposed legend on each of the three forms would read: ‘‘If you are a new investor in the [Contract], you may cancel your [Contract] within 10 days of receiving it without paying fees or penalties. In some states, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total contract value. You should review this prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply.’’ 412Proposed Item 1(b) of Forms N–3, N–4, and N– 6. 413See supra section II.A.1.c.ii(a) for a discussion of these requirements in more detail. Proposed Item 2(d) of Form N–6 would include the requirements that appear in Item 2(a) of current Form N–6. 414Proposed rule 498A(b)(5)(i). 415See supra section II.A.1.c.ii(b) for a discussion of these requirements in more detail. 416See supra sections II.A.1 and II.A.2. 417See supra section II.A.2.c.ii(b). 418See supra note 162 and accompanying text. a. Front and Back Cover Pages (Item 1 of Forms N–3, N–4, and N–6) We propose to amend Item 1 of each registration form to reflect the requirements for the prospectus cover pages required by Item 1 of current Form N–6, with three additions to the front cover page:

First, we are proposing that the front
cover page include the name of the contract and the class or classes, if any, to which the contract relates to help clarify the specific contract and class or classes covered by the prospectus; 409
Second, as with the initial summary
prospectus and updating summary prospectus, we are proposing that the front cover page include a statement directing an investor to the Investor.gov website for additional information; 410 and
Third, as with the initial summary
prospectus, we are proposing that the front cover page include a legend informing investors about the free look period.411 To streamline the front cover page and because similar information would appear in tabular presentation in the prospectus, we are proposing to eliminate the current requirements in Forms N–3 and N–4 that the registrant include on the front cover page the type of separate account and names of the available portfolio companies, respectively. Additionally, we are proposing that the prospectus back cover page include certain additional information concerning: (1) The availability of the SAI and how to request other information about the contract; (2) whether and from where information is incorporated by reference into the prospectus as permitted by proposed
Part D of the Form’s General
Instructions; and (3) the EDGAR contract identifier for the contract.412 We request comment generally on the proposed amendments to the prospectus cover page requirements, and specifically on the following issues:
Are there additional disclosure topics
that should be included in the cover pages of the statutory prospectus?
As proposed, should a legend that is
similar to the disclosure regarding the free look period on the cover page of the initial summary prospectus also appear on the cover
page of the statutory prospectus? Why or why
not? Should we modify the proposed legend regarding the free look period that would appear on the cover page of the statutory prospectus in any way?
Should the registration forms require
that the registrant include the names of the investment options/portfolio companies on the front cover page?
Should we require the name of the
contract and the class/classes? b. Overview of the Contract (Item 2 of Forms N–3, N–4, and N–6) We propose to add new Item 2 to the registration forms, which would require registrants to include certain basic and introductory information about the contract and its benefits.413 These disclosures would also be required in initial summary prospectuses.414 We request comment generally on the proposal to include a new item requiring registrants to include in the prospectus an overview of the contract, and specifically on the following issues:
Should we require the proposed
overview discussion to be included in the statutory prospectus? Are the content requirements for this proposed item appropriate for inclusion in the statutory prospectus?
Should the disclosure requirements for
this item be modified in any way for the statutory prospectus?
c. Key Information (Item 3 of Forms N–
3, N–4, and N–6)
We propose to add new Item 3 to the registration forms, which would require a statutory prospectus to include the Key Information Table providing a brief description of key facts about the variable contract.415 The Key Information Table would also appear in the initial summary prospectus and the updating summary prospectus, except that it could vary depending on the scope of the initial summary prospectus (which could only describe a single contract that the registrant currently offers for sale), in contrast to the updating summary prospectus and statutory prospectus (which could describe multiple contracts under the conditions of the proposed General Instructions to the registration forms).416 An updating summary prospectus that describes multiple contracts could contain a separate Key Information
Table for each of the contracts, or use
a different presentation approach that consistently discloses the required information for each contract in the required order. 417 We request comment generally on the proposal to include the Key Information
Table in the prospectus, and specifically
on the following issues:
Should we require the proposed Key
Information Table to be included in the statutory prospectus? Are the content requirements for this proposed item appropriate for inclusion in the statutory prospectus?
Should the Key Information Table in the
statutory prospectus differ in any respect from the table in the summary prospectuses? If so, in what respect? Should we eliminate certain line-items? Are there additional disclosure topics that we should require in the Key Information Table that appears in the statutory prospectus?
Would the Key Information Table
disclosure requirements confuse investors if a prospectus were to describe multiple contracts? For example, if a prospectus that describes multiple contracts were to include a single Key Information Table that discloses separate fee information in the ‘‘Fees and Expenses’’ line-items for each contract, would this confuse investors?
Are there certain disclosure
presentations that would be so lengthy, or overly-broad, that they may not be useful to investors? Would it be useful for us to provide additional instructions in the form, about different approaches that registrants could take in presenting any of the required information in the Key Information Table? For example, with respect to fee disclosure in the Key Information Table, should we provide guidance or additional instructions on whether it would be acceptable to present a range of minimum and maximum fees, and lowest and highest annual costs, that includes all of the contracts that the prospectus describes, or instead require registrants to provide separate fee and cost ranges for each contract that the prospectus describes? Alternatively or additionally, should we require disclosure in the Key Information Table reminding investors to review their individual contract for information about the specific fees they will pay in connection with their contract?
As discussed above, we are proposing a
requirement that the Key Information Table include cross-references to the location in the statutory prospectus where the relevant subject matter is described in greater detail.418 We are separately proposing a

419 Id.
420We also propose to change the title of the Item from ‘‘Synopsis of Highlights’’ in Form N–3, ‘‘Synopsis’’ in Form N–4, and ‘‘Risk/Benefit Summary: Fee Table’’ in Form N–6 to ‘‘Fee Table’’ in all three forms. 421As a conforming change, we propose to remove Instruction 2(c) to current Item 3 of Form N–3 and Instruction 10 to current Item 3 of Form N–4 and revise Instruction 2(b) to current Item 3 of Form N–3 and Instruction 9 to current Item 3 of Form N–4 (which we would re-number as Instruction 10 in each form) to clarify that the term ‘‘deferred sales load’’ includes surrender charges. 422 In current Form N–3, these items are each presented as line-items in the table that Item 3(a) requires. 423Although these proposed revisions generally apply to Forms N–3 and N–4, as discussed below, the new line-item for optional benefits would also be added to the ‘‘Periodic Charges Other Than Portfolio Company Operation Expenses’’ table in Form N–6. 424We also propose to make conforming changes to Instruction 3 to current Item 3 of Form N–3 and Instruction 7 to current Item 3 of Form N–4, which we would renumber as new Instruction 8 in both forms (no changes to the definition). 425We also propose to make conforming changes to each form’s instructions. We propose to remove Instruction 4(b) to current Item 3 of Form N–3 and Instruction 13 to current Item 3 of Form N–4, which permit ‘‘Mortality and Expense Risk Fees’’ to be listed separately on two lines in the table. We also propose to revise Instruction 14 to current Item 3 of Form N–4 (which we would renumber as Instruction 13), and add a corresponding new Instruction 13 to proposed Item 4 of Form N–3, to state that ‘‘Base Contract Expenses’’ includes mortality and expense risk fees, and account fees and expenses. We would also include a new Instruction 3(e) to proposed Item 4 of Form N–6 permitting Registrants to consolidate any charges that are assessed on a similar basis (e.g., Administrative charge and Mortality and Expense Risk Fees). 426We propose to revise and renumber Instruction 15 to current Item 3 of Form N–4 (which currently appears under the heading ‘‘Portfolio Company Annual Expenses’’) as Instruction 14 to proposed Item 4 (to appear under the heading ‘‘Other Annual Expenses’’) to make clear that other annual expenses are required to be disclosed (not just other portfolio company annual expenses, as the current instruction provides). 427See Instruction 7 to proposed Item 4 of Form N–3. 428See Instruction 15 to proposed Item 4 of Forms N–3 and N–4. 429See Instruction 3.(f) to proposed Item 4 of Form N–6. 430See Instruction 16 to proposed Item 4 of Form N–3. 431See ‘‘Annual Contract Expenses’’ table in Item 4 of proposed Form N–4. We understand that most registrants on Form N–4 calculate optional benefit expenses on a basis other than contract value. Because of this, it would generally be difficult to sum optional benefit expenses with other expenses that are presented as annual contract
expense lineitems. In contrast, we understand that most General Instruction (and a parallel instruction in proposed rule 498A) requiring cross-references in electronic versions of the statutory prospectus to link directly to the location in the statutory prospectus where the subject matter is discussed in greater detail).419 Should we instead include a General Instruction in each of the registration forms (and/or rule 498A as appropriate) that would provide that, where a topic is summarized in the summary or statutory prospectus and is discussed in more detail elsewhere in the statutory prospectus, the summarized topic must include a crossreference (and a hyperlink in electronic document versions) to the location in the statutory prospectus where the topic is discussed in more detail? d. Fee Table (Item 4 of Forms N–3, N– 4, and N–6) We propose to amend Item 3 of the current registration forms (which we would re-designate as Item 4) to simplify and update current fee and expense disclosure obligations.420
i. Transaction Expenses (Forms N–3 and
N–4)
We are proposing to modify the current ‘‘Contractowner Transaction Expenses’’ table in Forms N–3 and N– 4 (which we would re-title as ‘‘Annual Transaction Expenses’’ in each form) by removing the current ‘‘Surrender Fees’’ line-item in this table. We believe the current ‘‘Deferred Sales Load’’ line-item in the table would already capture these fees.421 Correspondingly, we are proposing to revise the title of the ‘‘Deferred Sales Load’’ line-item to include ‘‘Deferred Sales Load (or Surrender Charge)’’ to clarify that a registrant should continue to include surrender charges in the table.
ii. Annual Contract Expenses (Forms N–
3 and N–4) and Periodic Charges Other Than Portfolio Company Operation Expenses (Form N–6) We are proposing several changes to the current ‘‘Annual Account Fee’’ and ‘‘Annual Expenses’’ line-items in Form N–3,422 and the current ‘‘Annual Contract Fee and Separate Account Annual Expenses’’ table in Form N–4. As proposed, each would be retitled, as a stand-alone table, under the heading ‘‘Annual Contract Expenses’’ in both forms to clarify that the item reflects insurance-related annual contract fees and not the fees related to investment options. In addition, we are proposing to modify the captions for existing lineitems, consolidate certain line-items, and add a new line-item for optional benefits in this table in each form.423 Under the proposal, the ‘‘Annual Contract Expenses’’ table in Forms N–3 and N–4 would be composed of the following line-items:

Administrative Expenses. The line-item
‘‘Annual Contract Fee’’ in Form N–4 (‘‘Annual Expenses’’ in Form N–3) would be replaced with the more plain-English ‘‘Administrative Expenses.’’ 424
Base Contract Expenses. We are
consolidating the current line-item under ‘‘Annual Expenses’’ in Form N–3 (‘‘Mortality and Expense Risk Fees,’’ and ‘‘Other Expenses’’), and the current line-items under ‘‘Separate Account Annual Expenses’’ in Form N–4 (‘‘Mortality and Expense Risk Fees,’’ ‘‘Account Fees and Expenses,’’ and ‘‘Total Separate Account Annual Expenses’’) under a single new line-item in each table, ‘‘Base Contract Expenses.’’ Collapsing these fees into a single line-item is intended to make it easier for investors to understand the annual cost of investing in the basic variable contract.425 Any other recurring charge (other than charges associated with the portfolio companies, or management fees in the case of Form N–3) would appear as an additional line-item in the Annual Transaction Expenses table or the Annual Contract Expenses table, and would disclose the maximum amount or basis on which the charge is deducted.426
Management Fees. Unlike Forms N–4
and N–6, which as discussed below would require separate disclosures about total annual portfolio company operating expenses, Form N–3 would not require such disclosures because Form N–3 registrants have a single-tier structure and do not have underlying portfolio companies. However, Form N–3 registrants generally do have distinct management fees for each investment option offered under the contract. Since these management fees can vary significantly, we propose to require disclosure of the management fee for each investment option.427
Optional Benefits. In recognition of the
fact that variable contracts today commonly offer optional benefits, the table in Forms N– 3, N–4, and N–6 would require a new lineitem that would require registrants to list any optional benefits available under the contract, along with its corresponding annual charge.428 In Form N–6, this same new lineitem would be added in the ‘‘Periodic Charges Other Than Portfolio Company Operations Expenses’’ table.429
Total Annual Contract Expenses. In
Form N–3, we are proposing a new requirement to disclose total annual contract expenses, and a related instruction that would specify that total annual contract expenses should be disclosed as a percentage of account value.430 While annual contract expenses are generally calculated as a percentage of account value, optional benefit expenses may be calculated on a different basis, such as a percentage of the benefit base or as a percentage of average net assets. The proposed instruction would provide that if optional benefit expenses are calculated on a basis other than account value, registrants should prominently indicate that those optional benefit expenses are not included in total annual contract expenses (because they are calculated on different bases and cannot be added). The requirement to disclose total annual contract expenses would differ from the proposed approach to disclosing annual contract expenses in Form N–4, which would require separate line-items for administrative expenses, base contract expenses, and optional benefit expenses, but would not (unlike the proposed approach in Form N–3) require the disclosure of a composite total of these line-items.431

registrants on Form N–3 either do not offer optional benefits or else calculate optional benefit expenses on a contract value basis. We therefore believe that proposing the disclosure of total annual contract expenses is appropriate for Form N–3 registrants, because the disclosure would be practicable and could help investors understand the total expenses (not including portfolio company fees and expenses) that they will pay each year. 432Because this simplification would render obsolete the rest of Instruction 17, as well as Instructions 16 and 18, to current Item 3 of Form N–4, we propose eliminating them. 433See Disclosure of Costs and Expenses by Insurance Company Separate Accounts Registered as Unit Investment Trusts that Offer Variable Annuity Contracts, Investment Company Act Release No. 25802 (Nov. 13, 2002) [67 FR 69973 (Nov. 19, 2002)], at n.14 and accompanying text (‘‘We intend that the staff construe the amendments to the fee table of Form N–4 consistent with the approach taken under Form N–1A, to permit the addition of one line to the fee table showing the range of net Portfolio Company operating expenses after taking account of contractual limitations that require reimbursement or waiver of expenses.’’). 434See supra note 130. 435The instructions for the Example in current Item 3 of Form N–3 (currently unnumbered) would be new Instruction 17 to proposed Item 4, while Instruction 21 to current Item 3 of Form N–4 would be renumbered as Instruction 18 to proposed Item 4. 436When Forms N–3 and N–4 were first adopted, the references in Form N–3 to amortization costs were inadvertently included in Form N–4. Because investors in UITs (Form N–4 and N–6 filers) do not pay amortization costs, we are removing this reference from the instruction. 437See proposed Item 4 of Form N–3. 438See Item 3 of Form N–1A.
iii. Total Annual Portfolio Company
Operating Expenses (Form N–4) We are proposing to amend the disclosures that registrants would provide with respect to the ‘‘Total Annual Portfolio Company Operating Expenses’’ table in Form N–4. First, we are proposing to revise the legend that would precede the table to direct investors to the new appendix required by new Item 18 relating to the portfolio companies available under the contract. As a conforming change, we are proposing to eliminate current Instruction 20 (stating that a registrant may include additional tables showing annual operating expenses separately for each portfolio company immediately following the required table), as this information would duplicate the fee information that would appear in the new appendix. We also propose to simplify other instructions to the table. We propose to revise current Instruction 17(a) (which we would re-designate as new Instruction 16) to instruct registrants to use the gross expense ratio presented in the fee table of a portfolio company’s current prospectus when disclosing the minimum and maximum ‘‘Total Annual [Portfolio Company] Operating Expenses.’’ Current Instruction 17(a) contains instructions for calculating Total Annual Portfolio Company Operating Expenses, which results in a
figure that is the same as the gross
expense ratio presented in a portfolio company’s prospectus fee table. Directing registrants to use the gross expense ratio reflected in a portfolio company’s current prospectus would avoid the need to provide detailed instructions in the form regarding how to calculate this figure (as is the case with current Instruction 17(a)).432 We also propose revising current Instruction 19 (and renumbering it as Instruction 17) to modify the way that registrants could reflect operating expenses that include expense reimbursement or fee waiver arrangements. Currently, the instruction specifies that such expenses could appear in a footnote to the table. The revised instruction would instead state that these could appear as an additional line-item to the table. We believe that including these disclosures as a separate line-item in the table would provide a clearer presentation for investors than a footnote to the table.433
iv. Example (Forms N–3 and N–4)
We are proposing to update the requirements for the Example that would appear in the Fee Table in Forms N–3 and N–4 in several respects. First, we propose to revise the legend accompanying the Example to reflect the revised Fee Table headings and to reference the inclusion of optional benefits in the Example’s assumptions. We believe the Example should reflect the highest cost that an investor may pay under the contract, inclusive of any available optional benefits. We also propose to increase the value of the assumed investment from $10,000, as required under Item 3 of current Form N–4 (and $1,000, as required under Item 3 of current Form N–3), to $100,000. We believe that $100,000 more closely approximates the current average value of a variable annuity,434 and therefore we believe this figure is more likely to result in cost projections that align with actual investor expectations and experience. We are also proposing to revise the instructions for the Example to clarify that registrants must provide an example for each contract class, consistent with current practice.435 We also propose to revise Instruction 21(b) in current Form N–4 (which we would re-number as Instruction 18(b)), and to add new Instruction 16(b) in Form N– 3, to make clear that that an example showing the most expensive combination of contract features should be shown first, while additional expense examples would be permitted, but not required. In addition, we propose to remove the last sentence of Instruction 21(b) of current Form N–4, which states that in lieu of providing the required example based on maximum portfolio company expenses, a registrant may include separate expense examples based on the expenses of each portfolio company. In our experience, registrants rarely include separate expense examples based on the expense of each portfolio company (likely because to do so would add extensive length to the Example
section of the prospectus). Eliminating
this option would therefore not only reflect actual practice, but also would be consistent with our goal of streamlining prospectus disclosure. We also propose to make certain technical corrections to Instructions 21(a) and (b) of current Form N–4, by eliminating references to amortization costs, which do not apply to variable annuity contracts that are structured as UITs.436
v. Portfolio Turnover (Form N–3)
Because Form N–3 registrants have a single-tier structure, investors do not receive separate prospectuses containing portfolio turnover information for investment options offered under the contract, as is the case for portfolio companies offered under contracts registered on Forms N–4 and N–6. We propose to require disclosure of portfolio turnover for each investment option in Form N–3, as well as a brief statement explaining that portfolio turnover has associated transaction costs, and that a higher portfolio turnover rate may indicate higher transaction cost and higher taxes, which affect the investment option’s performance.437 These disclosure requirements would largely restate existing requirements in caption 10 of Item 4(a) of current Form N–3, although they would include the brief statement that is required by the parallel item in Form N–1A in order to provide more context and information for investors.438
vi. General Instructions (Forms N–3, N–
4, and N–6)
In addition to specific instructions associated with each of the tables and the Example(s) that would appear in response to the proposed Item 4 disclosure requirements, we also propose to update the General Instructions associated with this item. Instruction 1(a) to the Fee Table in current Form N–6 instructs registrants to round all dollar figures to the nearest

