[Federal Register Volume 85, Number 85 (Friday, May 1, 2020)]
[Rules and Regulations]
[Pages 25964-26309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05526]



[[Page 25963]]

Vol. 85

Friday,

No. 85

May 1, 2020

Part IV





Securities and Exchange Commission





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17 CFR Parts 200, 230, 232, et al.





Updated Disclosure Requirements and Summary Prospectus for Variable 
Annuity and Variable Life Insurance Contracts; Final Rule

  Federal Register / Vol. 85, No. 85 / Friday, May 1, 2020 / Rules and 
Regulations  

[[Page 25964]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 230, 232, 239, 240, 270, and 274

[Release Nos. 33-10765; 34-88358; IC-33814; 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: Final rule.

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SUMMARY: The Securities and Exchange Commission is adopting rule and 
form amendments intended to help investors make informed investment 
decisions regarding variable annuity and variable life insurance 
contracts. The amendments 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 reader-friendly presentation, with access to more detailed 
information available online and electronically or in paper format on 
request. New rule 498A under the Securities Act of 1933 will permit a 
person to satisfy its prospectus delivery obligations under the 
Securities Act 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 rule also will 
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. To implement the new disclosure framework, we are also 
amending 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, and adopting amendments to our rules that will 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. The 
Commission is also taking the position that if an issuer of a 
discontinued contract that is discontinued as of July 1, 2020 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 are 
provided with the alternative disclosures or modernized alternative 
disclosures described below. We are also adopting certain technical and 
conforming amendments to our rules and forms, including amendments to 
rules relating to variable life insurance contracts, and rescinding 
certain related rules and forms.

DATES: Effective dates: This rule is effective July 1, 2020, except:
     Amendatory instructions 12, 46, 48, and 50 to 17 CFR 
230.498A, Form N-3 (referenced in 17 CFR 239.17a and 274.11b), Form N-4 
(referenced in 17 CFR 239.17b and 274.11c), and Form N-6 (referenced in 
17 CFR 239.17c and 274.11d), which are effective January 1, 2022; and
     Effective July 1, 2020, amendatory instructions 20, 22, 
and 24 to Form N-3 (referenced in 17 CFR 239.17a and 274.11b), Form N-4 
(referenced in 17 CFR 239.17b and 274.11c), and Form N-6 (referenced in 
17 CFR 239.17c and 274.11d), published June 22, 2018, at 83 FR 29158, 
with an effective date of January 1, 2022, are withdrawn.
    Compliance dates: See Section II.G.

FOR FURTHER INFORMATION CONTACT: Daniel K. Chang, Pamela K. Ellis, 
Bradley Gude, James Maclean, Amy Miller (Senior Counsels) or Michael C. 
Pawluk (Senior Special Counsel), Investment Company Regulation Office, 
at (202) 551-6792; or Harry Eisenstein or Michael Kosoff (Senior 
Special Counsels), Disclosure Review and Accounting 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 adopting 17 CFR 230.498A (new rule 498A) under the 
Securities Act. The Commission is also adopting amendments to the 
following rules:

------------------------------------------------------------------------
       Commission reference                CFR citation (17 CFR)
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Organization; Conduct and Ethics;  Sec.  Sec.   200.1 through 200.800.
 And Information and Requests.
  Section 800....................  Sec.   200.800.
Securities Act of 1933
 (``Securities Act''): \1\
  Rule 159A......................  Sec.   230.159A.
  Rule 431.......................  Sec.   230.431.
  Rule 482.......................  Sec.   230.482.
  Rule 485.......................  Sec.   230.485.
  Rule 496.......................  Sec.   230.496.
  Rule 497.......................  Sec.   230.497.
  Rule 498.......................  Sec.   230.498.
  Form N-14......................  Sec.   239.23.
Regulation S-T                     Sec.  Sec.   232.10 through 232.501.
  Rule 11........................  Sec.   232.11.
  Rule 405.......................  Sec.   232.405.
Securities Exchange Act of 1934
 (``Exchange Act''): \2\
  Rule 14a-16....................  Sec.   240.14a-16.
  Rule 14a-101...................  Sec.   240.14a-101.
Investment Company Act of 1940
 (``Investment Company Act''):
 \3\
  Rule 0-1.......................  Sec.   270.0-1.
  Rule 6c-7......................  Sec.   270.6c-7.
  Rule 6c-8......................  Sec.   270.6c-8.
  Rule 6e-2......................  Sec.   270.6e-2.
  Rule 6e-3 (former rule 6e-3(T))  Sec.   270.6e-3.
  Rule 8b-1......................  Sec.   270.8b-1.
  Rule 11a-2.....................  Sec.   270.11a-2.

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  Rule 14a-2.....................  Sec.   270.14a-2.
  Rule 26a-1.....................  Sec.   270.26a-1.
  Rule 27i-1 (former rule 27c-1).  Sec.   270.27i-1.
Securities Act and Investment
 Company Act:
  Form N-3.......................  Sec.  Sec.   239.17a and 274.11b.
  Form N-4.......................  Sec.  Sec.   239.17b and 274.11c.
  Form N-6.......................  Sec.  Sec.   239.17c and 274.11d.
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 15 U.S.C. 80a et seq.

    Finally, the Commission is rescinding:

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       Commission reference                CFR citation (17 CFR)
------------------------------------------------------------------------
Investment Company Act:
  Rule 26a-2.....................  Sec.   270.26a-2.
  Rule 27a-1.....................  Sec.   270.27a-1.
  Rule 27a-2.....................  Sec.   270.27a-2.
  Rule 27a-3.....................  Sec.   270.27a-3.
  Rule 27d-2.....................  Sec.   270.27d-2.
  Rule 27e-1.....................  Sec.   270.27e-1.
  Rule 27f-1.....................  Sec.   270.27f-1.
  Rule 27g-1.....................  Sec.   270.27g-1.
  Rule 27h-1.....................  Sec.   270.27h-1.
  Form N-27E-1...................  Sec.   274.127e-1.
  Form N-27F-1...................  Sec.   274.127f-1.
  Form N-27I-1...................  Sec.   274.302.
  Form N-27I-2...................  Sec.   274.303.
Securities Act and Investment
 Company Act:
  Form N-1.......................  Sec.  Sec.   239.15 and 274.11.
------------------------------------------------------------------------

TABLE OF CONTENTS

I. Introduction
    A. Background
    B. Overview of Final Rule and Rule and Form Amendments
II. Discussion
    A. New Option to Use a Summary Prospectus for Variable Contracts
    1. Initial Summary Prospectus
    2. Updating Summary Prospectus
    3. Interim Amendments to Contract Statutory Prospectuses
    4. Legal Effect of Use of Summary Prospectus for Variable 
Contracts
    5. Online Accessibility of Contract Statutory Prospectus and 
Certain Other Documents Relating to the Contract
    6. Other Requirements for Summary Prospectus and Other Contract 
Documents
    7. Incorporation by Reference
    8. Filing Requirements for the Summary Prospectus
    9. Defined Terms in Final 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. 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
    D. Inline XBRL
    E. Discontinued Variable Contracts
    1. Background
    2. Comments Received on Proposal
    3. Commission Position on Existing Contracts Whose Issuers 
Provide Alternative Disclosures to Investors
    4. Commission Declines To Adopt Going-Forward Relief
    F. Technical and Conforming Amendments to Other Aspects of the 
Regulatory Framework for Variable Contracts
    G. Compliance Dates
III. Other Matters
IV. 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 Rule and Form Amendments
    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
V. Paperwork Reduction Act
    A. Form N-3
    B. Form N-4
    C. Form N-6
    D. Investment Company Interactive Data
    E. Rule 498A
VI. Regulatory Flexibility Act Certification
    VII. Statutory Authority

I. Introduction

    The Securities and Exchange Commission is adopting rule and form 
amendments that are intended to help investors make informed investment 
decisions regarding variable annuity \4\

[[Page 25966]]

and variable life insurance contracts \5\ (together, ``variable 
contracts'' or ``contracts'').\6\ To improve the current disclosure 
framework and update the manner in which variable contract investors 
receive and review prospectuses and related information, we are 
adopting 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 will have access 
to the contract statutory prospectus and other information about the 
contract online (and could receive paper or electronic copies upon 
request), which will provide more-detailed information about the 
contract.
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    \4\ 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 
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.
    \5\ Variable life insurance contracts offer a death benefit to 
the investor that may be significantly larger than the amount of 
premiums paid, as well as the ability to accumulate cash value. Like 
variable annuities, a variable life insurance contract permits the 
investor to allocate their cash value to a variety of investment 
options. Because an investor will generally allocate the insurance 
premiums to the investment options, the investor is exposed to 
market risk and the cash value (and in some cases, the death 
benefit) will vary with the performance of these investments.
    \6\ The Commission proposed these rule and form amendments in 
October 2018. See Updating Disclosure Requirements and Summary 
Prospectus for Variable Annuity and Variable Life Insurance 
Contracts, Investment Company Release No. 33286 (Oct. 30, 2018) [83 
FR 61730 (Nov. 30, 2018)] (``Proposing Release'').
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    Specifically, the approach under the 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.
    To implement this new disclosure framework, we are also amending 
the registration forms for variable annuity and variable life insurance 
contracts to update and enhance the disclosures to investors in these 
contracts, and requiring 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.
    In proposing new rule 498A, the Commission discussed and solicited 
comment on approaches it was considering 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. While we are not taking any 
such parallel actions in this document, Commission staff is currently 
considering the comments received and reviewing the disclosure regime 
for investment companies as to these and other potential amendments as 
part of a broader modernization initiative.

A. Background

    To meet life insurance needs and retirement or other financial 
goals, investors may consider variable contracts as a way of combining 
insurance guarantees with the potential for long-term investment 
appreciation.\7\ Variable contracts are generally more complex than 
other retail investment products, such as mutual funds, in a variety of 
ways:
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    \7\ For an overview of variable annuities and variable life 
insurance contracts, see Proposing Release, supra note 6, at Section 
I.A.
     The average contract value for individual variable annuities is 
approximately $106,187. See Insured Retirement Institute, IRI Fact 
Book 2019 (``IRI Fact Book''), at 167. 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.
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     Structure. Variable contracts combine both investment and 
insurance features. Investors generally allocate their purchase 
payments to a range of investment options, and the investor's account 
value changes depending on the performance of the investment options 
selected. For most variable contracts, these investment options 
typically are mutual funds, which are separately registered and have 
their own prospectuses.\8\ In addition, variable contracts frequently 
offer a menu of optional benefits that an investor may select to 
customize the contract to meet his or her individual needs.\9\
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    \8\ For purposes of this release, we refer to these entities as 
``portfolio companies.''
    \9\ Variable contracts commonly offer optional benefit features 
as riders to the contract with their own terms and conditions, and 
typically for a separate charge. Riders commonly provide enhanced 
death benefits, as well as ``living benefits'' that may be designed 
to provide protection against declines in account value, longevity 
risk, or other risks, or to cover financial losses that result from 
illness, incapacity, or injury. These optional riders have become 
increasingly popular with variable contract investors. See, e.g., 
IRI Fact Book, supra note 7, at 70 (``Approximately $1.8 trillion of 
VA assets were held by insurance companies as of the end of the 
fourth quarter of 2018, with an estimated $800 billion in assets 
under a guaranteed income benefit.''); Gallup Survey, supra note 7, 
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.'').
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     Fees and Expenses. Most variable contracts have two-level 
fee structures, where fees are assessed at both the contract level by 
the issuer (including mortality and expense risk charges,\10\ 
administrative fees, and fees for optional benefits selected by the 
investor) and at the portfolio company level.\11\ 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.\12\ Variable life insurance contracts also impose an additional 
insurance charge to cover the cost of the death benefit.\13\
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    \10\ The 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 some or all of 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 Morningstar M&E Risk definition, available at https://awgmain.morningstar.com/webhelp/glossary_definitions/va_vl/pol_M_E_Risk.html.
    \11\ Investors indirectly bear the operating fees and expenses 
of the portfolio companies they select as the underlying investments 
in their variable contracts.
    \12\ A 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.
    \13\ These additional insurance charges are determined at the 
time 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 
10.
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     Taxes. Special tax rules apply to variable products, with 
both tax advantages and potential adverse tax impacts in certain 
circumstances.\14\
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    \14\ For 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 59\1/2\ years old. For these and other reasons, a variable 
contract generally is sold as a long-term investment.

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[[Page 25967]]

    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 of and terminology 
associated with these products can be difficult for investors to 
understand. Moreover, variable contract prospectuses are often quite 
lengthy (frequently more than one 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.\15\ 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.\16\
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    \15\ For a discussion of the requirements for variable contract 
prospectus disclosure and delivery, see Proposing Release, supra 
note 6, at Section I.B.1.
    \16\ For example, variable annuity contracts offer an average of 
60 investment options, with some contracts offering more than 250 
investment options. See IRI Fact Book, supra note 7, at 167. 
Furthermore, variable life insurance contracts offer an average of 
65 investment options, with some contracts offering more than 300 
investment options. These variable life figures are based on 
September 2019 data obtained from Morningstar Direct.
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    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. Based on our experience with both 
layered disclosure (under the mutual fund summary prospectus) \17\ and 
integrated disclosure (enhanced over a decade ago with securities 
offering reform for corporate issuers),\18\ our more than twenty years 
of experience with the use of the internet as a medium to provide 
information to investors,\19\ and on our investor testing efforts, 
outreach, and other empirical research concerning investors' 
preferences, the Commission proposed a summary prospectus framework for 
variable contracts using summary and layered disclosure principles.\20\
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    \17\ Enhanced 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).
    \18\ Securities 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, Pub. L. 115-174, 132 Stat. 1296 (2018)), and to business 
development companies (see Section 803 of the Small Business Credit 
Availability Act, Pub. L. 115-141, 132 Stat. 348 (2018)). The 
Commission proposed such rules in 2019. See Securities Offering 
Reform for Closed-End Investment Companies, Investment Company Act 
Release No. 33427 (Mar. 20, 2019) [84 FR 14448 (Apr. 10, 2019)] 
(``Closed-End Offering Reform Release'').
    \19\ See, e.g., Use of Electronic Media for Delivery Purposes, 
Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 
(Oct. 13, 1995)] (``1995 Release'') (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); 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'') (providing 
Commission views on electronic delivery of required information by 
broker-dealers, transfer agents, and investment advisers); Use of 
Electronic Media, Investment Company Act Release No. 24426 (Apr. 28, 
2000) [65 FR 25843 (May 4, 2000)] (``2000 Release'') (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 18 (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); Optional Internet Availability of 
Investment Company Shareholder Reports, Investment Company Act 
Release No. 33115 (June 5, 2018) [83 FR 29158 (June 22, 2018)] 
(``Investment Company Shareholder Reports Release'') (adopting 17 
CFR 270.30e-3 (new rule 30e-3 under the Investment Company Act) and 
related rule amendments that, subject to conditions, provide certain 
registered investment companies, including registrants on Forms N-3, 
N-4, and N-6, with an optional method to transmit shareholder 
reports by making such reports and other materials accessible at a 
website address specified in a notice to investors).
    \20\ For a discussion of the evolution of layered disclosure and 
the delivery of information to investors, including the Commission's 
and the staff's investor testing efforts, outreach, and other 
empirical research concerning investor preferences, see Proposing 
Release, supra note 6, at Section I.B.2.
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B. Overview of Final Rule and Rule and Form Amendments

    We are adopting a new disclosure framework that, among other 
things, permits the use of summary prospectuses for variable contracts, 
with additional information available to investors online. To help 
investors make an informed investment decision, the new framework 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 framework will 
improve investor understanding of variable contracts. The mutual fund 
industry has widely adopted the use of summary prospectuses, and we 
expect our proposed prospectus delivery approach similarly will be 
widely adopted by issuers of variable contracts.\21\
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    \21\ We estimate that as of December 31, 2018, approximately 93% 
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 2018 (10,808) and the Investment 
Company Institute's estimated number of mutual funds and ETFs as of 
December 31, 2018 (11,656). See Investment Company Institute, 2019 
Investment Company Fact Book (2019), at 50, available at https://www.ici.org/pdf/2019_factbook.pdf.
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    New rule 498A 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.\22\ 
Like the Commission's mutual fund summary prospectus rule, the summary 
prospectus under rule 498A is meant to highlight key information of 
variable contracts that we believe will help an investor make an 
informed investment decision.\23\
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    \22\ However, the final 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 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).
    \23\ The 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.'').

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[[Page 25968]]

    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 will serve as the 
cornerstone of a layered disclosure framework that alerts investors to 
the availability of more detailed information in the statutory 
prospectus and in other locations, and will be tailored to the unique 
aspects of these products. As a result, investors will 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.\24\ New rule 498A 
permits 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 will 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 will 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 will 
be provided in both the initial summary prospectus and updating summary 
prospectus.
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    \24\ See infra Section II.A.
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     Availability of variable contract statutory prospectus and 
other materials.\25\ New rule 498A requires the variable contract 
statutory prospectus, as well as the contract's statement of additional 
information (``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 may 
request the contract statutory prospectus and SAI to be sent in paper 
or electronically, at no cost to the investor.
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    \25\ See infra Section II.A.5.
---------------------------------------------------------------------------

     Optional method to satisfy portfolio company prospectus 
delivery requirements.\26\ New rule 498A provides 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.\27\ Investors may request and receive those 
disclosures in paper or electronically at no cost. This new option for 
satisfying portfolio company prospectus delivery requirements is only 
available for portfolio companies available as investment options 
through variable contracts that use contract summary prospectuses.
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    \26\ See infra Section II.B.
    \27\ This option will not apply to Form N-3 registrants, which 
do not have underlying portfolio companies due to their single-tier 
investment company structure.
---------------------------------------------------------------------------

     Form amendments.\28\ We are amending 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.\29\ The 
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.
---------------------------------------------------------------------------

    \28\ See infra Section II.C.
    \29\ The 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 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)] (``Forms N-3 and N-4 
Adopting Release''); 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'').
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     Inline XBRL.\30\ With respect to contracts currently 
offered to new investors, registrants will be required to use the 
Inline XBRL format for the submission of certain information. This 
requirement is intended to harness technology to provide a mechanism 
for allowing investors, Commission staff, data aggregators, financial 
analysts, and other data users to efficiently analyze and compare the 
available information about variable contracts, as required by their 
particular needs and circumstances.
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    \30\ See infra Section II.D.
---------------------------------------------------------------------------

     Discontinued Variable Contracts.\31\ We are taking the 
position that if an issuer of a discontinued contract that is 
discontinued as of July 1, 2020 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 are provided with the alternative 
disclosures or modernized alternative disclosures described below.
---------------------------------------------------------------------------

    \31\ See infra Section II.E.
---------------------------------------------------------------------------

     Other Amendments.\32\ We are adopting certain technical 
and conforming amendments to our rules to reflect the proposed new 
regime for variable contract summary prospectuses. We are also adopting 
certain technical amendments to rules relating to variable life 
insurance contracts, as well as rescinding certain rules and forms.
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    \32\ See infra Section II.F.
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    Table 1 summarizes the various requirements--under the current 
prospectus delivery regime, and under the new optional 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:

[[Page 25969]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.000

II. Discussion

A. New Option To Use a Summary Prospectus for Variable Contracts

    We are adopting, substantially as proposed, new rule 498A, which 
provides 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. Under 
the new rule, a registrant (or the financial intermediary distributing 
the variable contract) relying on the rule must send the variable 
contract statutory prospectus and other materials to an investor in 
paper or electronic format upon request.
    Commenters broadly supported our proposed layered disclosure 
approach.\33\ One commenter stated that ``a layered disclosure 
approach, as set forth in proposed Rule 498A, will vastly improve 
investors' experiences with respect to purchasing and owning variable 
products.'' \34\ Another commenter observed that ``the parallel 
approaches proposed in the rule properly mirror the sensible, 
constructive approaches adopted in the mutual fund summary disclosure 
initiative,'' and predicted that such approach ``can be expected to 
work equally well in the context of variable contracts.'' \35\ A third 
commenter, finding that the proposal ``appropriately balances the goals 
of investor protection with a better investor experience,'' endorsed 
the use of variable contract

[[Page 25970]]

summary prospectuses ``as the lynchpin of a new variable contract 
disclosure framework.'' \36\
---------------------------------------------------------------------------