439See Instruction 1(a) to current Item 3 of Form N–6. 440See Instruction 1(a) to proposed Item 4 of Form N–6. 441Our staff has observed that some registrants disclose a fee range for certain optional benefits based on a benchmark (e.g., a fee that varies according to volatility levels or Treasury yields), without also disclosing a firm cap on the maximum amount an investor may have to pay for that contract feature. 442We propose to remove from Instruction 6 to current Item 3 of Form N–4 and Instruction 1.(f) to current Item 3 of Form N–3 the statement that ‘‘[i]f a Registrant uses one prospectus to offer a contract in both the group and individual variable annuity contract markets, the Registrant may (a) add narrative disclosure following the fee table identifying markets where certain fees are either inapplicable or waived or lower fees charged to investors in group markets, or (b) provide a separate fee table for group and individual contracts,’’ as proposed General Instruction C.3.(e)(i) of Forms N– 3 and N–4 would address the registration of multiple contracts. 443This would harmonize the General Instructions associated with the Fee Table for Forms N–3 and N–4 with parallel instructions in Form N–1A. See Instruction 1(d)(ii) to Item 3 of Form N–1A (‘‘If the prospectus offers more than one Class of a Multiple Class Fund or more than one Feeder Fund that invests in the same Master Fund, provide a separate response for each Class or Feeder Fund.’’). dollar and all percentages to the nearest hundredth of one percent.439 Because of the underwriting process inherent in variable life insurance contracts, rounding dollar figures to the nearest dollar for certain younger and healthier investors may result in disclosures of zero cost for certain fees, which may be misleading for investors. Therefore, we have proposed to modify this instruction to only require rounding percentages to the nearest hundredth of one percent.440 We also propose to revise General Instruction 5 of Form N–4 to state that if a fee is calculated based on a benchmark (e.g., a fee that varies according to volatility levels or Treasury yields), the registrant must disclose a maximum guaranteed charge as a single number. We believe that this proposed instruction would help minimize confusion regarding how much an investor can expect to pay under the contract and would better assist investors in understanding the costs they will pay when investing in a variable annuity. Without this clarifying statement, registrants that offer variable annuity contracts that link certain fees to benchmarks might seek only to present the maximum fee as a range (e.g., a certain percentage plus or minus a stated benchmark).441 Under the proposed instruction, a registrant that chooses to disclose the fee range (e.g., a fee that varies based on the 10-year Treasury rate) associated with a particular feature could do so, as long as they also disclose the maximum possible charge (e.g., 3%). We also propose
to add a parallel provision to Form N–3 as General Instruction 5 of Item 4. As part of our effort to update the Fee
Table, we propose to modify current
General Instruction 1.(f) to Item 3 of Form N–3 and General Instruction 6 to Item 3 of Form N–4 to eliminate language that would be redundant in light of new proposed General Instruction C.3.(e) of both forms.442 We also propose to include new General Instruction 7 to Forms N–3 and N–4, which would require registrants offering a contract with more than one class to provide fee and expense information for each class (and, for Form N–3 registrants, to require registrants offering more than one investment option to provide a separate response for each investment option).443
vii. Instructions for New Variable
Contract Registrants (Forms N–3, N–4, and N–6) Finally, we propose to eliminate certain instructions in Item 3 of current Forms N–3, N–4, and N–6 relating to new variable contract registrants. Specifically, we propose to eliminate Instructions 4(d)(i), 4(f)(ii), 4(g)(vi) and Instruction (f) under ‘‘Example’’ in Form N–3, Instruction 22 of Form N–4, and Instruction 5 of Form N–6 as the staff has found these instructions to be unnecessary. For example, Instruction 4(d)(i) to Item 3 of current Form N–3, Instruction 22(a) to Item 3 of current Form N–4, and Instruction 5(a) to current Item 3 of Form N–6 instruct a registrant to base the percentages in the Total Annual Portfolio Company Operating Expenses
table on estimated amounts for the
current fiscal year, but we understand that these operating expenses need not be estimated because they would not vary based on whether the registrant is new or already exists. Likewise, Instructions 4(f)(ii) and 4(g)(vi) to Item 3 of current Form N–3, Instruction 22(b) to Item 3 of current Form N–4, and Instruction 5(b) of Item 3 to current Form N–6 state that a new registrant may disclose any expense reimbursement or fee waiver arrangements that are expected to reduce the expenses that the table would show. Because Instruction 14(e) in proposed Item 4 of Form N–3, Instruction 17 in proposed Item 4 of Form N–4, and Instruction 4(b) in proposed Item 4 of Form N–6 would address this same issue, and we do not see a reason to distinguish between new and existing registrants for this purpose, these current Instructions are unnecessary. Lastly, Instruction (f) under the ‘‘Example’’ in Item 3 of current Form N– 3 and Instruction 22(c) to Item 3 of current Form N–4 state that new registrants must only complete the 1- and 3-year period portions of the Example and estimate any annual contract fees collected. However, because variable contract charges are contractual and do not vary based on whether the variable contract registrant is new or existing, we believe a new registrant’s Example should include the full 1, 3, 5, and 10-year periods required of existing registrants. For these reasons, we propose to eliminate these current Instructions in their entirety. We request comment generally on the amendments we propose to make to the Fee Table, and specifically on the following issues:

Would the proposed changes to the Fee
Table disclosures effectively and
appropriately streamline and consolidate the Form and the required disclosures? Would the proposed changes better reflect registrants’ current disclosure practices? Would the new captions convey, more clearly than the current captions, the types of expenses investors can expect to pay under the contract?
Are the proposed disclosure
requirements and related instructions associated with the ‘‘Annual Contract Expenses’’ table appropriate? For example, would the table appropriately disclose the annual fees and expenses associated with a variable contract? As another example, is ‘‘Base Contract Expenses’’ an appropriate way to describe the basic insurance-related contract features available under the contract, or would some other term be preferable? How else might we characterize the charges associated with the basic features available under the contract (excluding optional benefits and annual portfolio company operating expenses)?
For Form N–3 registrants, should we
revise or remove the instruction to the ‘‘Total Annual Expenses’’ line-item providing that if optional benefit expenses are calculated on a basis other than contract value, registrants should prominently indicate that those optional benefit expenses are not included in total annual expenses? Would investors be confused by viewing total annual expenses which did not include optional benefit expenses? In this case, or generally, should we not require disclosure of total annual expenses? Conversely, should we require disclosure of total annual expenses for all registrants on Forms N–4 and N–6, as well as on Form N–3?
Would the proposed requirements
appropriately convey to investors the types of optional benefits available under the contract and the charges associated with each? Should we require disclosure of optional benefits that are available at no additional charge in the list of optional benefits? If not, why not?
Should we revise the legend that would
precede the required ‘‘Total Annual Portfolio

444We are not including risk of contract lapse in proposed Item 5 of Form N–3 or Form N–4 because lapse, which occurs when there is insufficient cash value to pay insurance policy charges, is a less significant risk for variable annuities. Lapse is a greater risk for variable life insurance contracts, which, unlike variable annuities, require continuous premium payments (failure to pay premiums generally triggers a lapse and terminates the contract). In addition, the expenses associated with the death benefit for a variable life insurance contract tend to be higher than those for a variable annuity (in proportion to contract cash value). Higher expenses more quickly erode a variable life insurance contract’s cash value, which if insufficient to pay policy charges, will cause the contract to lapse. 445See Registration Form for Insurance Company Separate Accounts Registered as Unit Investment Trusts that Offer Variable Life Insurance Policies, Investment Company Act Release No. 23066 (Mar. 13, 1998) [63 FR 13988 (Mar. 23, 1998)] (‘‘Form N– 6 Proposing Release’’), at n.8 (noting that ‘‘[v]ariable life insurance prospectuses generally disclose [information required under the item as proposed], particularly risk information, in the context of long, often complex descriptions of the policy. The Commission believes that the proposed narrative summary will help achieve more effective communication of risks.’’). 446Proposed Item 6(a) and (b) of Forms N–3 and N–4; proposed Item 22(a) and (b) of Form N–3; proposed Item 20 of Form N–4; see also Item 5(a) and 5(b) of current Forms N–3 and N–4. 447See, e.g., Item 17(c) of current Form N–6; Item 19(h) of Form N–1A. Company Operating Expenses’’ table, as proposed in Forms N–4 and N–6? Are the amendments that we propose to the current instructions associated with this table appropriate? Should we make any other modifications to the table?

Should we modify the requirements for
the Example that would appear in the Fee
Table, as proposed? Would the revised
legend accompanying the Example appropriately alert investors to the assumptions that form the basis for the Example? Are the proposed revised instructions for the Example, including eliminating the option to include separate expense examples based on the expenses of each portfolio company, appropriate? Would they result in a clearer and more salient illustration of the costs of investing in the contract? Would increasing the value of the assumed investment in the Example from $10,000 (or $1,000 in the case of Form N–3 registrants) to $100,000 more closely align with typical current levels of investment in variable contracts? Are there any other modifications to the Example that we should make? If so, what?
Should we revise the General
Instructions to the Fee Table item, as proposed? For example, would the proposed requirement to disclose a maximum guaranteed charge as a single number, if a fee is calculated based on a benchmark, reduce investor confusion and better assist investors in understanding the costs they will pay when investing in a variable annuity? Are the other proposed revisions to the General Instructions appropriate to eliminate redundant language, and to otherwise update the tables? Should we modify or remove any other General Instructions, and if so, how?
Are there any current General
Instructions that we also should amend or other General Instructions we should include?
Are there any additional modifications
we should require to make the fee and expense information easier for investors to understand? e. Principal Risks of Investing in the Contract (Item 5 of Forms N–3, N–4, and N–6) We propose to add new Item 5 to Forms N–3 and N–4, which would require registrants to summarize the principal risks of purchasing a contract, including the risks of poor investment performance, that contracts are unsuitable as short-term savings vehicles, limitations on access to cash value through withdrawals, and the possibility of adverse tax consequences. The new disclosure item for Forms N– 3 and N–4 generally mirrors Item 2(b) of current Form N–6 (which we propose to re-designate as Item 5), with the exception of the risk of contract lapse.444 Although registrants currently include risk disclosures in their prospectuses without an explicit form requirement to do so, we note that in some cases, the risk discussions are provided across various sections of the prospectus. We believe the approach taken in Form N–6 of requiring a consolidated summary of the principal risks associated with the contract would provide more effective communication of risks to investors. Although current Form N–6 requires risk disclosures to be presented in a summary section at the front of the statutory prospectus, we propose to require for each registration form that the risk section be provided after the Key Information Table and Fee Table. While the Key Information Table would include a condensed discussion of contract risks, proposed Item 5 would give registrants the flexibility to describe the principal risks of investing in the contract in more detail than what could reasonably appear in a table meant to summarize the contract’s key risks and features. While we are not proposing to limit the length of the summary of principal risks in response to proposed Item 5, we believe that the utility of a summary would be undermined by the long, complex descriptions we sought to avoid when we adopted the summary principal risk
section as part of Form N–6.445
We request comment generally on the proposal to include a new item requiring disclosure of principal risks in the prospectus, and specifically on the following issues:
Should we require the summary of
principal risks of investing in a contract to be disclosed in a single location in the prospectus? Should we instead permit registrants the flexibility to disclose risks in conjunction with the specific contract feature to which they pertain, thus providing greater context for the risk(s)?
Should the summary of principal risks
disclosures be required to follow the Key Information Table and Fee Table, or should we require or permit the disclosures to be provided elsewhere in the prospectus?
Does the proposed item appropriately
describe the types of risks to be summarized, or should the list of risks be revised?
Would cross-referencing the risk section
in the Key Information Table provide useful layered disclosure for investors, or are there limitations in this approach? How might they be resolved?
Should we impose a page limit, or other
length limit, on responses to the proposed item? If so, what limit would be appropriate? Should we instead allow registrants the flexibility to determine how much disclosure is appropriate? Are there any organizing principles we might consider to encourage registrants to avoid overly-lengthy disclosure?
Should we make any other changes
regarding proposed prospectus disclosures describing risks associated with the contract?
Should we require the Item 5 disclosures
to also be included in the Initial Summary Prospectus and Updating Summary Prospectus? f. General Description of Registrant, Depositor, and Investment Options/ Portfolio Companies (Item 6 of Forms N–3, N–4, and N–6) We propose to amend Item 5 of current Forms N–3 and N–4, and Item 4 of current Form N–6, which we would re-designate as Item 6 in each of the registration forms. Reflecting the more up-to-date requirements of the parallel item of current Form N–6, we are proposing to amend Forms N–3 and N–4 to relocate certain information from the prospectus to the SAI: (1) With respect to the depositor, a description of the general nature of its business, its date and form of organization and the state or other jurisdiction under which it is organized, and information relating to persons controlling the depositor; and (2) with respect to the registrant, its date and form of organization and classification pursuant to section 4 of the Investment Company Act, and whether there are sub-accounts of the registrant.446 In addition, for consistency with Form N–6 and our newer registration forms,447 in Forms N–3 and N–4 we are proposing to relocate the requirement to identify and state the principal business address of any person who provides significant administrative or business affairs

448See proposed Item 25(g) of Form N–3; proposed Item 21(c) of Form N–4. 449 Item 5(c) through (e) of current Form N–3; Item 5(c) and (d) of current Form N–4; Item 4(c) and (d) of current Form N–6. 450See infra section II.D.2.r (discussing proposed Item 19 of Form N–3, proposed Item 18 of Forms N–4 and N–6). 451See Item 5(c) of current Form N–4; Item 4(c) of current Form N–6. 452Proposed Item 6(c) of Forms N–4 and N–6. 453 Instruction 1(a) to proposed Item 19 of Form N–3; see also supra text accompanying note 204 and note 241. 454See infra text following note 525 (discussing the disclosure requirements of proposed Item 20 of Form N–3). 455See Item 5 of current Form N–6. 456This instruction is based on Instruction 1 to Item 5(a) of current Form N–6. 457This instruction is based on Instruction 3 to Item 5(a) of current Form N–6. 458See proposed Item 8(a) of Form N–3; proposed Item 7(a) of Forms N–4 and N–6. 459See Item 4 of proposed Forms N–3, N–4, and N–6. 460 Item 20(d) of current Form N–6. 461Proposed Item 7(b) of Form N–6. 462See Item 7(d) of current Form N–3; Item 6(d) of current Form N–4. 463Proposed Item 7(e) of Form N–6. If organizational expenses of the registrant are to be paid out of its assets, this item also would require an explanation of how the expenses will be amortized and the period over which the amortization will occur. management services, and a description of those services, from the prospectus to the SAI.448 We are also proposing to amend the information required by the current item in Forms N–4 and N–6 regarding portfolio companies (and for Form N–3, investment options).449 As discussed below, we are moving the summary of certain information about the portfolio companies and investment options to an
appendix of the prospectus.450
Therefore, with respect to Forms N–4 and N–6, we propose to revise this item to replace the current requirement to briefly describe each portfolio company 451 with a requirement to state that certain information about the portfolio companies is available in the
appendix and to cross-reference or link
to that appendix, to further state that more detailed information is available in the portfolio companies’ prospectuses, and to explain how investors may obtain copies of those prospectuses.452 Proposed Item 19 of Form N–3 similarly would require a comparable
appendix of investment options, but
only if the appendix were included in a summary prospectus.453 Registrants would also include more detailed disclosures about investment options as required by proposed Item 20. Proposed Item 20 would generally include the disclosures required by current Item 5(c) through (e) regarding investment objectives and policies and principal risk factors associated with investing, as well as additional disclosures regarding the performance of each investment option.454 Similar to Forms N–4 and N–6, proposed Item 6 would require a Form N–3 registrant to state that certain information about the investment options is available in the appendix (pursuant to proposed Item 19) or elsewhere in the prospectus (pursuant to proposed Item 20), and provide crossreferences or links as appropriate. We request comment generally on the amendments we propose to make to the required prospectus disclosures describing the registrant, depositor, and portfolio companies, and specifically on the following issues:

Should we streamline the disclosures
relating to the depositor and registrant as proposed? Would these proposed amendments reduce any information that would be important to investors? Should we maintain any existing disclosures or require additional disclosures as to the depositor and registrant?
Should we relocate the requirement to
disclose information relating to service providers to the SAI as proposed?
Should we make any other changes to
the form regarding required prospectus disclosures describing the registrant, depositor, and/or portfolio companies? g. Charges (Item 8 of Form N–3, Item 7 of Forms N–4 and N–6) We propose to amend Item 7 of current Form N–3 and Item 6 of current Form N–4 (which we would re-title, and re-designate as Item 8 (in the case of Form N–3) and Item 7 (in the case of Form N–4) to reflect the more up-to-date requirements of the parallel item of current Form N–6.455 Paragraph (a) would expand the disclosure requirements of the current item in Forms N–3 and N–4 to include certain additional disclosure requirements that currently appear in the parallel item of Form N–6. The proposed amended items would require a registrant to provide a brief description of charges deducted from ‘‘any other source’’ (in addition to charges specifically deducted from purchase payments, investor accounts or assets of the registrant, which is currently required). These additional charges could include, for example, contract loan charges and optional benefit charges. In addition, we are proposing to require that the registrant describe: (1) The frequency of deductions (e.g., daily, monthly or annually) for any recurring charges; and (2) where it is possible to identify what is provided in consideration for a particular charge (e.g., use of sales load to pay distribution costs), an explanation of what consideration is provided. We believe these additional disclosures could help alleviate investor confusion about costs by more specifically describing the types of charges that might be incurred under a variable annuity contract. In addition, Instruction 1 to subparagraph (a) of the proposed amended item in Forms N–3 and N–4 would include a new requirement for the registrant to describe the factors affecting the computation of the amount of the sales load.456 For contracts with a deferred sales load, Instruction 1 would require the registrant to describe the sales load as a percentage of the applicable measure of purchase payments (or other basis) that the deferred sales load may represent, rather than the amount withdrawn or surrendered. Additionally, registrants would identify any events that would cause the deduction of a deferred sales load (e.g., surrender or partial surrender). The description of any deferred sales load would include how the deduction will be allocated if the investor has allocated contract value among multiple sub-accounts and when, if ever, the sales load will be waived (e.g., if the contract provides a free withdrawal amount). We are also proposing new Instruction 4 to subparagraph (a) of the amended item of Forms N–3 and N–4.457 If the contract’s charge for premium taxes or other taxes varies according to jurisdiction, proposed Instruction 4 would clarify for the registrant that identifying the range of current premium taxes or other taxes in this paragraph is sufficient. We also propose to revise the item related to charges in each form to clarify that the
required disclosures should relate to ‘‘current’’ charges.458 Disclosure of ‘‘maximum’’ charges would be redundant because those charges are encompassed in the fee table that would be included in the prospectus.459 Finally, we are proposing to amend the item of Form N–6 relating to charges in two respects. First, we are proposing to relocate disclosures on commissions paid to dealers from the SAI 460 to the prospectus.461 We believe that this disclosure, which is currently required in the prospectus under Forms N–3 and N–4,462 is more appropriate in the prospectus due to potential conflict of interest concerns. In addition, we also propose to require a description of the types of operating expenses for which the registrant is responsible,463 which