    \33\ See, e.g., Comment Letter of Brighthouse Financial (Feb. 
15, 2019) (``Brighthouse Comment Letter''); Comment Letter of the 
American Council of Life Insurers (Feb. 15, 2019) (``ACLI Comment 
Letter''); Comment Letter of the Committee of Annuity Insurers (Feb. 
14, 2019) (``CAI Comment Letter''); Comment Letter of the Investment 
Company Institute (Feb. 15, 2019) (``ICI Comment Letter''); Comment 
Letter of the Independent Directors Council (Feb. 15, 2019) (``IDC 
Comment Letter''); Comment Letter of the Center for Capital Markets 
Competitiveness (Feb. 15, 2019) (``CCMC Comment Letter''); Comment 
Letter of Pacific Life Insurance Company (Feb. 15, 2019) (``Pacific 
Life Comment Letter''); Comment Letter of Jackson National Life 
(Feb. 15, 2019) (``Jackson Comment Letter''); Comment Letter of 
Donnelly Financial Solutions (Mar. 12, 2019) (``Donnelly Financial 
Comment Letter I''); Comment Letter of Donnelly Financial Solutions 
(Oct. 24, 2019); Comment Letter of Capital Research and Management 
Company (Mar. 14, 2019) (``Capital Group Comment Letter''); Comment 
Letter of Transamerica (Mar. 15, 2019) (``Transamerica Comment 
Letter''); Comment Letter of Lincoln Financial Group (Feb. 13, 2019) 
(``Lincoln Comment Letter''); Comment Letter of the National 
Association of Insurance and Financial Advisors (Feb. 14, 2019) 
(``NAIFA Comment Letter''); Comment Letter of TIAA (Feb. 15, 2019) 
(``TIAA Comment Letter''); Comment Letter of Wells Fargo Advisors 
(Mar. 14, 2019) (``WFA Comment Letter''); Comment Letter of the 
Financial Services Institute (Mar. 15, 2019) (``FSI Comment 
Letter''); Comment Letter of the Association for Advanced Life 
Underwriting (Mar. 15, 2019) (``AALU Comment Letter''); Comment 
Letter of the Insured Retirement Institute (Mar. 15, 2019) (``IRI 
Comment Letter I'').
     One commenter asked us to clarify that all insurance products 
where the value of the contract will vary depending on investment 
performance are included within the scope of this proposal. See 
Comment Letter of the AARP (Mar. 15, 2019) (``AARP Comment 
Letter''). Because the scope of our proposal was limited to variable 
contracts registered on Forms N-3, N-4, and N-6, it does not extend 
to indexed annuities that register securities on Forms S-1 and S-3.
    \34\ See CAI Comment Letter.
    \35\ See ACLI Comment Letter.
    \36\ See Brighthouse Comment Letter.
---------------------------------------------------------------------------

    Some commenters expressed reservations about key aspects of the 
proposal. One commenter stated that the initial summary prospectus 
should provide the information needed to make an investment decision 
without having to refer to other documents,\37\ essentially rejecting 
the layered disclosure framework. Three commenters were skeptical that 
certain aspects of the proposed initial summary prospectus would result 
in better investor comprehension of how a variable contract works, and 
recommended that we engage in investor testing to validate our 
assumptions.\38\
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    \37\ See Comment Letter of Mark Bowler (Feb. 11, 2019) (``M. 
Bowler Comment Letter'').
    \38\ See Comment Letter of the Consumer Federation of America 
(Feb. 27, 2019) (``CFA Comment Letter'') (stating that the 
Commission should test the summary prospectuses to determine whether 
the proposed disclosure effectively conveys key information to 
investors before finalizing the rule); NAIFA Comment Letter; AARP 
Comment Letter. See also Comment Letter of Miles Brooks (Nov. 28, 
2019) (asserting the Commission should not regulate a disclosure 
regime on variable contracts).
---------------------------------------------------------------------------

    After considering the comments received on the proposal, we are 
adopting rule 498A and the general summary prospectus framework 
substantially as proposed, with several modifications reflecting 
considerations raised by commenters. As discussed in the Proposing 
Release, our proposal built on our experience with both layered 
disclosure (under the mutual fund summary prospectus) and integrated 
disclosure (enhanced over a decade ago with securities offering reform 
for corporate issuers), as well as more than 20 years of experience 
with the use of the internet as a medium to provide information to 
investors.\39\ We drew on our investor testing efforts in developing 
the proposed summary prospectus framework, and specifically solicited 
feedback from investors and other market participants on hypothetical 
initial and updating summary prospectuses, which we received in 
response to our ``feedback form'' and in numerous comment letters.\40\
---------------------------------------------------------------------------

    \39\ Proposing Release, supra note 6, at Section I.B.2.
    \40\ See supra note 33. The Proposing Release was accompanied by 
a ``Feedback Flier'' that solicited investor feedback about the 
primary components of the initial summary prospectus, which was also 
generally supported by respondents. See, e.g., Comment Letter of 
Betsy Nedar (``Nedar Comment Letter'') (Nov. 6, 2018); J. Topolski 
Comment Letter (Nov. 16, 2018); Anonymous Comment Letter (Nov. 11, 
2018) (``Anonymous Comment Letter I''); Anonymous Comment Letter 
(Dec. 26, 2018) (``Anonymous Comment Letter II''); Velazquez Comment 
Letter (Feb. 8, 2019); Comment Letter of Bernard Mihayo (Nov. 5, 
2019); Yinan Ying Comment Letter (Dec. 10, 2019).
---------------------------------------------------------------------------

    We also received comments on whether the use of the summary 
prospectus should be mandatory instead of voluntary as proposed. One 
commenter stated that the use of the summary prospectus should be 
voluntary to give insurers the flexibility to tailor their disclosure 
practices to best fit their situations.\41\ Two commenters supported 
mandatory compliance to ensure that variable contract investors receive 
summary disclosures to aid their investment decisions.\42\
---------------------------------------------------------------------------

    \41\ See ACLI Comment Letter.
    \42\ See AARP Comment Letter; Comment Letter of Better Markets 
(Feb. 14, 2019) (``Better Markets Comment Letter'').
---------------------------------------------------------------------------

    After considering such comments and evaluating our prior experience 
with the mutual fund summary prospectus, we continue to believe that 
reliance on rule 498A should be optional. This will give insurers the 
opportunity to gradually transition to the new summary prospectus 
regime while minimizing disruption to their current registration and 
business processes. Although approximately 93% of mutual funds 
currently use a summary prospectus, it took nearly eight years after 
the adoption of the mutual fund summary prospectus framework for the 
industry to reach that threshold.\43\ We believe that insurers may 
similarly need a period of time to transition to the new regime given 
the diversity of variable contracts (and corresponding diversity of 
disclosure for variable contracts) and the fact that the variable 
contract summary prospectus regime will 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).
---------------------------------------------------------------------------

    \43\ See supra note 21.
---------------------------------------------------------------------------

    Some variable contracts offer few (or no) optional benefits and few 
investment options. Because these contracts have fairly straightforward 
disclosure documents, the advantages of 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.\44\ An optional approach also preserves 
flexibility for registrants that may not wish to undertake the costs of 
the transition to a summary prospectus regime.
---------------------------------------------------------------------------

    \44\ See infra Section IV.C.1.
---------------------------------------------------------------------------

    Given the almost universal adoption of the summary prospectus 
regime by mutual funds, and the anticipated cost-savings and other 
efficiencies available to insurers that rely on the rule, we do not at 
this time believe a mandatory approach is necessary to achieve the 
goals of the variable contract summary prospectus regime. We intend to 
review the voluntary use of the summary prospectus and to assess 
whether benefits to investors warrant a future mandate.\45\
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    \45\ See 2009 Summary Prospectus Adopting Release, supra note 
17, at 66-67.
---------------------------------------------------------------------------

1. Initial Summary Prospectus
a. Overview
    The new rule requires a person relying on the rule to send or give 
an initial summary prospectus in connection with sales of variable 
contracts to new investors.\46\ The initial summary prospectus uses a 
layered disclosure approach that provides 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.\47\ We designed the initial summary prospectus to 
simplify and consolidate lengthy and complex disclosures, and to 
highlight aspects of the contract that may not be emphasized

[[Page 25971]]

in marketing materials and other disclosures.\48\
---------------------------------------------------------------------------

    \46\ 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.4.
    \47\ One commenter, citing academic research, stated that to the 
extent summary disclosure reduces information overload, it could, in 
turn, increase financial literacy. See ACLI Comment Letter. This 
comment letter, together with other similar comment letters 
discussing the costs and benefits of the proposed rulemaking, are 
discussed in greater detail in Section IV. See infra note 1038 and 
accompanying and following text.
    We believe 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. We also note that, unlike other investment 
products, variable contract investors typically have a state-
mandated ``free look'' opportunity to return the contract for a full 
refund of premiums or purchase payments within a limited number of 
days following contract issuance. See Proposing Release, supra note 
6, at nn.65 and accompanying text.
    \48\ Another 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. See Proposing Release, supra note 6, at nn.66-69 and 
accompanying text.
---------------------------------------------------------------------------

b. Contracts That May Be Included in the Initial Summary Prospectus
    As proposed, we are requiring the initial summary prospectus to 
only describe a single contract that the registrant currently offers 
for sale.\49\ Also as proposed, an initial summary prospectus may 
describe more than one class of a currently offered contract.\50\ For 
purposes of the rule, we are adopting, as proposed, a definition of 
``class'' to be a class of a contract that varies principally with 
respect to distribution-related fees and expenses.\51\
---------------------------------------------------------------------------

    \49\ Rule 498A(b)(1).
    \50\ Id.
    \51\ See rule 498A(a).
---------------------------------------------------------------------------

    The Commission proposed these requirements for the initial summary 
prospectus because aggregating disclosures for multiple contracts, or 
currently offered and no-longer-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. 
Currently, and under our amendments to the registration forms, it is 
industry practice for registrants to describe multiple contracts in a 
single prospectus (or multiple versions of a particular contract in a 
prospectus), or include multiple prospectuses in a single registration 
statement.\52\ We also understand that certain contract prospectuses 
include disclosure about contract features and options that the 
registrant may no longer offer to new investors.
---------------------------------------------------------------------------

    \52\ See General Guidance to Variable Annuity, Variable Life, 
and Other Insurance Company Investment Contract Registrants, SEC 
Staff No-Action Letter (Nov. 3, 1995), at Section I.4 (discussing 
industry practice). As discussed below, we are amending the 
registration forms to permit insurers to include multiple contracts 
(or versions thereof) in a single statutory prospectus and multiple 
prospectuses in a single registration statement subject to certain 
restrictions. See infra text following note 598 (discussing the 
amended form instructions that provide a prospectus may describe 
multiple contracts that are ``essentially identical,'' while a 
registration statement may include multiple prospectuses if the 
contracts described in those prospectuses are ``substantially 
similar'').
---------------------------------------------------------------------------

    We received mixed comments regarding this aspect of the proposal. 
One commenter supported limiting the initial summary prospectus to a 
single contract currently offered for sale, but to facilitate reader 
comprehension, urged us to further limit the initial summary prospectus 
to only one class of a currently offered contract.\53\ In contrast, 
three commenters urged us to allow an initial summary prospectus to 
describe multiple variable contracts that differed in ways other than 
distribution-related fees and expenses.\54\ Their suggested approach 
would permit an initial summary prospectus to describe all contracts 
currently offered for sale, regardless of how they differed, including 
with respect to fees and expenses beyond traditional distribution-
related fees and expenses (e.g., administrative, insurance, and benefit 
charges), optional benefits, and other features. These commenters 
asserted that our proposal would require investors to review multiple 
initial summary prospectuses to choose between different variable 
contracts, and suggested that instead permitting multiple contracts to 
be described in a single document would make it easier for investors to 
choose between contracts.
---------------------------------------------------------------------------

    \53\ See AARP Comment Letter.
    \54\ See Transamerica Comment Letter; ACLI Comment Letter; CAI 
Comment Letter.
---------------------------------------------------------------------------

    We are adopting this aspect of the rule as proposed. The initial 
summary prospectus is designed to provide investors key information to 
facilitate an initial investment decision. If we were to expand its 
scope as suggested by commenters, it could result in initial summary 
prospectuses that disclose information about contracts and contract 
features and options not available to the prospective investor. We 
continue to believe that requiring an initial summary prospectus to 
describe only one contract will provide more effective disclosure by 
omitting information that is not relevant to an investor's investment 
decision.
    Commenters raised the concern that our approach could result in 
investors reviewing multiple initial summary prospectuses.\55\ We 
believe, however, that an approach that results in multiple initial 
summary prospectuses--where each is tailored to present key information 
about a single contract--will more effectively facilitate an investment 
decision than a longer or more complex document that may overwhelm 
investors with information that is not relevant to the investment 
decision.\56\ The summary prospectus regime is designed to reduce the 
volume and content of variable contract disclosures that may make it 
difficult for some investors to find and understand key information 
they need to make an investment decision. Describing multiple contracts 
in a single initial summary prospectus, as some commenters suggest, 
conflicts with this goal. Our approach also is consistent with 
requirements for mutual fund and exchange-traded fund (``ETF'') summary 
prospectuses, where summary prospectuses may only present key 
information as to a single fund.\57\
---------------------------------------------------------------------------

    \55\ Id.
    \56\ See, e.g., AARP Comment Letter (``By permitting the 
disclosures to discuss more than one contract and, indeed, even more 
than one class per contract, the information becomes unorganized, 
unfocused, and difficult to understand.'').
    \57\ For example, a mutual fund may offer a suite of equity 
funds that share the same statutory prospectus, but must provide a 
separate summary prospectus for each fund that has different 
investment objectives, strategies and risks (e.g., large-cap, mid-
cap, small-cap, emerging markets, etc.). This reduces complexity and 
minimizes the likelihood of overwhelming investors with too much 
information in a single document.
---------------------------------------------------------------------------

c. Preparation of the Initial Summary Prospectus
    The chart at the end of this section outlines the information 
required 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 summary prospectus, the new rule 
references particular disclosure items from Forms N-3, N-4, and N-6 (as 
amended).\58\ We are adopting, largely as proposed, a standardized 
presentation to require certain disclosure items that we believe will 
be most relevant to investors (such as the table that includes key 
information about the contract and the contract overview section), to 
appear at the beginning of the initial summary prospectus, followed by 
supplemental information. The required presentation could also 
facilitate comparison of different variable contracts.\59\
---------------------------------------------------------------------------

    \58\ The amendments to Forms N-3, N-4, and N-6 that facilitate 
the summary prospectus content requirements, as well as amend the 
content requirements for the statutory prospectus, are generally 
discussed in more detail in Section II.C below. However, in order to 
better explain the initial summary prospectus, we discuss new or 
amended items in the statutory prospectus, to the extent they will 
also appear in the initial summary prospectus, in this Section 
II.A.1.
    \59\ We understand that many investors purchase variable 
contracts through an intermediary and may 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 194 and accompanying text. Having a 
more standardized 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.D, we are also adopting, as 
proposed, the requirement to use Inline XBRL format for the 
submission of certain required disclosures in the variable contract 
statutory prospectus with respect to contracts currently offered to 
new investors. The structured data format will allow investors, 
Commission staff, data aggregators, financial analysts, and other 
data users to more efficiently analyze and compare these products.

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[[Page 25972]]

    Largely as proposed, we are requiring an initial summary prospectus 
to only contain the information specifically required, which must 
appear in the same order, and under the relevant corresponding 
headings, as the rule specifies.\60\ While we did not receive any 
comments regarding the proposed order of the substantive contents of 
the initial summary prospectus, in a change from the proposal, and as 
discussed below, we are reversing the order of the first two 
sections,\61\ and, for Forms N-3 and N-4 only, merging two sections 
together.\62\ These changes are designed to facilitate investor 
readership and to streamline the document.
---------------------------------------------------------------------------

    \60\ Rule 498A(b)(5). While the Commission did not propose (and 
we are not adopting) page limits for the initial summary prospectus, 
these provisions are designed to require registrants to produce a 
document that will present key information in a concise and clear 
way.
    \61\ See infra Section II.A.1.c.ii.(a) (relocating ``Important 
Information You Should Consider About the Contract'' before 
``Overview of the Variable Contract''); see also rule 498A(b)(5)(i) 
through (ii).
    \62\ See infra Section II.A.1.c.ii.(c) through (d) (merging the 
``Standard Death Benefit'' into ``Benefits Under the Contract''); 
see also rule 498A(b)(5)(iv).
---------------------------------------------------------------------------

Use of Illustrations and Examples
    While not proposed, three commenters suggested that we permit the 
use of illustrations or examples in summary prospectuses.\63\ 
Illustrations and examples are frequently presented in variable 
contract sales materials, and may be included in the statutory 
prospectus.\64\
---------------------------------------------------------------------------

    \63\ See Lincoln Comment Letter; Comment Letter of Cardozo 
School of Law Securities Arbitration Clinic (Mar. 14, 2019) 
(``Cardozo Clinic Comment Letter''); Comment Letter of Benjamin G. 
Baldwin, Jr. (Feb. 13, 2019) (``Baldwin Comment Letter'').
    \64\ General Instruction C.3.(g) to Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    We are persuaded that illustrations and examples could assist 
investors in more readily understanding potentially complex or lengthy 
narrative disclosures. Consequently, the final rule and forms permit 
the inclusion of illustrations or examples in a summary prospectus to 
the extent that they are responsive and limited to the particular 
statutory prospectus items required to be included in the summary 
prospectus.\65\ However, such illustrations and examples generally 
should not, by their nature, quantity, or manner of presentation, 
obscure or impede understanding of the information that is required to 
be included in the summary prospectus.\66\
---------------------------------------------------------------------------

    \65\ As guidance, we generally do not believe that illustrations 
or examples regarding the operation of optional benefits should be 
included in the initial summary prospectus because the summary 
prospectus disclosure requirements regarding those benefits are 
generally limited to a tabular summary of those benefits. See rule 
498A(b)(5)(iv) (providing initial summary prospectus disclosure 
requirements for ``(Other) Benefits Available Under the Contract'' 
by referencing the relevant item requirements from the particular 
registration statement forms). See also Item 11(a) of amended Form 
N-3; Item 10(a) of amended Form N-4; and Item 11(a) of amended Form 
N-6.
    \66\ See General Instruction C.3.(b) to amended Forms N-3, N-4, 
and N-6.
---------------------------------------------------------------------------

Terminology
    Commenters broadly objected to the requirement to use only the 
headings and terms specified in the proposed rule (and forms).\67\ One 
commenter stated because the industry uses a wide variety of 
terminology in contract prospectuses, marketing materials, and the 
contracts themselves, investors may be confused by receiving an initial 
summary prospectus that uses different terminology than related 
contract documents.\68\ Several commenters identified specific terms 
they believed should not be required.\69\ Another commenter asked that 
we permit registrants reasonable flexibility to use alternative terms 
that reflect the substance of the defined terms in the proposed rule, 
noting that readability should be the top priority.\70\ Commenters also 
stated that providing flexibility in terminology would allow the 
industry to simplify the complex language commonly used in variable 
product disclosures,\71\ facilitate product evolution and 
innovation,\72\ and be consistent with current practice as permitted by 
the staff.\73\ Instead of prescribing specific terminology, four 
commenters asked that we prescribe only the content of the disclosures, 
giving industry the flexibility to modify headings and terms to better 
convey certain aspects of a variable contract and make them easier to 
understand, as long as such terms are substantially similar in meaning 
to the terms used in the rule and forms and are clearly defined in the 
prospectuses in which they appear.\74\
---------------------------------------------------------------------------

    \67\ See CAI Comment Letter; Pacific Life Comment Letter; ACLI 
Comment Letter; Brighthouse Comment Letter; Jackson Comment Letter; 
CCMC Comment Letter; ACLI Comment Letter; Transamerica Comment 
Letter.
    \68\ See CAI Comment Letter.
    \69\ Several commenters objected to the terms ``death benefit,'' 
``mortality and expense risk charges,'' and ``surrender charge.'' 
See Comment Letter of Jackson National Life (Feb. 15, 2019) 
(``Jackson Comment Letter''); CCMC Comment Letter. Others did not 
want to use ``contract'' on the grounds that investors are used to 
``policy.'' See Comment Letter of Ameritas Life Insurance Corp. 
(Mar. 12, 2019) (``Ameritas Comment Letter''); ACLI Comment Letter. 
One insurer objected to ``living benefit rider'' because ``protected 
lifetime income benefit'' resonates more with investors. See Lincoln 
Comment Letter.
    \70\ See ACLI Comment Letter.
    \71\ See CAI Comment Letter; Pacific Life Comment Letter; 
Brighthouse Comment Letter; Jackson Comment Letter.
    \72\ See Brighthouse Comment Letter; Transamerica Comment 
Letter; ACLI Comment Letter; CAI Comment Letter.
    \73\ See ACLI Comment Letter.
    \74\ See CAI Comment Letter; Pacific Life Comment Letter; 
Jackson Comment Letter; Brighthouse Comment Letter.
---------------------------------------------------------------------------

    We recognize that variable contract and other issuers may use 
terminology in their disclosure documents other than that used in our 
rules and forms, and that in many instances, our rules and forms do not 
prescribe terminology.\75\ After considering comments, we are modifying 
the proposed rule and form requirements to give insurers the 
flexibility to describe their variable contracts in a manner best 
suited to their products and business practices, while still requiring 
the use of certain standardized headings in initial summary 
prospectuses to allow investors to easily compare the features of 
different products.
---------------------------------------------------------------------------

    \75\ However, in certain instances our rules and forms do 
prescribe specific terminology. See, e.g., Form CRS (generally 
requiring that investment advisers and broker-dealers use specific 
headings when responding to each item).
---------------------------------------------------------------------------