464See Item 7(f) of current Form N–3; Item 6(f) of current Form N–4. 465This new instruction would also appear in Form N–6. 466 In addition, subparagraph (b)(iii) of current Forms N–3 and N–4 would be re-designated as subparagraph (b)(5) and revised to replace ‘‘exchanges’’ with ‘‘buyout offers’’ of variable annuity contracts, including interests of participations therein. 467Proposed Item 9(b)(1) of Form N–3; proposed Item 8(b)(1) of Form N–4. For example, some contracts specify that if the contract’s value falls below a certain threshold, the contract terminates and an investor’s contract value is returned. 468Proposed Item 9(b)(4) of Form N–3 and related proposed instruction; proposed Item 8(b)(4) of Form N–4 and related proposed instruction; see also Item 8(b)(3) and related instruction of proposed Form N– 6; Item 6(b)(3) of current Form N–6. 469Proposed Item 9(b)(3) of Form N–3; proposed Item 8(b)(3) of Form N–4; proposed Item 8(b)(2) of Form N–6. 470Proposed Item 9(c) of Form N–3; proposed Item 8(c) of Form N–4; proposed Item 8(c) of Form N–6. 471See Instruction 3(d) to proposed Item 3 of Forms N–3, N–4, and N–6. 472See Instruction to proposed Item 9(d) of Form N–3; Instruction to proposed Item 8(d) of Form N–4; Instruction to proposed Item 8(d) of Form N– 6. 473See Changes in Investment Company Act Made by 1970 Amendments Act, Investment Company Act Release No. 6506 [36 FR 9130 (May 5, 1971)] (depositors of UITs should notify investors of the possibility that underlying securities may be substituted). 474 Item 1(a)(iv) of current Forms N–3 and N–4. 475Proposed Item 9(e) of Form N–3; proposed Item 8(e) of Form N–4. 476See Item 6(e) of current Form N–6. Like Form N–6, Form N–1A also requires disclosure of limitations on the purchasers to whom the Contracts are offered further back in the prospectus, and not on the cover page. See Items 6 and 11 of Form N–1A. Forms N–3 and N–4 currently require in the prospectus.464 Operating expenses paid by the registrant can be significant, and we believe this is appropriate disclosure for an item discussing contract charges. We request comment generally on the amendments we propose to make to the required prospectus disclosures regarding contract charges and specifically on the following issues:

Will investors find the information
resulting from the expanded disclosure requirements of the proposed amendments useful (e.g., new requirements in Forms N–3 and N–4 that the registrant describe the frequency of deductions for any recurring charges and, where it is possible to identify what is provided in consideration for a particular charge, an explanation of what consideration is provided)?
Is the proposed new instruction in Forms
N–3 and N–4 that would permit a registrant to disclose a range of charges for premium or other taxes (if these would vary according to jurisdiction) appropriate? Instead, should the prospectus specify each of these charges individually?
Should we require prospectus disclosure
of additional information regarding contract charges?
In the context of Form N–6 registrants,
are there reasons that disclosures on commissions paid to dealers should not be located in the prospectus (and instead should be located in the SAI)? Will the new requirement in Form N–6 to provide a description of the types of operating expenses for which the registrant is responsible better help investors to understand contract charges?
Are there any instructions that we
should not include? Are there any additional instructions we should include? h. General Description of the Contracts (Item 9 of Form N–3, Item 8 of Forms N–4 and N–6) We propose to amend Item 8 of current Form N–3, Item 7 of current Form N–4, and Item 6 of current Form N–6 (which we would re-designate as Items 9, 8, and 8, respectively) to reflect the more up-to-date requirements of Form N–6 (in the case of the amendments to Forms N–3 and N–4) and also to harmonize this disclosure item with other proposed amendments to the forms. Except as described below, we do not intend these proposed amendments to significantly alter current disclosure obligations. We propose to remove the current instruction to subparagraph (a) of Forms N–3 and N–4, which states that the registrant need not repeat rights that are described elsewhere in the prospectus, and replace it with a new instruction to subparagraph (a) in each of the forms 465 that requires registrants to disclose all material state variations and intermediary-specific variations (e.g., certain contract features that may vary by distribution channel). Due to differences in state insurance law, there may be significant variations in a contract based on the state in which a contract is offered. We have also observed that certain contract features may not be available through certain intermediaries. We also propose to revise current subparagraph (b) of Forms N–3 and N–4 regarding contract provisions and limitation in two ways.466 First, we would require registrants to briefly describe any provisions and limitations for minimum contract value and the consequences of falling below that amount, because those consequences in some cases can be significant.467 Second, we are proposing to modify the current requirement in Forms N–3 and N–4 regarding exchanges of contracts to more broadly describe provisions or limitations on conversion or exchange of the contract for another contract (which could include a fixed or variable annuity or life insurance contract) as currently required by Form N–6.468 We also propose to revise the disclosure requirement in each registration form to clarify that the existing requirement to describe any provisions and limitations on transfer of contract value between sub-accounts includes transfer programs, such as dollar cost averaging, portfolio rebalancing, asset allocation programs, and automatic transfer programs.469 We are also proposing to newly require in each registration form a description of the obligations under the contract that the insurer’s general account funds (e.g., death benefits, living benefits, or other benefits available under the contract) and include a statement that these amounts are subject to the insurer’s claimspaying ability and financial strength.470 While some of this information would appear in the Key Information Table,471 this item would require registrants to provide more detailed disclosure later in the prospectus. We are also proposing to modify
the instruction to the current subparagraph in each form relating to contract or registrant changes to require disclosure of the substitution of one portfolio company for another pursuant to section 26(c) of the Investment Company Act.472 This amendment is intended to formalize the Commission’s longstanding position that investors should be put on notice of the possibility that an insurer may substitute one portfolio company for another portfolio company.473 We are also proposing to eliminate current subparagraph (d) in Forms N–3 and N–4, which requires a description of how investor inquiries may be made. This item would duplicate information that would be required to appear on the back cover page of the prospectus pursuant to proposed Item 1(b)(1). Finally, with respect to Forms N–3 and N–4, we are proposing to relocate disclosures regarding limitations on classes of purchasers from the cover
page of the prospectus 474 to the item
requiring the general description of contracts.475 This proposed revision mirrors Item 6(e) of current Form N–6, would help streamline cover page disclosure, and would permit registrants to describe this limitation more fully than if it had to appear on the cover
page (which would necessarily entail
space constraints).476
We request comment on the proposed form amendments relating to the general description of the contracts, and specifically on the following issues:

477Proposed Item 10(g) of Form N–3; proposed Item 9(g) of Form N–4. 478Proposed Item 2(c)(2) of Forms N–3 and N–4. 479Proposed Item 11 of Form N–3; proposed Item 10 of Forms N–4 and N–6. 480Proposed Item 11(a) of Form N–3; proposed Item 10(a) of Form N–4. When describing the standard death benefit, registrants would discuss the amount of the benefit and how the benefit amount may vary, the circumstances under which the value of the benefit may increase or be reduced (including the impact of withdrawals), and how the benefit may be terminated. 481See proposed rule 498A(b)(5)(iii); see also supra section II.A.1.c.ii(c). 482Proposed Item 12 of Form N–3; proposed Item 11 of Forms N–4 and N–6. 483The summary table would include the name of each benefit, its purpose, whether the benefit is standard or optional, associated fees (as a stated percentage of contract value, benefit base, etc.), and a brief description of limitations or restrictions. See supra section II.A.1.c.ii(d). 484See proposed rule 498A(b)(5)(iv); see also supra section II.A.1.c.ii(d). 485This brief description would be required to include a discussion of: (1) Whether the benefit is standard or elected; (2) the operation of the benefit, including the amount of the benefit and how the benefit amount may vary, the circumstances under which the value of the benefit may increase or be reduced (including the impact of withdrawals), and how the benefit may be terminated; (3) fees and costs, if any, associated with the benefit; and (4) how the benefit amount is calculated and payable, and the effect of choosing a specific method of payment on calculation of the benefit. See proposed Item 12(b) of Form N–3; proposed Item 11(b) of Forms N–4 and N–6. 486For example, this could include restrictions on which portfolio companies may be selected, risk of reduction or termination of benefit resulting from excess withdrawals, etc. See proposed Item 12(c) of Form N–3; proposed Item 11(c) of Forms N–4 and N–6.

Should we require the prospectus to
include a description of the obligations under the contract that the insurer’s general account funds? Should the proposed requirement be modified in any way?
Should we require disclosure of the
substitution of one portfolio company for another pursuant to section 26(c) of the Investment Company Act? If not, why not? How should such disclosure be provided to investors?
Should we make any other changes to
the form regarding required prospectus disclosures describing the contract?
i. Annuity Period (Item 10 of Form N–
3, Item 9 of Form N–4)
We propose to amend Item 9 of current Form N–3 and Item 8 of current Form N–4 (which we would redesignate as Items 10 and 9, respectively) to include a new requirement that a registrant state, if applicable, that the investor will not be able to withdraw any contract value amounts after the annuity commencement date.477 While the proposed ‘‘Overview’’ section of the prospectus would contain similar information,478 the new item requirement would provide investors with more complete disclosure about a key aspect of annuitization that we believe investors often misunderstand in the context of a more detailed discussion about the annuity benefits under the contract. We request comment generally on the proposed form amendments relating to the annuity period, and specifically on the following issues:
Should we require the prospectus to
include a statement that the investor will not be able to withdraw any contract value amounts after the annuity commencement date? Should the proposed requirement be modified in any way?
Should we make any other changes to
the form regarding required prospectus disclosures relating to the annuity period (e.g., to specifically require a registrant to state directly, as applicable, that all contract benefits terminate upon annuitization)? j. Standard Death Benefit (Item 11 of Form N–3, Item 10 of Forms N–4 and N–6) We propose to amend Item 10 of current Form N–3, Item 9 of current Form N–4, and Item 8 of current Form N–6 (which we would re-designate as Items 11, 10, and 10, respectively) to clarify that the current disclosures required by the item would only apply to the standard death benefit under the contract.479 Registrants would include prospectus disclosure about optional death benefits (as well as standard and optional living benefits) pursuant to the proposed new Item 12 to Form N–3, and proposed new Item 11 to Forms N–4 and N–6, as discussed below. To assist variable annuity investors in better understanding the operation of the standard death benefit, we are also proposing to amend Forms N–3 and N– 4 to specifically require registrants to summarize the operation of the standard death benefit.480 As discussed above, these disclosures would also be required in any variable annuity initial summary prospectus, and would serve as the counterpart to similar disclosures that would be included in variable life initial summary prospectuses.481 We request comment generally on the proposed form amendments relating to the standard death benefit, and specifically on the following issues:
Should we require other disclosures
regarding the operation of the standard death benefit? Should we make any other changes to the form regarding required prospectus disclosures relating to the standard death benefit?
As proposed, optional death benefit
disclosures would be provided with disclosures of other optional benefits available under the contract. Instead, should we permit or require optional death benefits disclosures to accompany standard death benefit disclosures? k. Other Benefits Available Under the Contract (Item 12 of Form N–3, Item 11 of Forms N–4 and N–6) We propose to add a new item to each registration form that would require a registrant to discuss any standard living benefits, as well as all optional benefits (e.g., death benefit, accumulation benefit, withdrawal benefit, long-term care benefit, etc.) available under the contract.482 Optional benefits and standard living benefits are now a significant aspect of most variable annuity contracts (as well as most variable life insurance contracts). While we understand that insurers generally include disclosure about optional benefits and standard living benefits in their prospectuses, these disclosures have no standard content or presentation because there is no current form requirement regarding optional benefits. As discussed above, subparagraph (a) of the proposed new item would require a tabular summary overview of each benefit available under the contract (other than the standard death benefit).483 This tabular summary would also be required in any initial summary prospectus.484 Subparagraphs (b) and (c) of the proposed new item would require the statutory prospectus to include narrative disclosures that would provide more detailed information regarding each of the benefits presented in the tabular summary. As proposed, a registrant would be required to include a brief description of each benefit (other than the standard death benefit) offered under the contract,485 and a brief description of any limitations, restrictions and risks associated with each benefit.486 Some benefits offered by a contract may have complicated terms that do not readily lend themselves to being fully described in a tabular summary. Therefore, the proposed narrative disclosures are intended to complement the tabular summary presentation by allowing registrants to discuss the benefits, as well as the limitations, risks, and restrictions associated with each, in more detail without being constrained by the limitations of a tabular presentation. The requirement to discuss the limitations, risks, and restrictions associated with each benefit would also help ensure that these aspects of contract benefits—along with the value they could provide to investors—are discussed in a standardized manner among contract prospectuses.

487See Instruction to proposed Item 12 of Form N–3; Instruction to proposed Item 11 of Forms N– 4 and N–6. 488Proposed Item 13 of Form N–3; proposed Item 12 of Form N–4. 489See proposed rule 498A(b)(5)(v); see also supra section II.A.1c.ii(e). 490See Item 9 of current Form N–6. 491Proposed Item 14(a) of Form N–3; proposed Item 13(a) of Form N–4. We are proposing to eliminate Item 12(b) of current Form N–3 and Item 11(b) of current Form N–4 (requirement to disclose any restrictions on redemption that may apply if the registrant offers the contracts in connection with the ‘‘Texas Optional Retirement Program’’) and Item 12(c) of current Form N–3 and Item 11(c) of current Form N–4 (requirement to briefly describe whether a request for redemption may not be honored for a period of time after an investor makes a purchase payment). We believe that these requirements are generally encompassed by the proposed requirements (discussed in the following paragraph) to disclose any limits on the ability to surrender, including any limits on the availability of partial surrenders and withdrawals. 492See proposed rule 498A(b)(5)(vii); see also supra section II.A.1.c.ii(g). 493Proposed Item 14(b) through (d) of Form N–3; proposed Item 13(b) through (d) of Form N–
4. These disclosure requirements would conform to
those that appear in the parallel provisions of current Form N–6. See Item 9(b) through (d) of current Form N–6. 494Proposed Item 14(e) of Form N–3; proposed Item 13(e) of Form N–4. 495See supra note 444 and accompanying text. 496These proposed disclosure requirements would conform to those that appear in the parallel provisions of current Form N–6. See Item 9(e) of current Form N–6. 497See supra paragraphs accompanying note 65. We also propose to include an instruction directing registrants in responding to proposed subparagraphs (b) and (c) to provide one or more examples illustrating the operation of each benefit in a clear, concise, and understandable manner.487 This instruction is intended to further assist investors in understanding the other benefits offered under the contract. We request comment generally on the proposed new form requirements relating to other benefits under the contract, and specifically on the following issues:

Would the disclosures by the proposed
new item enhance the ability of investors to understand any standard living benefit, as well as additional options available under the contract?
Should we require additional disclosures
or otherwise modify the proposed requirements? For example, while the proposed new item would encompass optional death benefits, as well as standard and optional living benefits, should our registration forms require separate and more tailored disclosures for any of these benefit categories?
Should the required disclosures be
presented in a different manner? Should the statutory prospectus include both a tabular summary overview as well as narrative disclosures? Should any of the disclosures specifically required in the narrative disclosure also be required in the tabular summary?
l. Purchases and Contract Value (Item 13
of Form N–3, Item 12 of Form N–4) We propose to amend Item 11 of Form N–3 and Item 10 of current Form N–4 (which we would re-designate as Items 13 and 12, respectively) to re-structure the disclosure item and make other minor revisions that would not substantively change current disclosure requirements.488 As discussed above, variable annuity initial summary prospectuses would include the proposed subparagraph (a) disclosures, which would require registrants to briefly describe the procedures for purchasing a contract, and would serve as the counterpart to similar disclosures that would be included in variable life initial summary prospectuses.489 We request comment generally on the proposed form requirements relating to purchases under the contract, including whether we should require any other disclosures with respect to purchases, or otherwise modify existing requirements. m. Surrenders and Withdrawals (Item 14 of Form N–3, Item 13 of Form N–4, Item 12 of Form N–6) We propose to amend Item 12 of current Form N–3 and Item 11 of current Form N–4 (which we would retitle and re-designate as Items 14 and 13, respectively) to reflect the more upto-date requirements of the parallel item of Form N–6 and standardize these disclosure requirements across variable product registration forms.490 Specifically, subparagraph (a) of the proposed item would consolidate the current disclosure requirements regarding surrenders and delays in effecting requests for surrender and provide a high-level overview of how an investor can surrender (or partially surrender or make withdrawals from) a contract, including any limits on the ability to surrender, how the proceeds are calculated, and when they are payable.491 As discussed above, the initial summary prospectus would include the proposed subparagraph (a) disclosures.492 Subparagraphs (b) through (d) would require additional information related to the operation of partial surrenders and withdrawals under the contract, including: (1) Whether and under what circumstances they are available; (2) how they will affect a contract’s cash value, death benefit(s), and/or any living benefits; and (3) how partial surrenders and partial withdrawals will be allocated among the sub-accounts.493 Subparagraph (e) would require registrants to describe any provision for involuntary redemptions and the reasons for such provision.494 While Item 12(d) of current Form N–3 and Item 11(d) of current Form N–4 specifically also require a description of any provision for lapse, we are proposing to eliminate the requirement to discuss lapse provisions because contract lapse is more relevant in the context of variable life products.495 Subparagraph (f), like Item 12(e) of current Form N–3 and Item 11(e) of current Form N–4, would require the disclosure of any revocation rights. However, to provide additional information relating to an investor’s revocation rights, the proposed item would also specifically require: (1) A description of how
the amount refunded is determined; (2) the method for crediting earnings to purchase payments during the free look period; and (3) whether investment options are limited during the free look period.496 We believe these disclosures are particularly important because the free look is typically the only time the investor may leave the contract for multiple years after investing in the contract without paying significant surrender fees and penalties.497 We request comment generally on the proposed form requirements relating to surrenders and withdrawals, and specifically on the following issues:
Do commenters agree with our proposed
approach of generally modeling disclosures regarding surrenders and withdrawals on similar disclosures required by Form N–6? Are there specific disclosures in Form N–6 that would be inappropriate or less relevant for N–3 and N–4 registrants? For example, although current Form N–3 and Form N–4 use the terms ‘‘redemptions’’ and ‘‘partial redemptions,’’ proposed Form N–3 and proposed Form N–4 would use the terms ‘‘surrender’’ and ‘‘partial surrender.’’ We understand these terms are synonymous, although we have chosen the latter terms to reflect the same terminology used in Form N–6. Is there any reason why Form N–3 and Form N–4 should use different terminology other than what is included in Form N–6? Alternatively, are there specific disclosures that would be more appropriate or relevant for N–3 or N–4 registrants but are not currently required by Form N–6?
Would the proposed amendments help
investors to better understand the procedures and impact of surrenders and withdrawals, including issues relating to partial surrenders and withdrawals, sub-account allocation, involuntary redemption, and investors’ revocation rights under the contract?
Should we require any other disclosures
with respect to surrenders and withdrawals, or otherwise modify existing requirements? For example, should the proposed