    The proposed amendments to the forms would have defined and used 
certain terminology. However, contrary to certain commenters' concerns, 
the forms, as proposed, would not have required that registrants use 
the specific terminology in the forms in preparing a registration 
statement, other than in certain legends. To respond to these 
commenters' concerns, we are adding a clarifying instruction to the 
forms that explicitly and broadly permits registrants to use alternate 
terminology in preparing registration statements pursuant to the forms' 
disclosure requirements, so long as the alternate terminology clearly 
conveys the meaning of, or provides comparable information as, the 
terms used in the forms.\76\ Notwithstanding this instruction, we are 
adding an additional instruction, which was not included in the 
proposed amendments to the forms, that a registrant must prepare the 
Key Information Table using the headings and sub-headings specified by 
the form.\77\
---------------------------------------------------------------------------

    \76\ See General Instruction C.3.(d)(ii) of Forms N-3, N-4, and 
N-6. See also infra note 598 and accompanying text.
    \77\ See General Instruction 1(a) to Item 2 of Forms N-3, N-4, 
and N-6. We discuss the Key Information Table below in Section 
II.A.1.c.ii.(a).
---------------------------------------------------------------------------

    Because the initial summary prospectus (and as discussed below, the

[[Page 25973]]

updating summary prospectus) draw from disclosures in the statutory 
prospectus, insurers will similarly have flexibility in preparing those 
documents with one exception. With respect to the initial summary 
prospectus, we are generally requiring, as proposed, that the initial 
summary prospectus use the standardized headings required by the 
rule.\78\ We believe that the use of standardized headings will provide 
a consistent framework to allow investors to more easily navigate 
through variable product summary prospectuses and also facilitate the 
ability of investors to compare information across different variable 
contract products.
---------------------------------------------------------------------------

    \78\ However, registrants are provided with limited flexibility 
as to certain bracketed terms. For example, information about buying 
a contract must be disclosed under the heading ``Buying the 
[Contract].'' Registrants could substitute ``Policy'' for the 
bracketed term ``Contract.'' See rule 498A(b)(5)(v).
---------------------------------------------------------------------------

    Commenters generally objected to the proposed use of ``surrender 
charges'' and ``death benefits'' in the initial summary prospectus 
headings.\79\ Regarding ``surrender charges,'' we believe that the term 
``withdrawal'' both sufficiently encompasses surrenders and other types 
of withdrawals and is a more intuitive term for investors, and have 
modified the heading regarding surrenders and withdrawals to no longer 
require the term ``surrender.'' \80\ We decline, however, to permit the 
use of alternate terms for ``death benefits'' in the case of initial 
summary prospectuses for variable life insurance, because we believe 
that ``death benefits'' is a more intuitive term than ``legacy 
benefits'' or other terms.\81\ Additionally, the terms ``mortality and 
expense risk charges'' and ``living benefit rider'' do not appear in 
the standardized headings required by the rule, so insurers will have 
flexibility with respect to those terms.
---------------------------------------------------------------------------

    \79\ See Jackson Comment Letter; CCMC Comment Letter.
    \80\ See rule 498A(b)(5)(vii) (requiring the heading ``Making 
Withdrawals: Accessing the Money in Your [Contract]'' when 
disclosing the information required by Item 13(a) of Form N-3, Item 
12(a) of Form N-4, or Item 12(a) of Form N-6).
     Similarly, we are modifying the sub-heading in the Key 
Information Table regarding surrenders and withdrawals to eliminate 
the proposed use of the term ``surrenders.'' See Item 2 of Forms N-
3, N-4, and N-6. We discuss the Key Information Table below in 
Section II.A.1.c.ii.(a).
    \81\ Although information about standard death benefits offered 
by variable life insurance contracts must be disclosed under the 
heading ``Standard Death Benefits,'' the disclosures provided under 
that heading could, for example, explain that ``death benefits'' are 
referred to as ``legacy benefits'' under the contract and could use 
the term ``legacy benefits'' in providing the disclosures required 
under that heading. See rule 498A(b)(5)(iii).

                               Table 2--Outline of the Initial Summary Prospectus
----------------------------------------------------------------------------------------------------------------
                                                                      Item of         Item of         Item of
              Heading in initial summary prospectus               amended Form N- amended Form N- amended Form N-
                                                                         3               4               6
----------------------------------------------------------------------------------------------------------------
Cover Page:
    Identifying Information.....................................  ..............  ..............  ..............
    Legends.....................................................  ..............  ..............  ..............
    EDGAR Contract Identifier...................................  ..............  ..............  ..............
    Table of Contents (optional)................................  ..............  ..............  ..............
Content:
    Important Information You Should Consider About the                        2               2               2
     [Contract].................................................
    Overview of the [Contract]..................................               3               3               3
    Standard Death Benefits.....................................  ..............  ..............           10(a)
    [Other] Benefits Available Under the [Contract].............           11(a)           10(a)           11(a)
    Buying the [Contract].......................................           12(a)           11(a)       9(a)-9(c)
    How Your [Contract] Can Lapse...............................  ..............  ..............     14(a)-14(c)
    Making Withdrawals: Accessing the Money in Your [Contract]..           13(a)           12(a)           12(a)
    Additional Information About Fees...........................               4               4               4
    Appendix: [Investment Options/Portfolio Companies] Available   \82\ 18 or 19              17              18
     Under the [Contract].......................................
----------------------------------------------------------------------------------------------------------------

i. Cover Page and Table of Contents
---------------------------------------------------------------------------

    \82\ Registrants on Form N-3 may omit the Appendix specified by 
Item 18 of amended Form N-3, and instead provide the more detailed 
disclosures about the investment options offered under the contract 
required by Item 19 of amended Form N-3. See infra note 788 and 
accompanying text.
---------------------------------------------------------------------------

    Identifying Information. We are adopting, largely as proposed, the 
requirement that the following information appear on the front cover 
page or the beginning of the initial summary prospectus:
     The depositor'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.\83\
---------------------------------------------------------------------------

    \83\ Rule 498A(b)(2)(i) through (iv).
---------------------------------------------------------------------------

    Several commenters suggested that instead of requiring the document 
to be identified as a ``Summary Prospectus,'' we should permit 
different titles, such as ``Key Information Document'' or ``Summary 
Information.'' \84\ A prospectus, however, is a legal term with 
specific legal implications. It is also a term that is understood in 
the marketplace. We believe it is important that investors understand 
that an initial summary prospectus is, in fact, a prospectus, and that 
it therefore contains important required regulatory disclosures. 
However, in a change from the proposal, the cover page will not be 
required to include the registrant's name. We agree with a commenter's 
suggestion that the registrant's name is of limited value to investors 
because it is largely a legal convention,\85\ and believe investors are 
more likely to be interested in the names of the depositor (or insurer) 
and the variable contract.
---------------------------------------------------------------------------

    \84\ See, e.g., NAIFA Comment Letter; Comment Letter of VIP 
Working Group (Dec. 4, 2018) (``VIP Working Group Comment Letter''); 
Comment Letter of Jack Breacher (Jan. 27, 2019) (``Breacher Comment 
Letter'').
    \85\ See VIP Working Group Comment Letter (stating that the 
separate account name ``is jargon and an accounting fiction''). In 
addition, mutual funds are not required to include the registrant's 
name on the summary prospectus cover page.
    We are making a conforming change to the cover page requirements 
for the updating summary prospectus. See infra Section II.A.2.c.i.
---------------------------------------------------------------------------

    Legends. We are requiring, largely as proposed, the cover page or 
beginning of the initial summary prospectus to include the following 
legends:

    This Summary Prospectus summarizes key features of the 
[Contract]. Before you invest, you should also review the prospectus 
for the [Contract], which contains more information about the 
[Contract's] features, benefits, and risks. You can find this 
document and other information about the [Contract] online at

[[Page 25974]]

[__]. You can also obtain this information at no cost by calling 
[__] or by sending an email request to [__].\86\
---------------------------------------------------------------------------

    \86\ The legend is 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 materials, request 
other information about the variable contract, and make investor 
inquiries. Rule 498A(b)(2)(v)(B).
    The website address must 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 requirement, documents available on the 
website address must be publicly accessible and free of charge. Rule 
498A(h)(1); see also infra Section II.A.5.
---------------------------------------------------------------------------

    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.\87\
---------------------------------------------------------------------------

    \87\ The paragraph of the legend regarding cancellation of the 
contract may be omitted if not applicable. If this paragraph is 
included in the legend, the paragraph must be presented in a manner 
reasonably calculated to draw investor attention to that paragraph. 
See infra note 95.
---------------------------------------------------------------------------

    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.\88\
---------------------------------------------------------------------------

    \88\ Rule 498A(b)(2)(v). The 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 investor 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-variable-annuities; Investor 
Bulletin: Variable Life Insurance (Oct. 30, 2018), available at 
https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-variable-life-insurance.

    These legends are designed to provide identifying information about 
the variable contract to which the initial summary prospectus relates, 
as well as certain general information applicable to all variable 
contracts.\89\ Pursuant to the requirements of new rule 30e-3,\90\ the 
initial summary prospectus may include the legend designed to alert 
investors that beginning on a specified date, shareholder reports for 
Form N-3 variable annuities and for portfolio companies available under 
Form N-4 variable annuity and Form N-6 variable life insurance 
contracts will no longer be sent by mail (unless paper copies are 
specifically requested), and will instead be posted on a website, 
subject to notification by mail of their location and availability.\91\
---------------------------------------------------------------------------

    \89\ A registrant will be able to modify the legends so long as 
the modified statements contain comparable information. Rule 
498A(b)(2)(v)(A).
    \90\ Rule 30e-3; see also Investment Company Shareholder Reports 
Release, supra note 19. This rule became effective January 1, 2019.
    \91\ Rule 498A(b)(2)(v)(E) through (F); see also rule 
498A(b)(2)(v)(B) (requiring, if applicable, cover page legend to 
include the website address required by rule 30e-3, if different 
from the website address provided for variable contract and related 
documents). The legends required by rule 30e-3 will be removed from 
variable contract registration forms on January 1, 2022.
---------------------------------------------------------------------------

    One commenter stated that the initial summary prospectus would be 
more approachable if the cover page had more white space with fewer 
legal disclaimers and suggested that we eliminate the legend urging 
investors to review the statutory prospectus before investing and 
describing how to obtain further information about the contract.\92\ We 
are retaining the legend and have streamlined it in consideration of 
this comment, but are otherwise adopting the legend largely as proposed 
because we believe that it concisely informs investors that the 
statutory prospectus is available and how to obtain it. Providing 
investors information about the statutory prospectus and where to find 
it will facilitate the layered disclosure approach we are adopting in 
this document.
---------------------------------------------------------------------------

    \92\ See WFA Comment Letter.
---------------------------------------------------------------------------

    Another commenter stated that because the free look period is one 
of the most crucial rights available to variable contract purchasers, 
investors should receive a separate, one-page disclosure describing 
this unique, time-limited revocation right.\93\ The commenter also 
suggested that we require insurers to draw more attention to free look 
disclosure by requiring it to be in a larger font size, bolded, and 
boxed.
---------------------------------------------------------------------------

    \93\ See AARP Comment Letter.
---------------------------------------------------------------------------

    We are not requiring insurers to provide a stand-alone document 
describing the free look period, but rather are requiring, as proposed, 
that the legend on the cover page or beginning of the summary 
prospectus retain all disclosures of key information in one document. 
We also understand that state laws typically mandate free look 
disclosures in the variable contract application, investor education 
materials (e.g., the NAIC Buyer's Guide), and the variable contract 
itself, and investors therefore already receive multiple notices 
regarding this unique revocation right. We agree, however, that this is 
important information that should be highlighted to investors because 
it is unique to variable contracts and time limited. We are therefore 
revising the rule to require that insurers present the ``free-look'' 
legend in a manner reasonably calculated to draw an investor's 
attention.\94\ In response to comments, the new rule also clarifies 
that this legend is required only if applicable.\95\
---------------------------------------------------------------------------

    \94\ Rule 498A(2)(v)(C).
    \95\ See rule 498A(b)(2)(v)(C); see also ACLI Comment Letter 
(stating that some types of group annuity contracts, such as those 
used to fund Section 403(b) retirement plans, are not required to 
have a free look provision under state law).
---------------------------------------------------------------------------

    Taking into account the comments urging that we streamline the 
legends where possible, we are relocating one legend and eliminating 
two others. Specifically, the Commission proposed that, if any 
information is incorporated by reference into the initial summary 
prospectus, the front cover page would include a legend with certain 
disclosures related to that information.\96\ Incorporation by reference 
is a technical legal doctrine that may not be understandable to many 
investors. To reduce the length of the legends on the cover page of the 
initial summary prospectus, we are relocating this legend to the back 
cover page or last page of the initial summary prospectus.\97\ However, 
we are not eliminating the legend because our rules on incorporation by 
reference require registrants to provide disclosure about what 
information is incorporated into a document.\98\
---------------------------------------------------------------------------

    \96\ Proposed rule 498A(b)(2)(vi)(C).
    \97\ Rule 498A(b)(3)(i).
    \98\ See, e.g., 17 CFR 230.411(e) (rule 411(e) under the 
Securities Act); 17 CFR 270.0-4(e) (rule 0-4(e) under the Investment 
Company Act).
---------------------------------------------------------------------------

    We are also eliminating the proposed legend stating ``You should 
read this Summary Prospectus carefully, particularly the section titled 
Important Information You Should Consider About the Contract.'' We 
believe that legend is no longer necessary because the section 
referenced by that legend is now the first item in the initial summary 
prospectus.\99\
---------------------------------------------------------------------------

    \99\ See text following note 121.
---------------------------------------------------------------------------

    One commenter suggested that we remove the proposed legend stating 
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, on the basis that this

[[Page 25975]]

legend was ``legalese.'' \100\ We agree that this legend may not 
communicate as effectively as the other legends and that removing it 
will streamline the cover page, potentially increasing the likelihood 
that investors will read the remaining legends. Removing the 
requirement to include that legend also treats variable contract 
summary prospectuses similarly to mutual fund summary prospectuses, 
which are permitted, but not required, to include that legend on their 
cover page.
---------------------------------------------------------------------------

    \100\ See Breacher Comment Letter.
---------------------------------------------------------------------------

    EDGAR Contract Identifier. We are adopting, as proposed, the 
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 in a type size smaller than that generally used in the 
prospectus (e.g., 8-point modern type).\101\ 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. We received no comments regarding the EDGAR contract 
identifier.
---------------------------------------------------------------------------

    \101\ Rule 498A(b)(3)(ii); see also Proposing Release, supra 
note 6, at n.87 (describing an EDGAR contract identifier).
---------------------------------------------------------------------------

    Table of Contents. Likewise, we are adopting, as proposed, the rule 
provision permitting an initial summary prospectus to include a table 
of contents.\102\ 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 initial summary prospectus 
delivered electronically.\103\ We received no comments on this aspect 
of the proposal.
---------------------------------------------------------------------------

    \102\ Rule 498A(b)(4).
    \103\ 17 CFR 230.481(c) (Rule 481(c)).
---------------------------------------------------------------------------

ii. Content of the Initial Summary Prospectus
    We are adopting, generally as proposed but with some modifications, 
specifications in the rule regarding the content and order required in 
an initial summary prospectus.\104\ An initial summary prospectus must 
contain the information required by the rule, and only that 
information, in the order specified by the rule.\105\ 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 Investment Company Act for the purposes of Section 5(b)(1) 
of the Securities Act.\106\
---------------------------------------------------------------------------

    \104\ Rule 498A(b)(5); see also Section II.A.1.c.
    \105\ Id.
    \106\ Rule 498A(b); see also infra Section II.A.4.
    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 17, at n.70.
---------------------------------------------------------------------------

Key Information Table
    The initial summary prospectus will include a table (the ``Key 
Information Table'') that will 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.\107\ Specifically, it will 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.\108\ We are adopting the 
Key Information Table substantially as proposed, with some 
modifications made in response to comments.
---------------------------------------------------------------------------

    \107\ See rule 498A(b)(5)(i); Item 2 of Forms N-3, N-4, and N-6.
    \108\ As discussed in the Proposing Release, 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 1041 (regarding investor 
complaints). Office of Investor Education and Advocacy of the U.S. 
Securities and Exchange Commission, Study Regarding Financial 
Literacy Among Investors (Aug. 2012), available at https://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf 
(``2012 Financial Literacy Study''). 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 59\1/2\; 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'').
---------------------------------------------------------------------------

    Commenters were broadly supportive of the proposed Key Information 
Table,\109\ which was identified by respondents to the Feedback Flier 
as the ``most useful'' section in the hypothetical initial summary 
prospectus that accompanied the Proposing Release. One commenter said 
the information in the Key Information Table was most relevant to 
investors, particularly if standardized to compare annuities,\110\ 
while another noted approvingly that it broke the information down in a 
simplified way.\111\
---------------------------------------------------------------------------

    \109\ See, e.g., ACLI Comment Letter; CAI Comment Letter.
    \110\ See Comment Letter of Christopher Viscomi (Dec. 4, 2018).
    \111\ See Comment Letter of Anthony Harrison (Dec. 7, 2018).
---------------------------------------------------------------------------

    Given the positive response to the Key Information Table, in a 
change from the proposal, we are relocating it so it will be the first 
substantive section of the initial summary prospectus, followed by the 
Overview of the Contract instead of the second section following 
Overview of the Contract, as proposed. We believe that investors of 
different levels of financial sophistication may benefit from receiving 
this information early in the initial summary prospectus, as it was 
designed to provide a contextual baseline to help inform investors' 
understanding of disclosure about more detailed aspects of the variable 
contract that are described later on.
    The Key Information Table includes a number of prescribed 
disclosures and is designed to complement the ``Overview'' section, 
discussed below. As proposed, we are 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 requiring, as 
proposed, 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 will be easier to read and better convey 
the importance of the information to investors.\112\ This

[[Page 25976]]

presentation may also facilitate comparisons of certain disclosure 
topics among variable contract prospectuses.
---------------------------------------------------------------------------

    \112\ As discussed in the Proposing Release, we 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, & 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 consumer-facing 
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/investor-advisory-committee-2012/iac061418-slides-by-susan-kleimann.pdf (``Kleimann 
Presentation'').
---------------------------------------------------------------------------

    We are requiring, as proposed, that a registrant provide the Key 
Information Table under the heading ``Important Information You Should 
Consider About the [Contract].'' We are not requiring the proposed 
legend that would have followed this heading, because we believe that 
legend is largely redundant with similar language on the cover page or 
beginning of the summary prospectus.\113\
---------------------------------------------------------------------------

    \113\ We proposed that the following legend would precede the 
Key Information Table: ``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.'' See also 
text following supra note 85 (discussing the legend that appears on 
the cover page or beginning of the summary prospectus).
---------------------------------------------------------------------------

    As proposed, specified headings are required for each of the five 
topic areas included in the table, and under each heading will be two 
columns. The left column lists the required disclosure line-items for 
each of the five topic areas, and the right column provides a brief 
description for each corresponding line-item, according to the 
respective instructions for each proposed line-item. Registrants will 
also provide a cross-reference to the location in the statutory 
prospectus where further information can be found for each line-
item.\114\ One commenter expressed a preference for allowing 
registrants the discretion to use a one or two column format based on 
specific formatting and design preferences.\115\ While we recognize 
there are many ways to effectively provide the required information, 
requiring all registrants to adhere to the same presentation standards 
facilitates comparability. The overall format of the Key Information 
Table is depicted below:
---------------------------------------------------------------------------

    \114\ See infra text following note 201.
    \115\ See ACLI Comment Letter (stating that ``[t]he priority 
should emphasize readability and clarity of presentation, rather 
than stipulating the number of appropriate columns.'').