498See supra note 491 and accompanying text. 499See Items 10 and 23 of current Form N–6. 500Proposed Item 13 of Form N–6. 501Proposed Item 15 of Form N–3; proposed Item 14 of Form N–4. 502See Item 12 of current Form N–6. 503Proposed Item 16 of Form N–3; proposed Item 15 of Form N–4. 504See Item 13 of current Form N–6. 505Proposed Item 17 of Form N–3; proposed Item 16 of Form N–4. 506 Id.; see also Item 13 of current Form N–6; Item 10(a)(3) of Form N–1A. 507Proposed Item 18 of Form N–3; proposed Item 17 of Form N–4. 508 Id. 509See proposed General Instruction C.3.(b) to Forms N–3, N–4, and N–6. 510A similar requirement to this proposed new item appears in paragraph (c) of Item 4 of current Form N–3 and paragraph (b) of current Form N–4. As discussed below, we propose to move the majority of the disclosure that current Item 4 of each of these forms would require to the contract SAI. See infra notes 545 through 554 and accompanying text (discussion of Accumulation Unit Value tables). requirements to disclose any limits on the ability to surrender, including any limits on the availability of partial surrenders and withdrawals, specifically include any of the disclosure requirements that appear currently in Form N–3 and Form N–4, and that we believe the proposed disclosure requirements encompass? 498 n. Loans (Item 15 of Form N–3, Item 14 of Form N–4, Item 13 of Form N–6) We are proposing to amend Form N– 6 to consolidate required prospectus and SAI disclosures relating to contract loans 499 into a single item in the prospectus.500 Given that investors would receive summary information relating to loan provisions in the Overview section of the statutory prospectus (and initial summary prospectus), we believe that investors would benefit from having more complete information on contract loans in a single location. Specifically, a registrant would be required to briefly describe: (1) The availability of loans; (2) any limitations on that availability (e.g., a prohibition on loans during the first contract year); (3) interest provisions; (4) the effects of loans on contract value and death benefits; (5) any other effects that a loan could have on the contract (e.g., the effect of a contract loan in excess of contract value); and (6) loan procedures. We understand that variable annuities, like variable life insurance contracts, often offer investors the opportunity to borrow money against the cash value of their contract, and that insurers and intermediaries frequently promote this contract feature in their sales of variable annuities. Therefore, we are also proposing to add new Item 15 to Form N–3 and new Item 14 to Form N–4, which would require similar prospectus disclosure about the availability and terms of loans under the contract.501 We request comment generally on the proposed new form requirements relating to loans under the contract, and specifically on the following issues:

Should we require the prospectus to
include a discussion of contract loan provisions? Would this disclosure be more appropriate only in the context of variable life insurance products?
Will the information disclosed to
investors pursuant to the proposed new form item be helpful to investors in understanding contract loan provisions, including any attendant risks? Should we require disclosure of additional information related to loan provisions, or otherwise modify the proposed requirements? o. Taxes (Item 16 of Form N–3, Item 15 of Forms N–4 and N–6) We propose to amend Item 13 of current Form N–3 and Item 12 of current Form N–4 (which we would redesignate as Items 16 and 15, respectively) to reflect the more up-todate presentation and disclosure requirements of the parallel provisions of Form N–6.502 As amended, registrants would continue to (a) describe the material tax consequences to the investor and beneficiary of buying, holding, exchanging, or exercising rights under the contract, (b) identify the types of qualified plans for which the contract is intended to be used, and (c) describe the effect, if any, of taxation on the determination of cash values or subaccount values.503 However, the amendments would specifically limit required disclosures to ‘‘material’’ tax consequences. While the instructions to subparagraph (a) of Item 13 of current Form N–3 and Item 12 of current Form N–4 provide that the ‘‘disclosure need not include detailed description of applicable law,’’ we are proposing to eliminate this instruction in light of the proposed language limiting disclosures to ‘‘material’’ consequences. We do not expect any of the proposed amendments to this item to significantly alter current disclosure obligations. We request comment generally on these amendments. p. Legal Proceedings (Item 17 of Form N–3, Item 16 of Forms N–4 and N–6) We propose to amend Item 14 of current Form N–3 and Item 13 of current Form N–4 (which we would redesignate as Items 17 and 16, respectively) to reflect the more up-todate presentation and disclosure requirements of the parallel provisions of Form N–6.504 As currently required by Form N–6, the proposed amendments would newly require registrants to: (1) Provide a description of the factual basis alleged to underlie the proceeding, and the relief sought, and (2) in addition to describing proceedings that a governmental authority has instituted, include information about proceedings ‘‘known to be contemplated’’ by governmental authorities.505 The proposed amendments would also eliminate the requirement to discuss pending legal proceedings against any subsidiary of the registrant to mirror Form N–6’s (and Form N–1A’s) parallel provision and provide consistency across forms, which we believe is particularly appropriate in the context of separate account registrants, which are unlikely to have subsidiaries.506 These amendments are not expected to significantly alter current disclosure obligations. We request comment generally on these amendments. q. Financial Statements (Item 18 of Form N–3, Item 17 of Forms N–4 and N–6) We propose to add new Item 18 of Form N–3 and new Item 17 to Form N– 4, which would require a statement,
under a separate caption, of where any required financial statements of the registrant and the depositor may be found if they are not included in the prospectus.507 A registrant would also briefly explain how investors may obtain any financial statements not provided in the SAI.508 These proposed disclosure requirements would conform with a similar requirement included in Item 14 of current Form N–6. The form’s proposed General Instructions would provide that registrants are free to include in the prospectus financial statements required to be in the SAI, and may also include in the SAI financial statements that may be placed in Part C.509 The proposed new item is intended to assist investors in finding and obtaining any financial statements that have been moved at the registrant’s discretion from the location where they would otherwise be provided in the registration statement.510 We request comment generally on the proposal to include new Item 18 of Form N–3 and new Item 17 of Form N– 4, and specifically on the following issues:
To what extent do registrants currently
make available the financial statements of the registrant and depositor in locations other than the prospectus and/or SAI, as our

511See supra discussion at note 192 and accompanying and following text. 512See Item 1(a)(v) of current Form N–3 (requiring outside cover page to identify the type of separate account or a brief statement of the registrant’s investment objectives); Item 1(a)(viii) of current Form N–4 (requiring the outside cover page of the prospectus to include the names of portfolio companies). 513See Item 5(c) and (d) of current Form N–3 (requiring registrants to concisely describe the investment objectives and policies of the registrant, and providing instructions for disclosure regarding the registrant’s investment policies); Item 5(c) of current Form N–4 (requiring registrants to briefly describe each portfolio company, including its name, its type or a brief statement concerning its investment objectives, and its investment adviser); Item 4(c) of current Form N–6 (requiring registrants to briefly describe the registrant’s sub-accounts and each portfolio company, including its name, its type or a brief statement concerning its investment objectives, and its investment adviser and any subadviser). 514See supra note 195 and accompanying and following text. A reference in this section to ‘‘appendix’’ includes any additional appendix (to the extent a registrant would be required to include one). 515See proposed rule 498A(b)(5)(ix); proposed rule 498A(c)(6)(iv); see also supra sections II.A.1.c.ii(i), II.A.2.c.ii(c). 516As discussed above, an initial summary prospectus could only describe a single contract that the registrant currently offers for sale, whereas the updating summary prospectus and statutory prospectus could describe multiple contracts under the conditions of the proposed General Instructions to Forms N–3, N–4, and N–6. See supra sections II.A.1.b, II.A.2.b. 517See Instruction 1(a) to proposed Item 19 of Form N–3; see also proposed rule 498A(b)(5)(ix), (c)(6)(iv) (the appendix also could be omitted from the summary prospectus); infra paragraphs following note 525 (discussing proposed Item 20 of Form N–3). 518See Instruction 1(a) to proposed Item 19 of Form N–3; see also supra text following note 192 and accompanying note 241. 519See supra section II.A.1.c.ii(i). The sole exception involves registrants on Form N–3 that use a summary prospectus that includes the disclosures required by proposed Item 19. In this case, the portion of the legend in the summary prospectus explaining how more information about the investment options may be obtained would not be required to be included in the statutory prospectus. See note 520 and accompanying text. 520See Instruction 1(b) to proposed Item 18 of Forms N–4 and N–6 (‘‘Registrants not relying upon rule 498A(j) under the Securities Act [17 CFR 230.498A(j)] with respect to the Portfolio Companies that are offered under the Contract may, but are not required to, provide the next-to-last sentence of the first paragraph of the introductory legend to the table regarding online availability of the prospectuses.’’).
Registrants on Form N–3 that use a summary prospectus that includes the disclosures required by proposed Item 19 of Form N–3 would be required to include in that appendix an introductory legend explaining how more information about the investment options may be obtained. See proposed rule 498A(b)(5)(ix) and supra notes 196–199 (discussing legend in initial summary prospectus); proposed rule 498A(c)(6)(iv) and note 240 (discussing legend in updating summary prospectus). However, that legend would not be required to be included in the statutory prospectus, because the statutory prospectus would already include those disclosures pursuant to proposed Item 20 (which requires more detailed disclosure regarding each of the investment options available under the contract). See Instruction 1(a) to proposed Item 19 of Form N–3; proposed Item 20 of Form N– 3. 521See generally supra sections II.A.1.c.ii(i), II.A.2.c.ii(c). registration forms currently permit? What are the advantages or disadvantages of providing flexibility to registrants as to the location of the registrant’s and depositor’s financial statements?

Would the proposed item in the
prospectus regarding the availability of financial statements assist investors in locating those materials? r. Appendix: Portfolio Companies/ Investment Options Available Under the Contract (Item 19 of Form N–3, Item 18 of Forms N–4 and N–6) We propose to add a new disclosure item to each registration form (proposed Item 19 of Form N–3, and proposed Item 18 of Forms N–4 and N–6), which would require registrants to include as an appendix to the prospectus a table summarizing information about the portfolio companies available under the contract. This table would appear under the heading ‘‘Portfolio Companies Available Under the Contract’’ and would consolidate certain summary information about each portfolio company into a concise, easy-to-read tabular presentation, as discussed in more detail above.511 This would replace certain other disclosure requirements, on the prospectus cover
page 512 and elsewhere in the
prospectus,513 relating to the contract’s portfolio companies or investment options. The appendix would provide a tabular summary overview of portfolio companies available under the contract that is designed to improve the ability of investors to understand, evaluate, and compare those portfolio companies. If the availability of one or more portfolio companies varies by benefit offered under the contract, registrants would be required to include as another appendix a separate table indicating which portfolio companies were available under each of those benefits.514 These same disclosures would also appear in the initial summary prospectuses and updating summary prospectus,515 except for variations due to the more limited scope of the initial summary prospectus (which would only describe one contract) in contrast to the updating summary prospectus and statutory prospectus (which could describe more than one contract).516 Because we understand that certain variable contracts registered on Form N– 3 have very few investment options (and sometimes have only one investment option), we recognize that the proposed
appendix could have limited utility for
certain Form N–3 registrants and their investors. For this reason, for variable contracts registered on Form N–3, we propose that registrants could omit the
appendix and instead provide the more
detailed disclosures about the investment options offered under the contract that proposed Item 20 of Form N–3 would require.517 For Form N–3 registrants, the appendix would be required to appear in a statutory prospectus only if the appendix were included in a summary prospectus.518 The same legends that precede the
appendix in the summary prospectus
would generally also precede the
appendix in the statutory prospectus.519
Under proposed Form N–3, the legend that would precede the appendix would be required to state, in part, as follows:
‘‘Performance reflects contract fees and expenses that are paid by each investor’’ (in contrast, the parallel legend that Forms N–4 and N–6 would require would state that performance does not reflect contract fees and expenses that are paid by each investor). This difference is intended to reflect the fact that insurance charges are inherently reflected in the performance of investment options for contracts registered on Form N–3, since those investment options are offered as part of the variable contract. The performance of portfolio companies offered under contracts registered on Forms N–4 and N–6 does not reflect insurance charges, because those portfolio companies are separately registered as entities distinct from the variable contract. Additionally, only registrants on Forms N–4 and N– 6 that chose to rely upon proposed rule 498A(j) to satisfy their portfolio company prospectus delivery obligations would be required to include in the appendix an internet address to a landing page, toll-free telephone number, and email address that investors could use to obtain or request portfolio company statutory and summary prospectuses.520 We request comment generally on the proposed appendix requirement, and specifically on the following issues:
Should we require these disclosures to
be included in the statutory prospectus? Are the content requirements for this proposed item appropriate for inclusion in the statutory prospectus?
Our proposal would generally require
registrants to include the same information in the proposed appendix regarding portfolio companies in the statutory prospectus and in the initial summary prospectus and updating summary prospectus.521 Should any of the
appendix requirements for the summary
prospectus be different for the appendix

522See, e.g., Items 5 and 10 of Form N–1A. 523Registrants would disclose the aggregate fee paid to each investment adviser for the most recent fiscal year as a percentage of net assets or, if the adviser’s fee is not based on a percentage of net assets, a description of the basis of the adviser’s compensation. See proposed Item 7(a)(1)(i) and (ii) of Form N–3. 524Compare Item 21(a)(iii) of Form N–3 (requiring total compensation paid to the adviser under the investment advisory contract for the last three fiscal years) with proposed Item 25(a)(3) of Form N–3 (same); see also Item 10 of Form N–1A. 525These disclosure requirements would be moved, respectively, to: Proposed Item 24(b)(1) (‘‘Management of the Registrant’’); proposed Item 25(g) (‘‘Investment Advisory and Other Services’’); and proposed Item 27 (‘‘Brokerage Allocation and Other Practices’’). 526See, e.g., Item 9 of current Form N–1A. 527See infra section II.D.3.d. 528See, e.g., Item 4(b)(2) of Form N–1A; see also Registration Form Used by Open-End Management Investment Companies, Investment Company Act Release No. 23064 (Mar. 13, 1998) [98 FR 13968 (Mar. 23, 1998)] (‘‘Form N–1A Adopting Release’’) at text accompanying and following n.51 (discussing the risk/return bar chart/table requirement). included in the statutory prospectus? If so, how? For example, should registrants that choose not to use a summary prospectus be permitted not to include disclosures about how investors can find portfolio company prospectuses online or obtain them at no cost upon request? Should the statutory prospectus require more comprehensive disclosures for investors who wish to obtain additional details beyond what would be disclosed in the summary prospectus? If so, what additional information should be disclosed?

Will the proposed tabular presentation
required for portfolio company-related disclosures in the prospectus be more userfriendly for investors than the current disclosure requirements? Is the specific information required to be disclosed about portfolio companies likely to be more relevant and useful to investors than the current disclosure requirements? If not, why not? Are there alternatives we should consider?
Under our proposal, registrants on Form
N–3 would have the option of omitting the proposed appendix and instead providing the more detailed disclosures about the investment options offered under the contract that proposed Item 20 of Form N– 3 would require (and would be required to include the appendix in the statutory prospectus only if the appendix also appears in the summary prospectus). In order to increase comparability between registration statements, should we require this appendix for all registration statements on Form N–3? s. Additional Amendments to Form N– 3 We are also proposing additional amendments to Form N–3 that are generally intended to update and enhance disclosures related to investment options by requiring similar disclosures required for open-end management companies registered on Form N–1A. Management (Item 7 of Form N–3) We are proposing to revise Item 6 of current Form N–3 (which we would redesignate as Item 7) to increase consistency among forms used to register management investment companies.522 Except as described below, we do not intend these proposed amendments to significantly alter current disclosure obligations. Among other things, the proposed amendments would require disclosure of the compensation paid to each investment adviser of the registrant.523 Form N–3 currently includes three fiscal years of such disclosures in the SAI, where they would remain under our proposal, but our proposal would also include such disclosures for the most recent fiscal year in the prospectus to highlight this information for investors and to update this aspect of Form N–3 to parallel Form N–1A.524 The proposed amendments would also move certain information from the prospectus to the SAI, including responsibilities of the board of managers, disclosure regarding persons providing administrative or business affairs services, and information regarding brokerage allocations.525 We believe this information is more appropriate for disclosure in the SAI, and is consistent with how such information is presented in Form N–1A. Additional Information About Investment Options Available Under the Contract (Item 20 of Form N–3) We are proposing a new item that would provide more detailed information about each of the investment options available under the contract. New paragraphs (a) and (b) would restate existing disclosure requirements contained in paragraphs (c), (d), and (e) of current Item 5 regarding investment strategies and risks to reflect the updated presentation and disclosure requirements of the parallel provisions of Form N–1A. These paragraphs would re-focus these disclosure requirements to require more granular disclosure related to each investment option as opposed to broader disclosure regarding registrants. Specifically, among other things, the proposed amendments would require disclosure of whether the investment option may take temporary defensive positions that are inconsistent with the investment option’s principal investment strategies in attempting to respond
to adverse market, economic, political, or other conditions. We believe that investors should be informed about investment positions that an investment option can take from time to time that are inconsistent with the investment option’s central investment focus. The proposed amendments also would require the registrant to disclose, for each investment option, whether it may engage in active and frequent trading of portfolio securities and, if so, the consequences of increased portfolio turnover to investors and the investment option’s performance. Increased portfolio turnover can result in increased transaction costs that are ultimately borne by investors. Collectively, these proposed amendments are intended to clarify and enhance the disclosure requirements relating to investment options’ strategies and risks, and to increase consistency and thereby promote comparability among forms used to register management investment companies.526 New paragraph (c) would require registrants with annual returns for at least one calendar year to provide, for each investment option:
A bar chart showing the investment
option’s annual total returns for each of the last 10 calendar years (or for the life of the investment option, if less than 10 years), as well as the investment option’s highest and lowest return for a quarter during the period displayed in the chart;
A table showing the investment option’s
average annual total returns (with and without taxes on distributions and redemptions) for 1-, 5-, and 10-year calendar periods ending on the date of the most recently completed calendar year (or for the life of the investment option, if shorter), as well as the returns of an appropriate broadbased securities market index for those same periods; and
Certain explanatory statements, such as
how the information in the chart and table illustrates the variability of the investment option’s returns, the investment option’s past performance is not necessarily an indication of how the investment option will perform in the future, and, if applicable, how updated performance information may be obtained. The disclosures that new paragraph (c) would require are modeled after the risk/return bar chart and table that Form N–1A currently requires and are intended to supplement the disclosures currently required by Form N–3 regarding accumulation unit income and capital changes 527 by providing investors and potential investors with more information about the performance of the investment options offered under the contract.528 In particular, the bar chart would illustrate the variability of the investment options’ returns and give investors an idea of the attendant risks of each investment option. Likewise, the

accompanying table would help investors evaluate an investment option’s risks and returns relative to the market. We request comment generally on the proposed amendments to the Part A requirements of Form N–3, and specifically on the following issues:

Should we, as proposed, adopt
amendments to certain current items in Form N–3 Part A as described in this section? To the extent that we have proposed amending these items to generally mirror the presentation of parallel items in Form N–1A, is this appropriate in the context of variable annuities whose separate accounts are registered on Form N–3? Do commenters recommend any additional amendments to any of the current Form N–3 Part A items?
Proposed Item 7 (‘‘Management’’) would
revise current disclosure requirements to move certain disclosures from the prospectus to the SAI, while other disclosures would appear in the prospectus that currently only appear in the SAI. Are these proposed amendments appropriate, and are there other disclosures that currently appear in Part A of Form N–3 that would be better suited for disclosure in the SAI? On the other hand, are there other disclosures that currently appear in the SAI that would better suited for disclosure in the prospectus?
In the case of registrants that offer more
than one investment option under the contract, should the disclosures contemplated by proposed Item 20 (‘‘Additional Information About Investment Options Available Under the Contract’’), as proposed, be presented for each investment option? If not, how should those disclosures be presented? Should any of these proposed disclosures be modified in any way? Are there additional investment option-related disclosures that may be relevant to contract investors and that we should require to appear in the prospectus?

Part B (Information Required in a
Statement of Additional Information)
Table 6 shows how our proposal
would amend the item requirements of
Part B of our variable contract
registration forms. Except as described below, our proposed amendments to
Part B of Forms N–3 and N–4 would
generally conform to the language of the related Part B disclosure items in current Form N–6.
TABLE 6—PROPOSED AMENDMENTS TO PART B OF FORMS N–3, N–4, AND N–6
Item description Proposed item No. Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Cover Page and Table of
Contents (in Forms N–3 and N–4, currently two separate items: ‘‘Cover
Page’’ and ‘‘Table of
Contents’’).

Form N–3: Item 21 (currently Items 16, 17).
Form N–4: Item 19 (currently Items 15, 16).
Form N–6: Item 19 (currently Item 15).
Revised ............................. Revised ............................. Revised. General Information and History.
Form N–3: Item 22 (currently Item 18).
Revised ............................. Revised ............................. Unchanged.
Form N–4: Item 20 (currently Item 17).
Form N–6: Item 20 (currently Item 16).
Services (in Form N–3,
‘‘Investment Advisory and Other Services’’).
Form N–3: Item 25 (currently Item 21).
Form N–4: Item 21 (currently Item 18).
Form N–6: Item 21 (currently Item 17).
Revised ............................. Revised ............................. Unchanged. Investment Objectives and Risks (in Form N–3, currently ‘‘Investment Objectives and Policies’’).
Form N–3: Item 23 (currently Item 19).
Revised ............................. N/A .................................... N/A. Management of the Registrant (in Form N–3, currently ‘‘Management’’).
Form N–3: Item 24 (currently Item 20).
Revised ............................. N/A .................................... N/A. Portfolio Managers ............ • Form N–3: Item 26 (currently Item 22). Revised ............................. N/A .................................... N/A. Brokerage Allocation and Other Practices (in Form N–3, currently ‘‘Brokerage Allocation’’).
Form N–3: Item 27 (currently Item 23).
Revised ............................. N/A .................................... N/A. Purchase of Securities Being Offered.
Form N–3: Item 28 (currently Item 24).
Unchanged ........................ Unchanged ........................ N/A.
Form N–4: Item 22 (currently Item 19).
Premiums .......................... • Form N–6: Item 22 (currently Item 18). N/A .................................... N/A .................................... Unchanged. Additional Information About Operation of Contracts and Registrant.
Form N–6: Item 23 (currently Item 19).
N/A .................................... N/A .................................... Unchanged. Underwriters ...................... • Form N–3: Item 29 (currently Item 25). Revised ............................. Revised ............................. Revised.
Form N–4: Item 23 (currently Item 20).
Form N–6: Item 24 (currently Item 20).
Additional Information
About Charges.
Form N–6: Item 25 (currently Item 21).
N/A .................................... N/A .................................... Unchanged.

529For example, edits to use defined terms where appropriate, to use synonyms for consistency across forms (e.g., ‘‘State the name . . .’’ instead of ‘‘Give the name . . .’’), and to add titles to sub-paragraphs for clarity and consistency across forms (and to help the reader navigate the form). 530Proposed Item 21(a)(3) of Form N–3; proposed Item 19(a)(3) of Form N–4; proposed Item 19(a)(3) of Form N–6. 531Proposed Item 21(a)(4)(iii) of Form N–3; proposed Item 19(a)(4)(iii) of Form N–4. 532 Item 16(a)(iii)(B) of current Form N–3; Item 15(a)(iii)(B) of current Form N–4. 533Proposed Item 21(b) of Form N–3; proposed Item 19(b) of Form N–4. 534Proposed Item 22 of Form N–3; proposed Item 20 of Form N–4. 535 In Form N–3, the title of this disclosure item is ‘‘Investment Advisory and Other Services.’’ In addition to the amendments we propose to conform this disclosure item with the parallel item in Form N–6, we also propose additional amendments to this disclosure item, as discussed below, that would reflect the presentation of Item 19 in Form N–1A. See infra section II.D.3.e. 536Proposed Item 25(g) of Form N–3; proposed Item 21(c) of Form N–4. 537 Instruction 1 to proposed Item 32(b) of Form N–3; Instruction 1 to proposed Item 26(b) of Form N–4. This instruction would be consistent with prior guidance we have provided in the context of registration statements on Form N–6, namely that statutory financial statements could be used in those limited circumstances when GAAP financial statements are not otherwise required to be prepared for either the depositor or its parent. See Separate Accounts Offering Variable Life Release, supra note 54, at n.58 and accompanying and following text. 538 Instruction 2 to proposed Item 32(b) of Form N–3; Instruction 2 to proposed Item 26(b) of Form N–4.
TABLE 6—PROPOSED AMENDMENTS TO PART B OF FORMS N–3, N–4, AND N–6—Continued
Item description Proposed item No. Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Lapse and Reinstatement • Form N–6: Item 26 (currently Item 22). N/A .................................... N/A .................................... Unchanged. Loans ................................. • Form N–6: Item 13 (currently Items 10 and 23). N/A .................................... N/A .................................... Revised and consolidated in prospectus (currently, there are prospectus and SAI items). Calculation of Performance Data.

Form N–3: Item 30 (currently Item 26).
Revised ............................. Revised ............................. N/A.
Form N–4: Item 24 (currently Item 21).
Annuity Payments ............. • Form N–3: Item 31 (currently Item 27). Unchanged ........................ Unchanged ........................ N/A.
Form N–4: Item 25 (currently Item 22).
Financial Statements ......... • Form N–3: Item 32 (currently Item 28). Revised ............................. Revised ............................. Revised.
Form N–4: Item 26 (currently Item 23).
Form N–6: Item 27 (currently Item 24).
Condensed Financial Information.
Form N–3: Item 33 (currently Item 4).
Revised and moved to SAI Revised and moved to SAI N/A.
Form N–4: Item 27 (currently Item 4).
Illustrations ........................ • Form N–6: Item 28 (currently Item 25). N/A .................................... N/A .................................... Unchanged. a. Amendments Conforming Part B Items of Forms N–3 and N–4 to Presentation in Form N–6 We propose to amend certain items of
Part B of Forms N–3 and N–4 to reflect
the more up-to-date presentation of corresponding items in Form N–6, and to re-designate their numbering as shown in Table 6 above. To the extent that these amended items incorporate only minor wording changes,529 they are indicated as ‘‘unchanged items’’ in
Table 6. Otherwise, each of these
amended items is discussed in more detail below.
Cover Page (Item 21 of Form N–3, Item
19 of Forms N–4 and N–6). We are proposing to amend the outside front cover page requirements for each registration form to include the name of the contract and classes to which the contract relates.530 We are also proposing to amend Forms N–3 and N–4 to:
(1) Require a statement whether and from where information is incorporated by reference; 531 (2) remove the current required statement that the SAI should be read with the prospectus; 532 and (3) consolidate the current item requiring a table of contents into the item specifying cover page disclosures.533
General Information and History (Item
22 of Form N–3, Item 20 of Forms N–4 and N–6). We are proposing to amend Item 18 of current Form N–3 and Item 17 of current Form N–4 (which we would re-designate as Items 22 and 20, respectively) to require: (1) The date and form of organization of the depositor, the name of the state or other jurisdiction in which the depositor is organized, and a description of the general nature of the depositor’s business; and (2) the date and form of organization of the registrant and the registrant’s classification pursuant to Section 4 of the Investment Company Act.534
Services (Item 25 of Form N–3,535 Item 21
of Forms N–4 and N–6). We are proposing to amend Item 21 of current Form N–3 and Item 18 of current Form N–4 (which we would redesignate as Items 25 and 21, respectively) to require registrants to, unless disclosed elsewhere, identify and state the principal business address of any person who provides significant administrative or business affairs management services for the registrant (e.g., an ‘‘administrator,’’ ‘‘sub-administrator,’’ ‘‘servicing agent’’), describe the services provided, and the compensation paid for the services.536
Financial Statements (Item 32 of Form
N–3, Item 26 of Form N–4, Item 27 of Form N–6). We are proposing to amend Item 28 of current Form N–3 and Item 23 of current Form N–4 (which we would re-designate as Items 32 and 26, respectively) to: (1) Clarify that the depositor’s financial statements must be prepared in accordance with generally accepted accounting principles (‘‘GAAP’’) if the depositor prepares financial information in accordance with GAAP for use by the depositor’s parent in any report under sections 13(a) and 15(d) of the Exchange Act or registration statement filed under the Securities Act; 537 (2) specify how an investor may request certain additional financial information about the depositor that is omitted from the SAI and is included in Part C of the registration statement; 538 and (3) clarify how current the depositor’s financial statements must be when the anticipated effective date of the registration statement

539 Instruction 3 to proposed Item 32(b) of Form N–3; Instruction 3 to proposed Item 26(b) of Form N–4. 540Proposed Item 29(a) of Form N–3; proposed Item 23(a) of Form N–4. Item 25(a) of current Form N–3 and Item 20(a) of current Form N–4 only require a registrant to state if the depositor or the affiliate of the depositor is the principal underwriter of the contract. 541See infra text accompanying and preceding note 597. Forms N–3, N–4, and N–6 also include in their disclosure requirements regarding underwriters other similar instructions, such as instructions stating that information need not be given about the service of mailing proxies or periodic reports of the registrant. 542See supra note 461 and accompanying text. 543Proposed Item 30 of Form N–3; proposed Item 24 of Form N–4. 544See supra note 400 and accompanying text. 545Proposed Item 33 of Form N–3; proposed Item 27 of Form N–4. 546Such modifications would include redesignating Item 4(c) of current Form N–3 and Item 4(b) of current Form N–4 as Items 18 and 17, respectively (‘‘Financial Statements’’), and adding an instruction to proposed Item 33 of Form N–3 and proposed Item 27 of Form N–4 that defines ‘‘class of accumulation units’’ to mean ‘‘any variation that affects accumulation units, including variations related to contract class, optional benefits, and subaccounts.’’ See supra section II.D.2.q (discussing proposed Item 18 of Form N–3 and proposed Item 17 of Form N–4); see also Instruction 1 to proposed Item 33 of Form N–3; Instruction 1 to proposed Item 27 of Form N–4. 547 Item 4(a) of current Form N–3; Item 4(a) of current Form N–4. 548When Form N–6 was proposed, it did not include AUV tables ‘‘[b]ecause [due to] the individual nature of variable life insurance charges, such as the cost of insurance, there does not appear to be a comparable measure of performance that is applicable to all holders of a particular variable life insurance policy.’’ See Form N–6 Proposing Release, supra note 445, at 17. 549See Forms N–3 and N–4 Adopting Release, supra note 28. 550 In response to these concerns, the staff issued a no-action letter stating that the staff would not recommend enforcement action if registrants were to depict in the prospectus only two classes of unit values (one reflecting the highest possible combination of contract charges, the other reflecting the lowest possible combination of contract charges) shown for each available portfolio company, so long as the SAI were to include the full disclosure that current Item 4 would require. See Nationwide Life Insurance Company, SEC Staff No-Action Letter (pub. avail. Mar. 16, 2001) (‘‘Nationwide 2001 Letter’’). If the Commission adopts the proposed AUV table amendments, these final rules would effectively moot the Nationwide 2001 Letter. 551 In addition, while the AUV tables are designed to reflect the performance of a subaccount after reflecting contract charges that are based on separate account value, many contract charges
today are based on other values, such as a benefit base, which cannot be reflected in AUV values. Instead, when these charges are assessed, the number of accumulation units is reduced. As a result, AUV tables may only reflect a portion of a contract’s fees, diminishing their usefulness to investors. 552See Instruction 2 to Item 4 of current Forms N–3 and N–4. 553See Instruction 3 to proposed Item 33 of Form N–3; Instruction 3 to proposed Item 27 of Form N–
4. We are proposing five years to be consistent with
Item 13 of Form N–1A, which requires funds to disclose five years of data for the Financial Highlights section of the prospectus. Five years is also the typical timeframe for disclosing information in response to other form items (e.g., Fee Table expense example (Item 3 of current Form N–3 and current Form N–4); insurer name change and suspension of sales (Item 18 of current Form N–3 and Item 17 of current Form N–4)). 554See Instruction 7 to proposed Item 33 of Form N–3; Instruction 6 to proposed Item 27 of Form N–
4. For accounts held less than one year, the annual
account statement would disclose the actual performance of each sub-account for the length of time the investor has owned the sub-account. falls within 90 days after the depositor’s fiscal year-end.539 b. Underwriters (Item 29 of Form N–3, Item 23 of Form N–4, Item 24 of Form N–6) We are proposing to amend Item 25 of current Form N–3 and Item 20 of current Form N–4 (which we would redesignate as Items 29 and 23, respectively) to specifically require identification of all principal underwriters of the registrant (other than the depositor), their principal business addresses, and the source of any affiliation.540 We also propose to add an instruction to this item in Forms N–3, N–4, and N– 6 stating that information need not be provided about bona fide contracts with the registrant or its insurance company for outside legal or auditing services, or bona fide contracts for personal employment entered into with the registrant or its depositor in the ordinary course of business. This instruction is intended to focus disclosures on underwriting costs, as opposed to costs for legal or auditing services or other ancillary matters, and would parallel similar instructions in
Part C of these same forms regarding
disclosures for principal underwriters.541 Also, because we propose to amend Item 5 of current Form N–6 to include the disclosures on commissions to dealers currently required by current Item 20 in the SAI, we also propose to remove this disclosure from current Item 20 (which we would re-designate as Item 24).542
c. Calculation of Performance Data (Item
30 of Form N–3, Item 24 of Form N–4) We are proposing to amend Item 26 of current Form N–3 and Item 21 of current Form N–4 (which we would redesignate as Items 30 and 24, respectively), to remove the instruction specifically permitting the registrant to furnish separate yield quotations for individual and group contracts.543 Because the proposed General Instructions would state that individual and group contracts are not essentially identical, we would not expect to see both types of contracts presented in a single prospectus.544 d. Accumulation Unit Value Disclosure (Item 33 of Form N–3, Item 27 of Form N–4) We also propose to relocate the disclosures required by Item 4 of current Forms N–3 and N–4 from the prospectus to the SAI,545 with some modifications.546 Those items currently require a registrant to disclose, for the last ten fiscal years and for each subaccount, the accumulation unit value at the beginning and end of each period and the number of accumulation units outstanding at the end of each period (the ‘‘AUV tables’’).547 For variable annuity contracts, the change in accumulation unit value provides a measure of performance of the registrant’s sub-accounts.548 When the AUV tables were adopted in 1985, the approach did not anticipate the proliferation of variations in contract charges and optional benefits that has resulted in numerous possible combinations of contract charges.549 Since registrants commonly maintain a separate class of accumulation units for each combination of separate account charges, the AUV tables add considerable length (sometimes hundreds of pages) to the contract prospectus, which may overwhelm other important information.550 Because only one combination of contract charges is relevant to any individual investor (depending on the contract features they select), much of the required disclosure is of limited value to most investors.551 To streamline the prospectus, we propose to relocate the AUV tables from the prospectus to the SAI, where they are more appropriately located with certain detailed information that traditionally appears in the SAI. To reduce burdens on registrants, we propose to decrease the time periods for which the required information must be presented from 10 years 552 to five years.553 We also propose to include an instruction permitting registrants to omit AUV tables altogether if they provide each investor with an annual account statement that discloses, with respect to each class of accumulation units the investor holds, the actual performance of each subaccount during the prior fiscal year.554 This option would reduce the length of the SAI and provide investors with customized annual performance information that reflects the impact of insurance-related costs.

555See Instruction 2 to Item 25 of current Form N–3; Instruction 2 to Item 20 of current Form N– 4; Instruction 2 to Item 20 of current Form N–6. 556See Instructions 3(ii) and (iii) to Item 28 of current Form N–3; Instructions 3(ii) and (iii) to Item 23 of current Form N–4; Instructions 3(ii) and (iii) to Item 24 of current Form N–6. 557See Instruction 2 to proposed Item 29 of Form N–3; Instruction 2 to proposed Item 23 of Form N– 4; Instruction 2 to proposed Item 24 of Form N–6. 558See Instructions 3(ii) and (iii) to proposed Item 32 of Form N–3; Instructions 3(ii) and (iii) to proposed Item 26 of Form N–4; Instructions 3(ii) and (iii) to proposed Item 27 of current Form N– 6. 559 Indexing the $5,000 thresholds for inflation would result in revised thresholds of $11,950, and indexing the $1,000,000 thresholds for inflation would result in revised thresholds of $2,390,009. Calculations are based on the Bureau of Labor Statistics consumer price index average for all urban consumers (CPI–U) between January 1985 and August 2018. See CPI Inflation Calculator, Bureau of Labor Statistics, available at https:// www.bls.gov/data/inflation_calculator.htm. 560See proposed Item 23 of Form N–3. The proposed amendments to this item would reflect the presentation of Item 16 of Form N–1A. 561Section 8 of the Investment Company Act requires a fund to disclose in its registration statement the fund’s policies with respect to borrowing money, issuing senior securities, underwriting securities issued by other persons, investing in real estate or commodities, and making loans. Section 8 also requires a fund to disclose in the registration statement its policies on concentration and portfolio turnover, and any other policies that the fund deems fundamental or that may not be changed without shareholder approval. When the Commission proposed amendments to Form N–1A in 1997, it noted that, although they are not required to do so, some funds disclose in the prospectus their policies with respect to the practices identified under section 8. See Proposed New Disclosure Option for Open-End Management Investment Companies, Investment Company Act Release No. 22529 (Feb. 27, 1997) [62 FR 10943 (Mar. 10, 1997)]. To provide a clearer directive to disclose this information in the SAI, the Commission proposed (and later adopted) amendments to specifically require disclosure about these policies in the SAI. See Form N–1A Adopting Release, supra note 528. This amended Form N–1A requirement forms the basis for the amendments to paragraph (b) of proposed Item 23 of Form N–3 described herein. 562See proposed Item 23(e) of Form N–3 (requiring prospectus disclosure of imposition of liquidity fees, temporary suspension of registrant redemptions, and financial support provided to money market funds or money market accounts). 563See rule 2a–7 under the Investment Company Act (requiring a money market fund to prominently post this same information on its website); Form N– CR (requiring a
money market fund to report this same information to the Commission); see also Item 16(g) of Form N–1A (requiring disclosure of certain material events for money market funds). Portfolio companies registered on Form N–1A and offered by registrants on Forms N–4 and N–6 are currently required to include these disclosures in their SAIs. 564See Money Market Reform; Amendments to Form PF, Investment Company Act Release No. 31166 (July 23, 2014) [79 FR 47736 (Aug. 14, 2014)], at text accompanying and following n.1258. e. Adjustment to Disclosure Thresholds (Items 29 and 32 of Form N–3, Items 23 and 26 of Form N–4, Items 24 and 27 of Form N–6) Our variable contract registration forms currently include various dollar thresholds that date back to their initial adoption. In the SAI, for example, information need not be given about any service required to be disclosed pursuant to current Item 25 of Form N– 3, current Item 20 of Form N–4, and current Item 20 of Form N–6, for which total payments of less than $5,000 were made during each of the last three fiscal years.555 In addition, financial statements of the insurance company required to be included in the registration statement need not be more current than as of the end of the most recent fiscal year of the insurance company unless certain balance sheets of the sponsor would show a combined capital and surplus (if a stock company) or an unassigned surplus (if a mutual company), of less than $1,000,000.556 As
part of our efforts to update the
registration forms, we are proposing to increase these thresholds to $15,000 557 and $2,500,000,558 respectively, to account for the effects of inflation since 1985, the year of inception for Forms N– 3 and N–4.559 f. Additional Amendments to Form N– 3 We are also proposing additional amendments to Form N–3 that are generally intended to update and enhance disclosures related to investment options by requiring similar disclosures required for open-end management companies registered on Form N–1A. The revisions generally reflect the updated presentation and disclosure requirements of the parallel item in Form N–1A and would harmonize the disclosure requirements across registration statements for different products. Investment Objectives and Risks (Item 23 of Form N–3) We are proposing to make certain amendments to Item 19 of Form N–3, which we would re-designate as Item
23.560 Proposed Item 23 would contain
a new instruction clarifying that if the registrant offers more than one investment option, the required disclosures should be made for each investment option. Paragraph (a) of proposed Item 23 would newly require the registrant to describe any investment strategies that are not principal strategies, as well as the risks of those strategies. These disclosures would complement the prospectus disclosures of principal investment strategies that would be required by proposed Item 20. Paragraph (b) of proposed Item 23 would require the discussion of all policies regarding: (1) Issuing senior securities; (2) borrowing money, including the purpose for which the proceeds will be used; (3) underwriting securities of other issuers; (4) concentrating investments in a particular industry or group of industries; (5) purchasing or selling real estate or commodities; (6) making loans; and (7) any other policy that the registrant deems fundamental or that may not be changed without shareholder approval, including, if applicable, the registrant’s investment objectives. In contrast, Item 19 of current Form N–3 generally requires the disclosure of: (1) Fundamental policies not described in the prospectus regarding those same topics, as well as short sales, purchases on margin, and writing of put and call options, and any other policy the registrant deems fundamental; and (2) any significant but non-fundamental investment policies not described in the prospectus and which can be changed without the approval of the majority of votes available to eligible voters. We believe that the proposed amendments better correspond with the requirements of
section 8 of the Investment Company
Act than the current Form N–3 item requirements, since they more specifically reflect the disclosure that
section 8 mandates.561
Paragraph (c) of proposed Item 23 would newly require registrants to disclose the types of investments that a registrant may make while assuming a temporary defensive position. We believe that investors should be informed about investment positions that an investment option can take from time to time that are inconsistent with the investment option’s central investment focus. Paragraph (f) of proposed Item 23 would newly require certain disclosures regarding material events by registrants or investment options that hold themselves out as ‘‘money market funds’’ or ‘‘money market accounts’’ pursuant to rule 2a–7 under the Investment Company Act.562 That rule requires these same disclosures to appear on a fund’s website, and for information about money market fund material events to be reported to the Commission on Form N–CR.563 We believe that, to the extent investors may not be familiar with researching filings on EDGAR (or other equivalent platform), including these disclosures in a registrant’s SAI (which investors may receive in hard copy through the U.S. Postal Service or may access on a registrant’s website, as well as accessing on EDGAR or other equivalent platform) may make this information more readily available to these investors.564 The