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                            FEES AND EXPENSES
------------------------------------------------------------------------
Charges for Early Withdrawals..........
------------------------------------------------------------------------
Transaction Charges....................
------------------------------------------------------------------------
Ongoing Fees and Expenses (annual
 charges).
------------------------------------------------------------------------
                                  RISKS
------------------------------------------------------------------------
Risk of Loss...........................
------------------------------------------------------------------------
Not a Short-Term Investment............
------------------------------------------------------------------------
Risks Associated with Investment
 Options.
------------------------------------------------------------------------
Insurance Company Risks................
------------------------------------------------------------------------
                              RESTRICTIONS
------------------------------------------------------------------------
Investment Options.....................
------------------------------------------------------------------------
Optional Benefits......................
------------------------------------------------------------------------
                                  TAXES
------------------------------------------------------------------------
Tax Implications.......................
------------------------------------------------------------------------
                          CONFLICTS OF INTEREST
------------------------------------------------------------------------
Investment Professional Compensation...
------------------------------------------------------------------------
Exchanges..............................
------------------------------------------------------------------------

(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,\116\ that information is 
frequently presented over a span of two or more pages when a prospectus 
is printed on paper.\117\ We believe that investors may benefit from a 
shorter, more tailored discussion in the Key Information Table that is 
intended to convey how an investor's elections under the contract 
(e.g., as to classes, optional benefits, portfolio companies, etc.) 
will impact the fees and expenses he or she will experience under his 
or her contract.\118\ As discussed below, we are requiring, as 
proposed, that the initial summary prospectus also include the Fee 
Table from the statutory prospectus.\119\ This framework will allow an 
investor to determine the level of fee information that best suits his 
or her informational needs.
---------------------------------------------------------------------------

    \116\ See Item 3 of current Forms N-3, N-4, and N-6 (``Fee 
Table'').
    \117\ See VIP Working Group Comment Letter (observing that the 
Fee Tables in some statutory prospectuses ``[a]re quite long 
(pushing 7 pages) . . . [one] has a fee table with its own table of 
contents.'').
    \118\ Although the presentation of fees and expenses in the Key 
Information Table is shorter and more tailored relative to what is 
included in the Fee Table, many of the calculations and instructions 
in the Key Information Table directly reference parallel provisions 
in the Fee Table. This should increase efficiency and comparability 
between the disclosures, and also help ensure that updates and 
amendments to the calculations and instructions in the Fee Table are 
appropriately reflected in the Key Information Table.
    \119\ See infra Section II.A.1.c.ii.(h).
---------------------------------------------------------------------------

    We received mixed comments regarding the proposed Key Information

[[Page 25977]]

fee tables. One commenter approved of the summary fee tables, stating 
``they are well[hyphen]conceived.'' \120\ Two commenters opposed 
presenting fee information in the Key Information Table (and certain 
other sections of the initial summary prospectus) as repetitive and 
potentially confusing to investors, and instead recommended that all 
fee and expense information be disclosed in a single location in the 
initial summary prospectus (i.e., the full Fee Table, described in the 
section titled ``Additional Information About Fees.'').\121\ One 
commenter stated that numerical fee information should not be in the 
Key Information Table because the investor would not have sufficient 
context to understand specific dollar figures or percentages at that 
point of the document, and that a narrative explanation of the types of 
fees and expenses associated with the investment, accompanied by a 
cross-reference to the Fee Table, would be most useful to 
investors.\122\
---------------------------------------------------------------------------

    \120\ See VIP Working Group Comment Letter. In addition, almost 
all of the respondents to our Feedback Flier agreed that the 
examples reflecting how much an investor would pay for a variable 
annuity, including upfront fees and future costs were clear.
    \121\ See CAI Comment Letter; Lincoln Comment Letter; see also 
CFA Comment Letter (expressing skepticism that most investors would 
be able to pull together disparate information about the contract 
features and fees that is scattered throughout the initial summary 
prospectus to make an informed choice).
    \122\ See CAI Comment Letter.
---------------------------------------------------------------------------

    While we acknowledge that some fee information presented in the Key 
Information Table may be duplicative of information in the Fee Table, 
we believe that this is consistent with our general layered disclosure 
approach. Investors can receive preliminary fee-related information in 
the Key Information Table, and more detailed information in the Fee 
Table later in the document. Moreover, we are not persuaded, as one 
commenter suggests, that providing only a narrative description of the 
charges, without corresponding numerical costs, would as effectively 
communicate to new investors the costs associated with a variable 
product as a presentation that includes numeric information. 
Accordingly, we are adopting, as proposed, the requirement to include 
specific dollar figures and percentages in the Key Information Table.
    Charges for Early Withdrawals. It is important that investors 
understand that if they make a withdrawal in the first several years 
following an investment in 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.\123\ 
For that reason, the Commission proposed that the Key Information Table 
require information intended to alert investors about the potential 
impact of surrender charges imposed on early withdrawals.
---------------------------------------------------------------------------

    \123\ The 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.
---------------------------------------------------------------------------

    Comments were mixed on this issue. Two commenters urged us to de-
emphasize the surrender charges in the summary prospectus, suggesting 
that their prominence overemphasizes the risk they present.\124\ 
However, another commenter stressed the need for prominent disclosure 
of surrender charges, stating that older investors might not understand 
that long surrender periods may limit their ability to access money in 
their account.\125\ Other commenters requested more flexibility in the 
terminology used for this heading, and objected to the use of the term 
``surrender charges.'' \126\
---------------------------------------------------------------------------

    \124\ See VIP Working Group Comment Letter; NAIFA Comment 
Letter.
    \125\ See AARP Comment Letter.
    \126\ See supra note 79.
---------------------------------------------------------------------------

    Given the consequences of misunderstanding the impact of a 
surrender charge for early withdrawals, we are requiring, largely as 
proposed, the first line-item in the table, ``Charges for Early 
Withdrawals,'' to state 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 will 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.\127\ In response to commenters' concerns regarding the 
term ``surrender charges,'' we believe that the term ``withdrawal'' 
both sufficiently encompasses surrenders and other types of withdrawals 
and is a more intuitive term for investors, and have modified the 
heading accordingly.
---------------------------------------------------------------------------

    \127\ See rule 498A(b)(5)(i); see also Instruction 2(a) to Item 
2 of Forms N-3, N-4, and N-6. The maximum surrender charge must be 
expressed as a percentage of the purchase payment or premium or the 
amount surrendered, whichever is applicable.
---------------------------------------------------------------------------

    In addition, we are requiring, as proposed, 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.'').\128\ The Commission proposed to use $100,000 
as the basis for the surrender charge example because the value of the 
average variable annuity contract exceeds $100,000.\129\ For purposes 
of the Key Information Table, we believe that 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, as reflected elsewhere in the 
document.\130\
---------------------------------------------------------------------------

    \128\ Id.
    \129\ See also IRI Fact Book, supra note 7.
    \130\ Registrants will continue to disclose the surrender fee as 
a percentage in the ``Transaction Expenses'' section of the Fee 
Table. See Item 4 of amended Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    One commenter objected to a surrender charge example in the Key 
Information Table based on an assumed investment of $100,000,\131\ 
while several others generally opposed using $100,000 as the basis for 
any fee examples in the initial summary prospectus, preferring the 
current $10,000 assumed investment level.\132\ As we noted in the 
Proposing Release, $100,000 more closely approximates the current 
average value of a variable annuity, and therefore we continue to 
believe that figure is more likely to result in cost projections that 
align with actual investor expectations and experience.\133\ For this 
reason, and as discussed in more detail below, we are requiring 
$100,000 as the baseline investment assumption for all fee examples in 
a variable contract prospectus, including the Key Information Table's 
surrender charge example.\134\
---------------------------------------------------------------------------

    \131\ See ACLI Comment Letter (``The assumed $100,000 average 
for variable contracts overstates the impact of surrender charges 
for contracts that are below that average.'').
    \132\ See CAI Comment Letter; Lincoln Comment Letter; 
Transamerica Comment Letter; ACLI Comment Letter.
    \133\ See Proposing Release, supra note 6, at n.9.
    \134\ See infra Section II.C.2.d.iv; see also Item 4 of amended 
Forms N-3, N-4, and N-6 (requiring registrants to reflect the 
consequence of any surrender fee in the ``Example'' to the Fee 
Table, which, based on a $100,000 assumed investment, shows in 
dollar figures how much an investor would pay if the contract were 
surrendered after 1 year, 3 years, 5 years, and 10 years).
---------------------------------------------------------------------------

    Transaction Charges. As proposed, the second line-item in the 
``Fees and Expenses'' section of the table, ``Transaction Charges,'' 
requires a statement explaining that in addition to surrender charges, 
the investor may also be charged for other transactions, accompanied by 
a brief description of the types of such charges (e.g., front-end 
loads, charges for transferring cash value between investment options,

[[Page 25978]]

charges for wire transfers, etc.).\135\ This requirement is designed to 
provide a simple narrative description to alert investors that 
surrender charges are not the only transaction charges they could pay. 
We received no comments regarding this line-item.
---------------------------------------------------------------------------

    \135\ See rule 498A(b)(5)(i); see also Instruction 2(b) to Item 
2 of Forms N-3, N-4, and N-6. Although surrender charges are a type 
of transaction charge, we are requiring surrender charges be 
separately disclosed in the Key Information Table to highlight to 
investors the significant costs associated with early withdrawals.
---------------------------------------------------------------------------

    Ongoing Fees and Expenses. We are adopting, largely as proposed, 
the third line-item in the ``Fees and Expenses'' section of the Key 
Information Table, ``Ongoing Fees and Expenses (annual expenses),'' 
which is designed to alert investors that they also will bear recurring 
fees on an annual basis.\136\ In Forms N-3 and N-4, the disclosure in 
this line-item will begin with the legend: ``The table below describes 
the fees and expenses that you may pay each year, depending on the 
options you choose.'' \137\
---------------------------------------------------------------------------

    \136\ See rule 498A(b)(5)(i); see also Instruction 2(c) to Item 
2 of amended Forms N-3, N-4, and N-6.
    \137\ See rule 498A(b)(5)(i); see also Instruction 2(c)(i)(A) to 
Item 2 of amended Forms N-3 and N-4.
---------------------------------------------------------------------------

    Largely as proposed, Form N-4 registrants will disclose, in a 
tabular presentation in the order specified, the minimum and maximum 
annual fees for: (1) Base contract expenses;\138\ (2) investment 
options (e.g., portfolio company fees and expenses); \139\ and (3) 
optional benefits available for an additional charge (for a single 
optional benefit, if elected).\140\ Since Form N-3 registrants have a 
single-tier structure and consolidate fees and expenses for investment 
options into base contract expenses, they will disclose the same 
information as Form N-4 registrants, except fees for base contract 
expenses and investment options will be consolidated into a single 
entry labeled ``annual contract expenses.'' \141\
---------------------------------------------------------------------------

    \138\ The Commission did not propose to require and we are not 
adopting minimum and maximum annual fees for base contract expenses 
for Form N-6 registrants 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 may be 
confusing to investors.
    \139\ See rule 498A(b)(5)(i); see also Instruction 2(c)(i)(D) to 
Item 2 of amended Form N-4. Registrants will 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 17 (Portfolio 
Companies Available Under the Contract) of Form N-4.
    \140\ The disclosure will 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 percentage of net asset value). See rule 
498A(b)(5)(i); see also Instruction 2(c)(i)(C) to Item 3 of amended 
Form N-4 (percentage of net asset value).
    In a change from the proposal, we are revising the line-item 
heading for optional benefits available for an additional charge to 
clarify that the minimum and maximum fees disclosed for that line-
item relate to a single optional benefit, if elected.
    \141\ See rule 498A(b)(5)(i); see also Instruction 2(c)(i)(B) to 
Item 2 of amended Form N-3. In a conforming change, we are revising 
the instructions to this item to clarify that optional benefits 
charges should not be included in the calculation of annual contract 
expenses, because optional benefits charges are separately displayed 
in a line-item titled ``optional benefits available for an 
additional charge (if elected).'' See Instruction 2(c)(i)(D) to Item 
2 of amended Form N-3.
---------------------------------------------------------------------------