565Proposed paragraphs (b), (d), and (e) would require disclosure regarding certain investment policies, portfolio turnover, and disclosure of portfolio holdings, respectively. 566See proposed Item 24 of Form N–3. The proposed amendments to this item would reflect the presentation of Item 17 of Form N–1A. 567See paragraphs (b)(1) and (d) of proposed Item 24 of Form N–3. 568See paragraph (e) of proposed Item 24 of Form N–3. These codes of ethics would continue to be filed as exhibits to Part C of the registrant’s registration statement. See proposed Item 34(q) of Form N–3. 569See supra note 536 and accompanying text. 570See proposed Item 25 of Form N–3. The proposed amendments to this item would reflect the presentation of Item 19 of Form N–1A. 571See paragraph (a)(3)(i) of proposed Item 25 of Form N–3. 572See paragraph (e) of proposed Item 25 of Form N–3. 573Registrants would disclose the relationship between amounts paid to the distributor and the expenses that it incurs; the amount of any unreimbursed expenses incurred under the plan in a previous year and carried over to future years; and whether the registrant participates in any joint distribution activities with another investment company and, if so, whether fees paid under the plan may be used to finance the distribution of the shares of another investment company and the method of allocating distribution costs (e.g., relative net asset size, number of shareholder accounts). See paragraphs (f)(2) through (4) of proposed Item 25 of Form N–3. 574See proposed Item 26 of Form N–3. The proposed amendments to this item would reflect the presentation of Item 20 of Form N–1A. 575See Instruction 2 to proposed Item 26(b) of Form N–3 (discussing relocation expenses). 576See proposed Item 27 of Form N–3. The proposed amendments to this item would reflect the presentation of Item 21 of Form N–1A. 577See proposed Item 27(a) of Form N–3. 578See Item 21(a) of Form N–1A. 579See Instruction to proposed Item 27(e) of Form N–3. We believe this aspect of the current instruction is not necessary, as disclosure in response to a registration form’s requirements generally relates to the class or series for which securities are being registered. 580See supra note 530 and accompanying text. 581See supra note 461 and accompanying text; see also Item 20 of current Form N–6; proposed Item 7 of Form N–6. remaining paragraphs of proposed Item 23 would restate existing disclosure requirements to reflect the updated presentation and disclosure requirements of the parallel item in Form N–1A.565 Management of the Registrant (Item 24 of Form N–3) We are proposing to make certain amendments to Item 20 of Form N–3, which we would re-designate as Item 24, to restate existing disclosure requirements to reflect the updated presentation and disclosure requirements of the parallel item in Form N–1A.566 Except as discussed below, these changes are not intended to significantly alter current disclosure obligations. The proposed
amendments would: (1) Newly require disclosure of the responsibilities of the board of directors with respect to the registrant’s management and any arrangements that result in breakpoints in, or elimination of, sales loads for directors and other affiliated persons of the registrant; 567 and (2) remove the current requirement to state that codes of ethics adopted by the registrant, its investment adviser, and principal underwriter can be viewed and copied at the Commission’s Public Reference Room, because the Public Reference Room no longer maintains paper copies of filings on Form N–3.568 Investment Advisory and Other Services (Item 25 of Form N–3) In addition to the amendments to Item 21 of Form N–3 (which we would redesignate as Item 25) that we discuss above, which would conform certain aspects of this item to the disclosure requirements of Form N–6,569 we are also proposing amendments to restate existing disclosure requirements to reflect the updated presentation and disclosure requirements of the parallel item in Form N–1A.570 Except as discussed below, these changes are not intended to significantly alter current disclosure obligations. We are proposing to amend the current requirement to disclose the total dollar amount that the registrant or the insurance company paid under the investment advisory contract for the last three fiscal years to also require disclosure of amounts paid to ‘‘to the adviser (aggregated with amounts paid to affiliated advisers, if any), and any advisers who are not affiliated persons of the adviser.’’ 571 We are also proposing to newly require a registrant to disclose any front-end sales load reallowed to dealers as a percentage of the registrant’s shares.572 Finally, we are proposing to newly require additional disclosures regarding plans adopted under rule 12b–1 under the Investment Company Act.573 Industry practices regarding the use of ‘‘12b–1 plans’’ have evolved since Form N–3 was adopted in 1985, and the new disclosures are intended to enhance the information provided to investors by requiring information similar to that required by Form N–1A. Portfolio Managers (Item 26 of Form N– 3) We are proposing to make certain amendments to Item 22 of Form N–3, which we would re-designate as Item
26.574 The proposed amendments would
amend the current requirement to describe the compensation of each portfolio manager by including relocation expenses among the list of items that may be excluded from compensation disclosures, provided that those items do not discriminate in scope, terms, or operation in favor of the portfolio manager and are available generally to all salaried employees.575 Otherwise, these changes would rephrase certain disclosure requirements to conform to current presentation requirements in Form N– 1A but are not intended to significantly alter current disclosure obligations. Brokerage Allocation and Other Practices (Item 27 of Form N–3) We are proposing to make certain amendments to Item 23 of Form N–3, which we would re-designate as Item
27.576 The proposed amendments would
amend the current requirement to describe how transactions in portfolio securities are effected, by newly including markdowns on principal transactions among the items that must be discussed in a general statement about brokerage commissions and markups.577 This would mirror the parallel requirement of Form N–1A 578 and could provide additional relevant information regarding the ways portfolio security transactions involving negative, as well as positive, spreads could impact the separate account and its investors. The proposed amendments would also slightly alter the instruction regarding the identification of securities issued by the registrant’s regular broker or dealer and which the registrant has acquired by deleting the statement that if the registrant has issued more than one class or series of stock, information must be disclosed for the class or series that has securities that are being registered on Form N–3.579 Otherwise, these changes would rephrase certain disclosure requirements to conform to current presentation requirements in Form N–1A but are not intended to significantly alter current disclosure obligations. g. Additional Amendments to Form N– 6 Together with the cover page amendments described above,580 we are proposing two additional amendments to Part B of Form N–6. First, as discussed above, we are proposing to relocate the disclosure on commissions paid to dealers from the SAI to the prospectus.581 Second, as also discussed above, we are proposing to eliminate current Item 23 (Loans) and consolidate

582The disclosures required by current Item 23 would be consolidated with current Item 10 into a single proposed Item 13. See supra paragraphs accompanying and immediately following note 500. 583See supra note 550. 584The level of customization now available for variable annuity contracts is somewhat comparable to the individual nature of variable life insurance charges, which the Commission previously stated did not appear to provide a comparable measure of performance that is applicable to all holders of a particular variable life insurance contract. See Form N–6 Proposing Release, supra note 445. Consequently, Form N–6 does not require the inclusion of AUV tables. required disclosures relating to contract loans into the prospectus.582 h. Request for Comment on Proposed SAI Amendments We request comment generally on the proposed amendments to the SAI requirements contained in our variable contract registration forms, and specifically on the following issues:

Should we amend as proposed the items
in Part B discussed above? Should we amend any other items of Part B, or add new items to Part B covering other disclosure items?
Should we adjust the thresholds
described above in section II.D.3.e? If so, should we propose to adjust similar thresholds in our registration statement forms for other types of investment companies to comparable levels? Should they be adjusted to a different level? Please explain the basis for any suggested changes, including the reasons for whether they should be adjusted using different factors or other considerations.
Are the AUV tables useful to investors,
and has the usefulness of these tables evolved since Forms N–3 and N–4 were first adopted? Is it appropriate to move the AUV tables from the prospectus to the SAI, or would some other approach better serve investors? For example, should we instead codify the approach set forth in staff noaction relief described above? 583 Should we consider other modifications, such as eliminating the requirement to provide AUVs corresponding to every pricing permutation that results from offering multiple optional riders (which were not available when the forms were first adopted), and instead require only disclosure of variations that affects AUVs related to contract (share) class and sub-accounts? Should we require the AUV tables to reflect only five, and not 10, years of data? Should we, as proposed, permit registrants to omit AUV tables altogether if they provide each investor with an annual account statement that discloses, with respect to each class of accumulation units the investor holds, the actual performance of each subaccount during the prior fiscal year? Or should we mandate that registrants provide annual account statements to each investor? Alternatively, should we eliminate altogether the requirement to include AUV tables in the registration statement, or otherwise revise this requirement? If we were to revise the requirement, should we also extend the revised requirement to Form N– 6, which does not currently require the inclusion of AUV tables? 584 Can or do investors receive performance information that is similar to, or more useful than, the data in the AUV tables?
Should we, as proposed, amend Part B
of Form N–3 to require comparable disclosures required by Form N–1A? Should we modify the proposed amendments in any way?

Part C (Other Information)
Table 7 shows how our proposed
amendments would amend the item requirements of Part C of our variable contract registration forms. These amendments are largely intended to update the disclosure requirements and provide greater consistency among variable contract registration forms. We are also proposing to eliminate certain disclosure items in light of recent regulatory developments and our goal of reducing duplicative disclosure requirements.
TABLE 7—PROPOSED AMENDMENTS TO PART C OF FORMS N–3, N–4, AND N–6
Item description Proposed item No.
Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Exhibits (in Forms N–3 and N–4, currently ‘‘Financial Statements and Exhibits’’).

Form N–3: Item 34 (currently Item 29).
Form N–4: Item 28 (currently Item 24).
Form N–6: Item 29 (currently Item 26).
Revised ............................. Revised ............................. Revised. In Form N–3: Directors and Officers of the Insurance Company.
Form N–3: Item 35 (currently Item 30).
Form N–4: Item 29 (currently Item 25).
Unchanged ........................ Unchanged ........................ Unchanged. In Forms N–4 and N–6: Directors and Officers of the Depositor.
Form N–6: Item 30 (currently Item 27).
In Form N–3: Persons
Controlled by or Under
Common Control with the Insurance Company or Registrant.
Form N–3: Item 36 (currently Item 31).
Form N–4: Item 30 (currently Item 26).
Form N–6: Item 31 (currently Item 28).
Revised ............................. Revised ............................. Unchanged. In Forms N–4 and N–6:
Persons Controlled by or Under Common Control with the Depositor or Registrant. Number of Contractowners N/A (currently, Item 32 in Form N–3 and Item 27 in Form N–4). Eliminated ......................... Eliminated ......................... N/A.

585See supra note 529.
586As part of the 2017 FAST Act Proposal, the Commission proposed amendments to its registration forms, including Forms N–3, N–4, and N–6, to require hyperlinks to most exhibits required to be filed with the registration statement. See 2017 FAST Act Proposal, supra note 307. 587See Item 29(a) of current Form N–3; Item 24(a) of current Form N–4. 588Proposed Item 28(h) of Form N–4. 589Proposed Item 34(k) of Form N–3; proposed Item 28(i) of Form N–4. 590See Item 31 of current Form N–3; Item 26 of current Form N–4. 591See Item 33 of current Form N–3; Item 28 of current Form N–4. 592See, e.g., rule 421(c) under the Securities Act (requiring information required to be included in a prospectus to be clearly understandable without referring to the particular form or general rules and regulations).
TABLE 7—PROPOSED AMENDMENTS TO PART C OF FORMS N–3, N–4, AND N–6—Continued
Item description Proposed item No.
Form N–3:
Proposed treatment
Form N–4:
Proposed treatment
Form N–6:
Proposed treatment
Indemnification .................. • Form N–3: Item 37 (currently Item 33).

Form N–4: Item 31 (currently Item 28).
Form N–6: Item 32 (currently Item 29).
Revised ............................. Revised ............................. Unchanged. Business and Other Connections of Investment Adviser.
Form N–3: Item 38 (currently Item 34).
Unchanged ........................ N/A .................................... N/A. Principal Underwriters ....... • Form N–3: Item 39 (currently Item 35).
Form N–4: Item 32 (currently Item 29).
Form N–6: Item 33 (currently Item 30).
Form N–3: Item 40 (currently Item 36).
Revised ............................. Revised ............................. Revised. Location of Accounts and Records.
Form N–4: Item 33 (currently Item 30).
Form N–6: Item 34 (currently Item 31).
Unchanged ........................ Unchanged ........................ Unchanged. Management Services ....... • Form N–3: Item 41 (currently Item 37).
Form N–4: Item 34 (currently Item 31).
Revised ............................. Revised ............................. Revised.
Form N–6: Item 35 (currently Item 32).
Fee Representation ........... • Form N–3: Item 42 ........
Form N–4: Item 35 ........
New Item ........................... New Item ........................... Unchanged.
Form N–6 Item 36 (currently Item 33).
Undertakings ..................... N/A (currently, Item 38 in Form N–3 and Item 32 in Form N–4). Eliminated ......................... Eliminated ......................... N/A. a. Amendments Conforming Part C Items of Form N–3 and N–4 to Presentation in Form N–6 We propose to amend certain items of
Part C of proposed Form N–4 to reflect
the more up-to-date presentation of corresponding items in Form N–6, and to re-designate their numbering as shown in Table 7 above. To the extent that these amended items incorporate only minor wording changes,585 they are indicated as ‘‘unchanged items’’ in
Table 7. Otherwise, each of these
amended items is discussed in more detail below.
Exhibits (Item 34 of Form N–3, Item 28
of Form N–4, Item 29 of Form N–6).586 We are proposing to amend the Exhibits item: (1) For Forms N–3 and N–4, to eliminate the requirement to list the financial statements filed as part of the registration statement; 587 (2) for Form N–4, to require the filing of participation agreements; 588 and (3) for Forms N–3 and N–4, to require the filing of administrative contracts.589
Persons Controlled by or Under Common
Control with the Depositor or Registrant (Item 36 of Form N–3, Item 30 of Form N–4, Item 31 of Form N–6). We are proposing to amend Forms N–3 and N–4 to no longer require registrants to disclose the principal business of any persons controlled by or under common control with the depositor or registrant.590 We believe that the revised item provides sufficient information for investors to assess the effects of control arrangements affecting the registrant (which effects are based largely on the percentage of voting securities owned by controlling persons, or other bases of control, as required to be disclosed under the item).
Indemnification (Item 37 of Form N–3,
Item 31 of Form N–4, Item 32 of Form N–6). For Forms N–3 and N–4, we are proposing to amend the item relating to indemnification to eliminate the instruction specifying that, in responding to the item’s requirements, a registrant should note the requirements of Securities Act rule 461 and 484, and section 17 of the Investment Company Act.591 We do not believe that specifically noting these legal requirements is necessary for an investor to understand the general effects of agreements insuring or indemnifying underwriters or affiliated persons of the registrant against liability, and moreover, eliminating legal references from investor documents is consistent with our plain English requirements.592

593Section 26(f)(2)(A) of the Investment Company Act provides that it shall be unlawful for any unit investment trust that is a registered separate account funding variable insurance contracts to sell any such contract unless the registration statement for the contract represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. Section 27(i)(2) of the Investment Company Act makes section 26(f) of the Investment Company Act applicable to Form N–3 registrants. 594Proposed Item 34(r) of Form N–3; proposed Item 28(o) of Form N–4; proposed Item 29(r) of Form N–6. 595An instruction would provide that registrants are required to provide the preliminary summary prospectus exhibits only in connection with the filing of an initial registration statement, or in connection with a pre-effective amendment or a post-effective amendment filed in accordance with paragraph (a) of rule 485 under the Securities Act. See generally supra section II.A.7.a. 596See supra notes 587 through 589 and accompanying text. 597See supra section II.D.3.b. 598 Instruction 1 to Item 35(c) of current Form N– 3. 599See Instruction 3 to Item 35(c) of current Form N–3; Instruction 3 to Item 29(c) of current Form N– 4; Instruction 3 to Item 30(c) of current Form N– 6. 600See Instruction 2 to Item 37 of current Form N–3; Instruction 2 to Item 31 of current Form N– 4; Instruction 2 to Item 32 of current Form N–6. 601See Instruction 3 to proposed Item 39 and Instruction 2 to proposed Item 41 of Form N–3; Instruction 3 to proposed Item 32 and Instruction 2 to proposed Item 34 of Form N–4; Instruction 3 to proposed Item 33 and Instruction 2 to proposed Item 35 of Form N–6. 602For a discussion of the calculation methodology, see supra note 559. 603See Item F.13 of Form N–CEN (requiring disclosure of the number of individual contracts that are in force at the end of the reporting period). 604 Item 38(c) of current Form N–3 and Item 32(b) of current Form N–4 require an undertaking to include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request an SAI, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for an SAI. Because we understand that investors typically use the internet or—for investors who do not use the internet, telephonic means—to request an SAI, we believe that this undertaking is outdated. 605Because the Commission’s view is that issuers of variable insurance contracts are required by
section 10(a)(3) of the Securities Act to maintain a
current prospectus for so long as payments may be accepted under the contracts, regardless of whether new policies are being sold, the undertakings to file

Fee Representation (Item 42 of Form N–
3, Item 35 of Form N–4). We also propose to add new Item 42 to Form N–3 and new Item 35 to Form N–4, which would require registrants to provide a representation of the insurance company or depositor that the fees and charges deducted under the contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company or depositor. The new disclosure item would mirror Item 33 of current Form N–6 (which we propose to redesignate as Item 36). Because section 26(f) of the Investment Company Act requires that the representation be made in the registration statement,593 this new item would merely request the representation required by
section 26(f) and not impose any new
obligations on a Form N–3 or Form N–4 registrant. b. Amendments Requiring Filing of Preliminary Form of Summary Prospectus For each form, we are proposing to amend the ‘‘Exhibits’’ disclosure item to require a registrant to file a preliminary form of any contract summary prospectus that the registrant intends to use on or after the effective date of the registration statement as an exhibit.594 As discussed above, we are proposing the new requirement to file a preliminary form of a contract summary prospectus to permit the staff to review a summary prospectus in the form and manner in which a registrant would provide it to investors, prior to the registration statement’s effective date.595 These proposed amendments to the ‘‘Exhibits’’ item of each form would accompany the other amendments that we propose to the ‘‘Exhibits’’ item of Forms N–3 and N–4 to conform to the parallel disclosure requirements in Form N–6.596
c. Principal Underwriters (Item 39 of
Form N–3, Item 32 of Form N–4, Item 33 of Form N–6). For Form N–3, we propose to add an instruction stating that information need not be provided about bona fide contracts with the registrant or its insurance company for outside legal or auditing services, or bona fide contracts for personal employment entered into with the registrant or its depositor in the ordinary course of business. Likewise, for Forms N–4 and N–6, we propose to add a similar instruction stating that information need not be given about the service of mailing proxies or periodic reports of the registrant. Collectively, these instructions are intended to focus disclosures on underwritings costs, as opposed to costs for legal or auditing services or other ancillary matters, and would parallel similar instructions in
Part B of these same forms regarding
disclosures for underwriters.597 Also, for Form N–3, we propose to amend the instruction to subparagraph (c) of Item 35 of current Form N–3 to eliminate the portion of the first instruction requiring to include as ‘‘other compensation’’ any compensation received by an underwriter for keeping the registrant’s securities in the hands of the public.598 The category of ‘‘other compensation’’ is intended to encompass compensation that is not otherwise enumerated in one of the other categories, and so we believe deletion of this instruction would help streamline the form and remove any suggestion that this category is limited only to disclosure of compensation received for keeping the registrant’s securities in the hands of the public. d. Adjustment to Disclosure Thresholds (Items 39 and 41 of Form N–3, Items 32 and 34 of Form N–4, Items 33 and 35 of Form N–6) In addition to proposing certain updated disclosure thresholds in the SAI, we are similarly proposing to increase certain disclosure thresholds in
Part C. For example, when providing
information required regarding commissions and other compensation received, directly or indirectly, from the registrant during the registrant’s last fiscal year by each principal underwriter, a registrant currently may exclude information about any service for which total payments of less than $5,000 were made during each of the registrant’s last three fiscal years.599 In addition, when providing a summary of certain contracts under which management-related services are provided to the registrant, a registrant currently need not provide information about any service for which total payments of less than $5,000 were made during each of the last three fiscal years.600 As part of our efforts to update the registration forms, we are proposing to increase these thresholds to $15,000 601 to reflect the effects of inflation since 1985.602 e. Amendments Eliminating Current
Part C Disclosure Requirements
To reduce overlapping regulatory requirements, we propose to eliminate Item 32 of current Form N–3 and Item 27 of current Form N–4 (‘‘Number of Contractowners’’), as we will obtain the information that this item would require a registrant to disclose in a registrant’s filings on Form N–CEN.603 Unlike registration statements on Forms N–3 and N–4, reports on Form N–CEN are filed with the Commission in a structured data format that permits the Commission and its staff to more easily collect, aggregate, and analyze the reported information. We also propose to eliminate Item 38 of current Form N– 3 and Item 32 of Form N–4 (‘‘Undertakings’’). These requirements are outdated 604 or redundant of similar requirements under the proposed amendments to Forms N–3 and N–4.605

post-effective amendments required by Items 38(a) and (b) of current Form N–3 and Item 32(a) of current Form N–4 simply restate an issuer’s obligation under the Securities Act. See Form N– 6 Proposing Release, supra note 445, at text following n.83. Compare Item 38(d) of current Form N–3 and Item 32(c) of current Form N–3 (requiring undertaking to deliver any SAI and any required financial statements promptly upon written or oral request) with proposed Item 1(b) of Forms N–3 and N–4 (requiring registrants to state that the SAI is available, without charge, upon request and further requiring registrants to send the SAI within three business days of receipt of the request, by first-class mail or other means designed to ensure equally prompt delivery) and proposed Item 18 of Form N– 3 and proposed Item 17 of Form N–4 (requiring registrants to explain how financial statements may be found or obtained). 606Proposed Item 33(c) of Form N–6. This proposed change would conform Form N–6 with the comparable item of Form N–4. See Item 29(c) of current Form N–4. 607See Forms N–3 and N–4 Adopting Release, supra note 28, at text following n.51 (stating that publication of the Guidelines was not intended to elevate their status beyond that of staff guidance). 608See, e.g., Form N–3 Guideline 31 (the reference to the synopsis would no longer be necessary as revised Form N–3 would have detailed instructions with respect to the Overview and Key Information sections); Form N–3 Guideline 36 (the staff no longer takes the position that if there is a variable annuitization option that the variable option must be the default; a fixed option can be the default so long as the default option is disclosed in the prospectus at the time of purchase); see also Form N–4 Guideline 4 (mortality and expense risk charges no longer require exemptive relief; also the reference to the Glass-Steagall Act is no longer relevant); Form N–4 Guideline 12 (same as Form N– 3 Guideline 36). 609See, e.g., Form N–3 Guideline 1 (rule 35d–1 under the Investment Company Act makes the guidance redundant that the registrant should invest least 65% of its assets in the type of investment suggested by its name); see also Form N–4 Guideline 3 (restates the law regarding redemptions without providing new guidance). 610See Investment Company Registration and Regulation Package (Dec. 21, 2014), available at https://www.sec.gov/investment/fast-answers/ divisionsinvestmentinvcoreg121504htm.html. 611See Form N–1A Adopting Release, supra note 528 (eliminating similar guidelines from Form N– 1A). 612 In one rulemaking, the Commission required operating companies to submit financial statements accompanying their registration statements and periodic and current reports in XBRL. See Interactive Data to Improve Financial Reporting, Release No. 33–9002 (Jan. 30, 2009) [74 FR 6776], as corrected by Release No. 33–9002A (Apr. 1, Continued f. Additional Amendments to Form N– 6 We are proposing to amend the third column
of the table required by Item 30 of current Form N–6 (‘‘Principal Underwriters,’’ which we would redesignate as Item 33) to reflect compensation received from the registrant on all redemptions, rather than the more narrow requirement to disclose only compensation from events occasioning the deduction of a deferred sales load.606 Because compensation may be paid upon redemptions not defined as deferred sales loads, we believe this proposed change will clarify for investors the amount of redemption compensation received from the registrant. g. Request for Comment on Proposed
Part C Amendments
We request comment generally on the proposed amendments to the Part C requirements of our variable contract registration forms, and specifically on the following issues:

Should we amend as proposed the items
in Part C discussed above? Should we amend any other items of Part C, or add new items to Part C covering other disclosure items?
We request comment regarding the
exhibits that would be required to be filed as
part of the registration statement. Should we
modify the proposed list of required exhibits? Should we require any additional exhibits, or eliminate any currently required exhibits? Should we revise the description of the exhibits that this item would require? For example, with respect to reinsurance contracts, should we specifically request guarantees and credit support agreements from one insurance company to another (e.g., from parent to subsidiary)? Are there any other changes we should make to the required exhibit list?
Should we require Form N–3 and Form
N–4 registrants to include the fee representations specified by the new item that mirrors a parallel item in Form N–6? If we do not require this disclosure in Form N– 3 and Form N–4, should we remove the parallel requirement in Form N–6?
Should we adjust the thresholds
described above in section II.D.4.d? If so, should we propose to adjust similar thresholds in our registration statement forms for other types of investment companies to comparable levels? Should they be adjusted to a different level? Please explain the basis for any suggested changes, including the reasons for whether they should be adjusted using different factors or other considerations.

Guidelines
The guidelines to current Forms N–3 and N–4 (the ‘‘Guidelines’’) were prepared by the Division of Investment Management when the Commission adopted the forms in 1985.607 The Guidelines, which generally restate certain Division positions that may affect fund disclosure, were intended to assist funds in preparing and filing their registration statements. Although certain Guidelines have been revised and new ones added in connection with the adoption of various rules, the Guidelines collectively have not been reviewed since 1985. Certain Division positions in the Guidelines have become outdated.608 Other Guidelines explain or restate legal requirements and may encourage generic disclosure about registrant operations that may not assist investors in evaluating and comparing registrants.609 More generally, we believe the Guidelines have generally been superseded by other resources that are more frequently updated and accessible to the public. For example, registrants seeking additional guidance in preparing new or amended registration statements may consult the Investment Company Registration and Regulation Package, a Commission staff publication that is available online.610 As with other registration forms that have more recently been amended to eliminate the guidelines for those forms, we are proposing to rescind the Guidelines to Forms N–3 and N–4.611 We request comment on whether all or parts of the Guidelines should be retained (either as form items or instructions, or addressed as Commission guidance). E. Inline XBRL We are proposing to require the use of the Inline XBRL format for the submission of certain required disclosures in the variable contract statutory prospectus. The proposed amendments are intended to harness technology to allow investors (directly and through their investment professionals), data aggregators, financial analysts, Commission staff, and other data users to efficiently analyze and compare the available information about variable contracts, as required by their particular needs and circumstances. This aspect of our proposal is in keeping with our ongoing efforts to implement reporting and disclosure reforms that take advantage of the benefits of advanced technology to modernize the investment company reporting regime and to, among other things, help investors and other market participants better assess different products. Information structured using the Inline XBRL format is both humanreadable and machine-readable for purposes of validation, aggregation, and analysis. Inline XBRL is a specification of the XBRL format that allows filers to embed XBRL data directly into an HTML document, eliminating any need to submit a copy of the tagged information in a machine-readable document separate from the humanreadable document. In 2009, the Commission adopted rules requiring operating companies, mutual funds, and ETFs to submit certain disclosures in the XBRL format.612 More recently, the

2009) [74 FR 15666]. In a parallel rulemaking, the
Commission required mutual funds and ETFs to submit risk/return summaries in XBRL. See Interactive Data for Mutual Fund Risk/Return Summary, Investment Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748 (Feb. 19, 2009)]. 613See Inline XBRL Filing of Tagged Data, Investment Company Act Release No. 33139 (June 28, 2018) [83 FR 40846 (Aug. 16, 2018)] (‘‘Inline XBRL Adopting Release’’). 614 Id. 615Proposed General Instruction 3.C.(h) of Forms N–3, N–4, and N–6; proposed amendments to rules 485 and 497 under the Securities Act; proposed amendments to rules 11 and 405 of Regulation S–T. 616Regulation S–T defines the term ‘‘Interactive Data File’’ to mean the machine-readable computer code that presents information in XBRL electronic format pursuant to rule 405 of Regulation S–T and as specified by the EDGAR Filer Manual. 17 CFR 232.11; 17 CFR 232.405. The EDGAR Filer Manual sets forth the technical formatting requirements for the presentation and submission of electronic filings through the EDGAR system. 617See General Instruction C.3.(h) to Forms N–3, N–4, and N–6; see also proposed Items 3, 4, 5, 12, 19, 20 of Form N–3; proposed Items 3, 4, 5, 11, and 18 of Form N–4; proposed Items 3, 4, 5, 11, and 18 of Form N–6. This information largely parallels similar information contained in the Form N–1A risk/return summary. See Item 2 of Form N–1A (Risk/Return Summary: Investment Objectives/ Goals); Item 3 of Form N–1A (Risk/Return Summary: Fee Table); Item 4 of Form N–1A (Risk/ Return Summary: Investments, Risks and Performance). 618See Inline XBRL Adopting Release, supra note 613. 619To help facilitate efficiencies in the variable contract post-effective amendment filing process, we propose to permit variable contracts to submit Interactive Data Files concurrently with these posteffective amendments because post-effective amendments filed pursuant to these paragraphs of rule 485 generally are not subject to further revision. 620Proposed General Instruction C.3.(h)(i)(B) of Forms N–3, N–4, and N–6; cf. General Instruction C.3.(g)(i)(B) of Form N–1A. Commission amended its rules to require operating companies, mutual funds, and ETFs to submit the required information in Inline XBRL.613 Those amendments were intended to improve the data’s usefulness, timeliness, and quality, benefiting investors, other market participants, and other data users and to decrease, over time, the cost of preparing the data for submission to the Commission.614 Reflecting the development in XBRL specifications and for consistency with the format required for operating companies, mutual funds, and ETFs, we are proposing amendments to our rules and forms that would require variable contract registrants to submit certain information in the Inline XBRL format.615 We believe that the public’s access to this data will be facilitated by making the data available in Inline XBRL, a format with which they will already be familiar as a result of reviewing and analyzing other
disclosures in Inline XBRL. Variable contract registrants would be required to embed a part of the Interactive Data File 616 within an HTML document using Inline XBRL and to include the rest in an exhibit to that document. The portion filed as an exhibit to the filing will contain contextual information about the XBRL tags embedded in the filing. The information as tagged will continue to be required to satisfy all other requirements of rule 405 under Regulation S–T, including the technical requirements in the EDGAR Filer Manual. For filers, Inline XBRL can enhance the efficiency of review, yield savings in time and cost of preparing machinereadable data, and potentially enhance the quality of the data over other machine-readable standards because certain errors will be easier to identify and correct because the data is also human-readable. For investors and other data users, requiring information to be tagged in a structured format could facilitate analysis and comparison of variable contracts. In addition, making the data available in Inline XBRL should enhance the usability and ease of accessibility to the disclosures because users will not have to access two different documents (one machinereadable and one human-readable) for the same data, and users can leverage the enhanced search and filtering capabilities of the Commission’s Inline XBRL Viewer. Moreover, given the complexity of variable contracts, we believe that tagging certain sections within the statutory prospectus in Inline XBRL format could provide greater transparency regarding the products’ features and risks in the marketplace. Filings to be tagged. Like mutual funds and ETFs, registrants would be required to submit to the Commission in Inline XBRL certain information discussed below in registration statements or post-effective amendments filed on Forms N–3, N–4, and N–6, and forms of prospectuses filed pursuant to rule 497(c) or rule 497(e) under the Securities Act that include information that varies from the registration statement. Information to be tagged. We are proposing that registrants tag the following prospectus disclosure items using Inline XBRL: The Key Information
Table, Fee Table, Principal Risks of
Investing in the Contract, Other Benefits Available Under the Contract, and Investment Options Available Under the Contract in the statutory prospectus, and for Form N–3 registrants, Additional Information About Investment Options Available Under the Contract.617 We believe that these items—which provide important information about a variable contract’s key features, costs, and risks—would be most suited to being tagged in a structured format and be of greatest utility for investors and other data users that seek structured data to analyze and compare variable contracts. We would require registrants to tag the Key Information Table, which provides a concise summary of fees and expenses, risks, restrictions, taxes, and conflicts of interest. We are also proposing to include the Fee Table, which provides detailed information about the variable contract’s costs. We believe that tagging could facilitate analysis of the costs associated with variable contracts, and allow investors and their investment professionals to compare the costs of a particular contract with the costs of other variable contracts or other investment products, such as mutual funds. We are also proposing to require Principal Risks to be tagged so investors and their investment professionals can analyze a contract’s risks alongside the contract’s features and benefits. We would also require registrants to tag Other Benefits Available Under the Contract because these optional product features may be easier to analyze and compare if information pertaining to those features is available in a structured data format. Finally, we are proposing to require registrants to tag Investment Options Available Under the Contract, as this may allow investors and their investment professionals to more easily compare the mutual funds or other investment options that are offered by different variable contracts and assess whether a particular contract’s investment options meet the investor’s needs or goals. Submission of Interactive Data File. In a framework similar to that for mutual funds and ETFs under the recently adopted Inline XBRL regime,618 we would require variable contract registrants to submit Interactive Data Files as follows:

For post-effective amendments filed
pursuant to paragraph (b)(1)(i), (ii), (v), or (vii) of rule 485, and in the case of registrants on Forms N–4 or N–6, paragraph (b)(1)(vi) of rule 485,619 Interactive Data Files must be filed either concurrently with the filing or in a subsequent amendment that is filed on or before the date that the post-effective amendment that contains the related information becomes effective; 620
for initial registration statements and
post-effective amendments filed other than pursuant to paragraph (b)(1)(i), (ii), (v), or (vii) of rule 485, and in the case of registrants on Forms N–4 or N–6, paragraph (b)(1)(vi) of rule 485, Interactive Data Files must be filed

621Proposed General Instruction C.3.(h)(i)(A) to Forms N–3, N–4, and N–6; cf . General Instruction C.3.(g)(i)(A) of Form N–1A. 622Proposed General Instruction C.3.(h)(ii) to Forms N–3, N–4, and N–6; cf. General Instruction C.3.(g)(ii) of Form N–1A. 623Proposed General Instruction C.3.(h)(iii) to Forms N–3, N–4, and N–6. 624Proposed rule 485(c)(3). 625See rule 201 Regulation S–T (temporary hardship exemption) and rule 202 of Regulation S– T (continuing hardship exemption). in a subsequent amendment on or before the date the registration statement or posteffective amendment that contains the related information becomes effective; 621 and

for any form of prospectus filed pursuant
to rule 497(c) or (e), Interactive Data Files must be submitted concurrently with the filing.622 We believe this approach will facilitate the timely availability of important information in a structured format for investors, their investment professionals, and other data users yielding substantial benefits. For data aggregators responding to investor demand for the data, the availability of the required disclosures in the Inline XBRL format concurrent with filing or before the date of effectiveness would allow them to quickly process and share the data and related analysis with investors. Therefore, we are not proposing to provide variable contract registrants with a filing period to submit Interactive Data Files. Identification of Classes. The Interactive Data File would be required to be submitted in such a manner that would permit the information for each contract (and, for any information that does not relate to all of the classes in a filing, each class of the contract) to be separately identified.623 Consequence of failure to submit required Interactive Data File. Similar to the framework for mutual funds and ETFs, we are proposing to amend rule 485 under the Securities Act to provide that if a registrant does not submit a required Interactive Data File, the registrant’s ability to file post-effective amendments to its registration statement under subparagraph (b) of the rule will be automatically suspended until the required Interactive Data File is submitted.624 Availability of hardship exemptions. Variable contract registrants could request temporary and continuing hardship exemptions for the inability to timely file electronically the Interactive Data File.625 We request comment generally on the proposed amendments to require the use of Inline XBRL, and specifically on the following issues:
Should we adopt rules that make the
submission of structured data in the Inline XBRL format mandatory for variable contract registrants? Should the requirements for variable contracts generally mirror the recently adopted Inline XBRL requirements for mutual funds and ETFs as we have proposed, or do variable contracts present different issues and considerations from mutual funds and ETFs? To what extent, or how, should registration statements and other filings for contracts operating in the manner that the Staff Letters describe, as discussed in section II.C above, be required to submit information in Inline XBRL?
Should any category of variable contract
registrants be exempt from the proposed Inline XBRL requirements? If so, which ones, and explain why. If we were to exempt any such filers from the Inline XBRL requirements, should they be permitted to voluntarily file in the Inline XBRL format? What would be the effects on data quality and usability to investors and other data users associated with exempting such filers from the Inline XBRL requirements?
Should we otherwise take a different
approach for variable contracts, and if so, what would that be? For example, should we require instead that information be submitted in reports filed on Form N–CEN? Would submission on Form N–CEN ensure that current structured data for all variable contracts, including those operating in the manner that the Staff Letters describe, as discussed in section II.C above, would be available under a common submission framework for all variable contracts? Would such a filing framework provide a less burdensome means of submitting the same structured data to the Commission? What would be the effects on data quality and usability to investors and other data users of having the information available in Form N– CEN’s XML format instead of the proposed Inline XBRL format?
Should variable contract registrants be
required to use Inline XBRL to tag the proposed sections of the contract (Key Information Table, Fee Table, Principal Risks of Investing in the Contract, Other Benefits Available Under the Contract, and/or Portfolio Companies [Investment Options] Available Under the Contract) for Forms N– 3, N–4, and N–6? Should only one or both Items 19 (Investment Options Under the Contract) and 20 (Additional Information About Investment Options Available Under the Contract) of Form N–3 be required to be tagged? Should other or different information be required to be tagged in Inline XBRL?
What costs or other burdens (e.g., related
to personnel, systems, operations, compliance, etc.) would the proposed Inline XBRL requirements impose on variable contract registrants? Please provide quantitative estimates to the extent available.
How long is it likely to take for vendors
and filers to develop solutions for tagging variable contract submissions in Inline XBRL?
As outlined in Section II.G below, we are
proposing a similar compliance date of 18 months after the effective date of any final rules for the summary prospectus framework for all variable contracts to submit to the Commission the required information in Inline XBRL. Is this period appropriate, or should the requirement to submit the required information in Inline XBRL be subject to a compliance date later than the compliance date for any final rules for the summary prospectus framework? Should we adopt a phase-in schedule for the implementation of Inline XBRL for variable contract registrants based on certain factors, such as registrant size (or otherwise)?
In the case of post-effective amendment
filings made pursuant to paragraphs (b)(1)(i), (ii), (v), and (vii) of rule 485 under the Securities Act, and in the case of registrants on Forms N–4 or N–6, paragraph (b)(1)(vi) of rule 485, should we, as proposed, permit registrants to file the Inline XBRL document concurrently with the related filing? Why or why not? For example, is there a risk that investors may be confused by information that is tagged in Inline XBRL and filed before effectiveness of the related filing? Should we also permit registrants to submit tagged data information concurrently with the related filing in the case of initial registration statements and post-effective amendments made pursuant to other paragraphs of rule 485? Why or why not? Should we instead require that Interactive Data Files only be submitted in a subsequent amendment to the initial registration statement or any posteffective amendment? Why or why not?
We are not proposing to provide a filing
period for registrants to submit the Interactive Data Files. Instead, registrants would be required to submit Interactive Data Files on or prior to the effectiveness of a related initial registration statement or posteffective amendment, or concurrently with the filing of a related form of prospectus pursuant to rule 497. Are there costs or other burdens that may be incurred by filers if there is no filing period? Should we instead provide a filing period, and if so, what is the appropriate time period (e.g., 1 day, 5 days, 10 days, 20 days, 30 days)? In lieu of a filing period that would be available indefinitely, should we instead provide for a filing period that would be available for a temporary transitional period after the effectiveness of any final rules? If so, what should that transitional period be (e.g., the filing period would only be available for two years after effectiveness of any final rules, and thereafter, registrants would submit Interactive Data Files no later than the effectiveness of the related initial registration statement or post-effective amendment, or concurrently with the filing of a related form of prospectus pursuant to rule 497, as under the proposed rules)? If there is a filing period, would investors and other data users find the structured data to be as useful as if it had been as proposed?
To what extent do investors and other
market participants find information that is available a structured format useful for analytical purposes? Is information that is narrative, rather than numerical, useful as an analytical tool? Would investors and other market participants find variable contract information that is available in a structured format useful for analytical purposes? To what ends would they find that information useful?
Are any other amendments necessary or
appropriate to require the submission of the

626Form N–1 Amendments, Investment Company Act Release No. 14084 (Aug. 7, 1984) [49 FR 32058 (Aug. 10, 1984)]. 627Forms N–3 and N–4 Adopting Release, supra note 28, at 26156. 628When Form N–3 was adopted, separate accounts funding variable annuity contracts were permitted to continue to use Form N–1 if they no longer offered the contracts to new purchasers. Forms N–3 and N–4 Adopting Release, supra note 28, at 26156. The Commission is not aware of any such variable annuity registrants that continue to use Form N–1. 629Based on a review of EDGAR filings, it appears that Form N–1 has not been used in more than 20 years. When Form N–6 was proposed in 1998, the Commission sought comment on whether to rescind Form N–1. Form N–6 Proposing Release, supra note 445, at section II.G. One commenter noted that at that time several contracts registered on Form N– 1 were still in existence, but not actively marketed. Because of this continuing need for the form, the Commission decided at that time to retain Form N–

See Separate Accounts Offering Variable Life
Release, supra note 54, at section I.C. 630Separate Accounts of Life Insurance Companies Funding Certain Variable Life Insurance Contracts, Investment Company Act Release No. 9482 (Oct. 18, 1976) [41 FR 47023 (Oct. 27, 1976)]. 631Separate Accounts Funding Flexible Premium Variable Life Insurance Contracts, Investment Company Act Release No. 14234 (Nov. 14, 1984) [49 FR 47208–01 (Dec. 3, 1984)]. 632See Exemptive Relief for Mutual Funds Underlying Variable Life Insurance Separate Accounts, Investment Company Act Release No. 13688 (Dec. 23, 1983) [49 FR 1476–01 (Jan. 12, 1984)]. Among other things, these amendments provided relief to variable life insurance separate accounts, and to portfolio companies underlying those accounts, from minimum capital requirements already being provided by rule 14a– 2 under the Investment Company Act to variable annuity separate accounts and to portfolio companies underlying those accounts. 633See Separate Accounts Funding Flexible Premium Variable Life Insurance Contracts, Investment Company Act Release No. 15651 (Mar. 30, 1987) [52 FR 11187–02 (Apr. 8, 1987)]. These amendments revised the calculation of charges subject at the time to rate regulation under section 27 of the Investment Company Act. In 2002, the Commission issued a release making technical amendments to the VLI Rules, among others, to correct statutory references in those rules following the enactment of then recent legislation affecting those statutes. See Technical Amendments to Rules and Forms Due to the National Securities Markets Improvement Act of 1996 and the GrammLeach-Bliley Act, Investment Company Act Release No. 25621 (June 24, 2002) [67 FR 43534–01 (July 8, 2002)]. 634National Securities Market Improvement Act of 1996 (Pub. L. 104–290, 110 Stat. 3416 (1996). In particular, NSMIA amended sections 26 and 27 of the Investment Company Act to replace specific limits on the amount, type, and timing of charges applicable to variable life insurance contracts with a requirement that fees and charges be reasonable when considered in the aggregate. 635 In addition to the VLI Rules, we are proposing technical amendments to rules 0–1, 6c–7, 6c–8, 11a–2, 14a–2, 26a–1, and 27c–1 under the Investment Company Act. Rule 27c–1, relating to the redeemability of variable contracts, would be renamed as rule 27i–1, since as a result of NSMIA, the redeemability requirement addressed in the rule is now described in section 27(i) of the Investment Company Act. We are also proposing to make permanent temporary rule 6e–3(T) under the Investment Company Act, which would be renamed rule 6e–3. As part of these technical amendments, we are proposing to rescind rules 26a–2, 27a–1, 27a–2, 27a–3, 27d–2, 27g–1, and 27h–1 under the proposed required information in Inline XBRL? If so, what are they?

In what ways might the Commission
enhance the access to Inline XBRL data submitted by filers?
Should we require other types of
information to be submitted in the Inline XBRL format? If so, what other types of information would be suitable for the Inline XBRL format and why? Are there other means of embedding structured data into the human-readable format of filings that we should consider?
Are the proposed hardship exemptions
appropriate for variable contract registrants? Do variable contract participants have unique challenges that would impede them from being able to comply with the proposed filing requirements? If so, what are they? F. Technical and Conforming Amendments to, and Requests for Comment on, Other Aspects of the Regulatory Framework for Variable Contracts Proposed Conforming Amendments, and Requests for Comment, To Reflect Proposed Rule 498A and Amended Registration Forms We are proposing conforming amendments to various cross-references in our rules to reflect proposed rule 498A, and the proposed amendments to Forms N–3, N–4, and N–6. These crossreferences are reflected in our proposed amendments to: Rules 159A, 421, 431, 482, 485, 497, and 498 under the Securities Act; rules 11 and 405 of Regulation S–T; and rule 14a–16 under the Exchange Act. We request comment generally on whether the proposed conforming amendments are appropriate. Should they be modified in any way or are additional conforming amendments needed? Rescission of Form N–1 We are proposing to rescind Form N– 1 under the Securities Act and the Investment Company Act. In 1984, the Commission prescribed Form N–1 as the registration form to be used by open-end management investment companies that are separate accounts of insurance companies for registering under the Investment Company Act and for registering their securities under the Securities Act.626 In 1985, Form N–3 superseded Form N–1 for open-end management investment companies that are separate accounts of insurance companies issuing variable annuity contracts.627 As a result, only an openend management investment company that is a separate account of an insurance company offering variable life insurance contracts would use Form N–
1.628 Today, it appears that all separate
accounts issuing variable life insurance contracts are organized as unit investment trusts. For that reason, we do not believe any registrants continue to use Form N–1.629 We request general comment on rescinding Form N–1 and whether there is any continuing need for the form. In addition, we request specific comment on the following:
Are there currently any insurance
company separate accounts offering variable life insurance contracts that are organized as management investment companies? Do any insurers have a present intention of establishing such a separate account?
Would any registrants, including any
variable annuity or variable life insurance registrants, be affected by the rescission of Form N–1? If so, how?
If Form N–1 is rescinded, should the
Commission prescribe another registration form for use by open-end management investment companies that are separate accounts of insurance companies issuing variable life insurance contracts? If so, should a new form be used for this purpose, or should an existing form be used and what changes should be made to the suggested form to adapt it for this category of registrants? If a new form should be used, what should that form look like? Proposed Technical Amendments to, and Rescission of, Certain Rules and Forms Governing Variable Life Insurance Contracts and Variable Annuity Contracts We are proposing certain technical amendments to rules relating to variable life insurance contracts. Rule 6e–2 under the Investment Company Act, which was adopted in 1976, covers variable life insurance contracts having scheduled premium payment plans.630 Rule 6e–3(T) under the Investment Company Act (together with rule 6e–2, the ‘‘VLI Rules’’), which was adopted in 1984, covers variable life insurance contracts offering flexible premium payment plans.631 Rule 6e–2 was last substantively amended in 1983,632 and rule 6e–3(T) in 1987.633 Some provisions of these rules, specifically the detailed regulation of sales loads and other fees and charges required by sections 26 and 27 of the Investment Company Act, no longer follow statutory requirements as a consequence of amendments to those sections enacted by the National Securities Market Improvement Act of 1996 (‘‘NSMIA’’).634 We are proposing to amend the VLI Rules and other rules under the Investment Company Act, as well as rescind certain other rules and forms under the Investment Company Act, to reflect the effect of these NSMIA amendments.635

Investment Company Act. We are also proposing to rescind Forms N–27I–1 and N–27I–2 under the Investment Company Act. 636Section 14(a) requires that registered investment companies have at least $100,000 in net worth. Under the VLI Rules, managed separate accounts and portfolio companies that are established by an insurer and are sold only to variable life insurance contract investors are exempt from the requirement if the insurer has at least $1,000,000 in combined capital and surplus (or unassigned surplus in the case of a mutual life insurer). See rules 6e–2(b)(6), 6e–2(b)(15)(v), 6e– 3(T)(b)(6), and 6e–3(T)(b)(15)(iv) under the Investment Company Act. Section 26(f)(2)(B), enacted by NSMIA, prohibits any insurance separate account (or the depositor insurer) from selling any variable contract unless, among other things, the insurer has at least that amount in combined capital and surplus (or unassigned surplus in the case of a mutual life insurer). The $1,000,000 requirement in section 26(f)(2)(B) is a condition required for sales of both variable life insurance contracts and variable annuity contracts. Accordingly, in addition to proposing this amendment to the VLI Rules, we are also proposing a conforming amendment to rule 14a–2 under the Investment Company Act, which has a similar minimum capital condition applicable to depositors of separate accounts offering variable annuities to qualify for a similar exemption from section 14(a). 637Section 27(j) was enacted into law by the Military Personnel Financial Services Protection Act (Pub. L. 109–290, 120 Stat. 127) (2006). 638 In the release proposing rule 6e–2, the Commission stated that these exemptions were proposed ‘‘to assure the solvency of the life insurer and performance of its contractual obligations by enabling an insurance regulatory authority or the life insurer to act when certain proposals reasonably could be expected to increase the risks undertaken by the life insurer.’’ Notice of Proposal to Adopt Rule 6e–2 under the Investment Company Act of 1940 Relating to Separate Accounts Formed by Life Insurance Companies to Fund Certain Variable Life Insurance Contracts, Investment Company Act Release No. 9104 (Dec. 30, 1975) [41 FR 2256 (Jan. 15, 1976)], at 10–11. Since the adoption of rule 6e–2 over forty years ago, however, we are not aware of an instance where an insurer relied on these exemptions to disregard investors’ voting instructions. 639As to section 9(a), the language in the rules provides exemptions in circumstances for which no instance of reliance could be identified. For example, the rules conditionally allow separate account depositors employing an ineligible person to serve as an adviser or underwriter of an underlying fund, but depositors generally do not themselves serve in those roles. See rules 6e– 2(b)(15)(ii) and 6e–3(T)(b)(15)(ii) under the Investment Company Act. More broadly, many of the provisions in the VLI Rules cover exemptions provided to registered managed
separate accounts, but there have been no filings by those accounts issuing variable life insurance contracts at least since EDGAR filings became mandatory for all filers in 1996. Among other things, these amendments would remove the detailed rate regulatory provisions in the VLI Rules and other rules and forms under the Investment Company Act. In addition, these technical amendments would remove the detailed definitions of sales charges in those rules, as these definitions are not necessary to implement the reasonableness in the aggregate standard instituted by NSMIA. These amendments would also remove the numerical load limit on front end sales loads on variable annuities that had been included in rule 11a–2 when it was adopted in 1983—before NSMIA had been enacted—to incorporate the load limit in section 27(a), and make appropriate cross-referencing revisions to related rules. Separate from sales charge related changes, these amendments would additionally remove certain minimum capital conditions for insurers to qualify for exemptions from
section 14(a) of the Investment
Company Act, since NSMIA amended
section 26 to mandate that any insurer
serving as a separate account depositor have that level of minimum capital.636 We seek comment on our proposed technical amendments to the VLI Rules, and proposed technical amendments and rescission of other rules and forms under the Investment Company Act intended to reflect the effect of the NSMIA amendments. Specifically:

Should we adopt the technical
amendments to the VLI Rules and other rules as proposed? Are other amendments necessary to reflect the effect of the NSMIA amendments?
We are proposing to rescind rules 26a–
2, 27a–1, 27a–2, 27a–3, 27d–2, 27g–1, and 27h–1, and related Forms N–27I–1 and N– 27I–2, because these rules and forms were rendered moot as a result of the NSMIA amendments. Should we rescind these rules and forms as proposed, or are these rules and forms still necessary despite the NSMIA amendments? Rescission of Rules 27e–1 and 27f–1 and Related Forms We also propose to rescind rules 27e– 1 and 27f–1 under the Investment Company Act and related Forms N– 27E–1 and N–27F–1. These rules and forms were promulgated to prescribe the form of notices required by sections 27(d) and (e) of the Investment Company Act relating to refund and withdrawal rights of periodic payment plan certificate holders, including those certificates not issued by insurance company separate accounts. We are proposing to rescind these rules and forms because since 2006, section 27(j) of the Investment Company Act has barred new certificate issuances,637 and notice rights of holders of certificates issued before then have long since expired. We request comment generally on our proposal to rescind rules 27e–1 and 27f– 1 and related Forms N–27E–1 and N– 27F–1, and specifically on the following issues:
Are any periodic payment plans
currently outstanding? If so, how many?
Would any outstanding periodic
payment plans be affected if we rescind the rules and forms as proposed? If so, how would they be affected?
In lieu of rescinding these rules and
forms, should we modify them in any way? General Request for Comment on VLI Rules Finally, we are considering whether it would be appropriate to update other provisions of the VLI Rules. Certain provisions of the VLI Rules, such as exemptions allowing insurers, under certain circumstances, to disregard voting instructions on matters submitted to policy holders in compliance with sections 13 and 15 of the Investment Company Act, may not be necessary.638 In addition, it may be appropriate to update other provisions of the VLI Rules, such as the exemptions provided to insurance companies and affiliated persons from section 9(a) of the Investment Company Act, to reflect industry experience with the operation of those rules.639 We request general comment on the continued utility of the exemptions the VLI Rules provide and the extent to which those rules should be harmonized with the regulation of variable annuity issuers and of other investment companies. We also request specific comment on the following:
To what extent are issuers of variable life
insurance contracts relying on the exemptions and other conditions of the VLI Rules? For example, do insurers rely on the exemptions to disregard voting instructions?
To what extent, if any, should limits in
the VLI Rules on the parties to whom portfolio company shares underlying UIT separate accounts may be sold, or the conditions under which they may be sold, be changed?
To what extent, if any, should the
minimum capital requirement imposed by NSMIA on separate accounts offering variable insurance contracts, and on insurers sponsoring those accounts, be changed?
In light of NSMIA’s replacement of
specific limits on sales charges and administrative expenses with a reasonableness standard for all fees and charges in the aggregate, would it be appropriate to consider any limitations on deferred sales loads to address concerns that those loads might present a burden on redemption? For example, how should those concerns be reflected in rule 6c–8 under the Investment Company Act governing deferred sales loads on variable annuity contracts?
The VLI Rules provide an exemption
from the redeemability provisions of the Investment Company Act generally for ‘‘established administrative procedures of the life insurer’’ relating to, among others, issuance, transfer, and redemptions of variable life insurance contracts. What procedures have developed since the rules were adopted for which an exemption is appropriate?
Should the VLI Rules be amended to
eliminate exemptions for managed separate