    The minimum annual fee column will show the lowest fee for each 
annual fee category (i.e., the least expensive contract class, the 
lowest annual portfolio company expense or management fee, and the 
single least expensive optional benefit that is available for an 
additional charge).\142\ The maximum annual fee column will show the 
highest fees for these categories (and will reflect the single most 
expensive optional benefit). Additionally, a legend preceding the 
minimum and maximum annual fee table will refer investors to their 
contract specifications page for information about the specific fees 
they would pay each year based on the options elected.\143\
---------------------------------------------------------------------------

    \142\ See rule 498A(b)(5)(i); see also Instruction 2(c)(i) to 
Item 2 of amended Form N-3; Instruction 2(c)(i) to Item 2 of amended 
Form N-4. In a conforming change, we are revising this instruction 
in amended Form N-3 to mirror the parallel instruction in amended 
Form N-4 in order to identify the specific categories for which 
lowest and highest fees should be shown, as opposed to simply 
stating that the lowest and highest contract fees should be shown.
    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 some 
registrants do not charge extra for certain optional benefits (e.g., 
portfolio rebalancing and dollar-cost averaging), we believe 
investors should be alerted to the costs associated with optional 
benefits that are available for an additional charge. See 
Instruction 2(c)(i)(B) to Item 2 of amended Form N-3 (stating that 
disclosures should be provided for optional benefits available for 
an additional charge); Instruction 2(c)(i)(B) to Item 2 of amended 
Form N-4 (same). Accordingly, the disclosure should reflect the 
minimum cost associated with an optional benefit that has a fee. If 
the registrant offers any optional benefits for an additional 
charge, the minimum fee should not be zero. For example, if the 
registrant offers three optional benefits, with additional charges 
of 0%, 0.50%, and 1.50%, then the minimum and maximum annual fees 
reflected in the table would be 0.50% and 1.50%.
    \143\ Instruction 2(c)(i)(A) to Item 2 of amended Forms N-3 and 
N-4. Many states require a contract specifications page that 
contains information about the purchase payments, 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.
---------------------------------------------------------------------------

    This presentation will 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.\144\ 
For example, like the ``Ongoing Fees and Expenses'' line-item in the 
Key Information Table, the Fee Table will also include information 
about the contract's base contract fee, portfolio company fees and 
expenses, and optional benefits.\145\ However, the Fee Table will 
include a separate response for each contract class.\146\ In order to 
condense this information, the parallel disclosure in the Key 
Information Table will be presented as fee ranges.
---------------------------------------------------------------------------

    \144\ This 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 112.
    \145\ See Item 4 of amended Forms N-3 and N-4.
    \146\ See Instruction 7 to Item 4 of amended Forms N-3 and N-4.
---------------------------------------------------------------------------

    As described in the Proposing Release, we also designed an example 
in Forms N-3 and N-4 to provide a high-level cost illustration that 
will 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 are requiring a two-column tabular presentation in the order 
specified reflecting the lowest and highest annual cost estimates for 
the variable contract.\147\ The following legend will 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 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.'' \148\
---------------------------------------------------------------------------

    \147\ See rule 498A(b)(5)(i); see also Instruction 2(c)(ii) to 
Item 3 of Forms N-3 and N-4.
    \148\ See rule 498A(b)(5)(i); see also Instruction 2(c)(ii)(A) 
to Item 3 of Forms N-3 and N-4.
---------------------------------------------------------------------------

    As proposed, the lowest and highest annual dollar costs in this 
table are based on certain prescribed assumptions (i.e., a $100,000 
investment) with no additional contributions, transfers, or 
withdrawals, no sales charges, and a 5% annual return over a 
hypothetical 10-year period.\149\ The lowest annual cost

[[Page 25979]]

estimate is based on the least expensive combination of contract 
classes and portfolio company charges or management fees, and excludes 
optional benefits. The highest annual cost estimate reflects the most 
expensive combination of contract classes, portfolio company charges or 
management fees, and optional benefits.\150\ Excluding optional 
benefits from the lowest annual cost estimate, and including them in 
the highest annual cost estimate, is intended to illustrate the cost 
impact of adding optional benefits to a contract.\151\ With this 
information, the investor will be able to roughly estimate further 
costs,\152\ and may be able to obtain additional information about 
costs in the statutory prospectus if needed.\153\
---------------------------------------------------------------------------

    \149\ See rule 498A(b)(5)(i); see also Instruction 
2(c)(ii)(C)(a) to 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 are basing 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 Item 3 of Forms N-3 and N-4.
    \150\ See rule 498A(b)(5)(i); see also Instruction 
2(c)(ii)(C)(a) to Item 2 of amended Forms N-3 and N-4. In a 
conforming change, we are revising this instruction in amended Form 
N-3 to mirror the parallel instruction in amended Form N-4 in order 
to identify the specific categories for which lowest and highest 
fees should be shown, as opposed to simply stating that the lowest 
and highest contract fees should be shown. Instruction 
2(c)(ii)(C)(e) to Item 3 of amended Forms N-3 and N-4 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.
    \151\ While the example in the Fee Table would include a similar 
cost estimate, it would reflect the most expensive combination of 
annual portfolio company 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 Item 
4 of amended Forms N-3 and N-4.
    \152\ For 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.
    \153\ We 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.
---------------------------------------------------------------------------

    Despite advocating for the removal of numerical fee information in 
other sections of the Key Information Table, one commenter stated that 
``[a]n investor would benefit from the proposed annual cost estimates, 
which are easy for an investor to understand and would not be repeated 
elsewhere in the [Initial Summary Prospectus]'' and supported including 
the cost estimates in this Key Information Table fee table.\154\ We 
received two comments reiterating concerns with the $100,000 assumed 
investment amount,\155\ but as previously discussed, we are requiring 
this amount for all examples in variable contract summary and statutory 
prospectuses because $100,000 more closely approximates the current 
average value of a variable annuity, and therefore we continue to 
believe that figure is more likely to result in cost projections that 
align with actual investor expectations and experience.\156\ We 
received no other comments on the cost estimate in the Key Information 
Table, and are adopting it as proposed.
---------------------------------------------------------------------------

    \154\ See CAI Comment Letter.
    \155\ See CAI Comment Letter; ACLI Comment Letter.
    \156\ See supra note 133 and accompanying text.
---------------------------------------------------------------------------

    For Form N-6, the Commission proposed a variation of the ``Ongoing 
Fees and Expenses'' section of the Key Information Table that was 
proposed for Forms N-3 and N-4. Because the costs associated with 
variable life insurance contracts are largely based on the personal 
characteristics of the insured (e.g., age, sex, health history), the 
Commission did not propose to require specific numeric information 
about the fees covering the cost of insurance and optional 
benefits,\157\ but instead proposed to require this section of the Key 
Information Table to include: (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.\158\ One commenter who addressed this aspect of 
the proposal supported our approach,\159\ and we are adopting this 
requirement as proposed.
---------------------------------------------------------------------------

    \157\ In addition, maximum expenses for a variable life 
insurance contract could potentially exceed 100% of contract value 
based on the underwriting of the variable life insurance contract, 
which could potentially confuse investors.
    \158\ Instruction 2(c) to proposed Item 3 of Form N-6.
    \159\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    Fund Facilitation Fees. Two commenters asked how fund facilitation 
fees would be presented for purposes of the ``Ongoing Fees and 
Expenses'' section of the Key Information Table.\160\ Currently, 
although our registration forms do not specifically reference fund 
facilitation fees, insurers that charge the fees disclose them in the 
prospectus. In our staff's experience, however, such practices 
vary.\161\
---------------------------------------------------------------------------

    \160\ See VIP Working Group Comment Letter; Comment Letter of 
Lisa LeRoy (Nov. 9, 2018). We understand that some contracts 
registered on Forms N-4 and N-6 charge a fee, often referred to as 
``fund facilitation fees,'' to make portfolio companies available as 
investment options under the contract. This fee varies solely on the 
basis of the portfolio company selected, and offsets the lack of 
distribution fees provided by certain low or no-cost portfolio 
companies, or provides revenue sharing from portfolio companies that 
wish to be included in the investment options under the variable 
contract. Because registrants on Form N-3 have a single tier 
structure and do not offer third-party portfolio companies as 
investment options, registrants on Form N-3 do not charge fund 
facilitation fees.
    \161\ As reflected by recent registration statement filings, 
insurers reflect fund facilitation fees in a number of ways, 
including as a separate account expense, as optional expenses, or 
under their own expense heading. Insurers typically include fund 
facilitation fees when calculating the Example to the Fee Table 
(some provide explanation in the footnotes) and the accumulation 
unit value tables. Insurers may also describe fund facilitation fees 
in the general description of the contract.
---------------------------------------------------------------------------

    To ensure that registrants disclose these fees in a consistent 
manner, in a change from the proposal, the final rules and forms 
include provisions in the registration forms covering such fees. First, 
consistent with our understanding of these fees, the forms define 
``platform charge'' as any fee charged by the registrant to make a 
portfolio company available as an investment option under the contract, 
and that varies solely on the basis of the portfolio company 
selected.\162\ To allow investors to see the lowest and highest charges 
associated with the range of available portfolio company options, we 
are modifying the proposed instructions to the Key Information Table to 
require the minimum (or maximum, if applicable) portfolio company 
expense ratio reflected in the table to include any platform fee 
charges to invest in that option.\163\ The final rule and forms also 
require certain additional disclosures regarding platform charges in 
the Fee Table and in the portfolio company/investment option Appendix 
as described below.\164\
---------------------------------------------------------------------------

    \162\ See General Instruction A of amended Forms N-4 and N-6.
    \163\ See rule new 498A(b)(5)(i); see also Instruction 
2(c)(i)(E) to Item 2 of amended Form N-4; Instruction 2(c)(i)(E) to 
Item 2 of amended Form N-6. Because we understand that Form N-3 
registrants do not charge fund facilitation fees, we are not 
including this instruction in Form N-3.
    \164\ See, e.g., infra notes 300 (discussing platform charges in 
the context of the portfolio company/investment option Appendix) and 
661 (discussing platform charges in the context of the Fee Table).
---------------------------------------------------------------------------

(ii) Risks
    As proposed, the Key Information Table includes 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 more-concise overview presentation of contract risks 
is better suited for the Key

[[Page 25980]]

Information Table in light of the goals of the summary prospectus. Like 
the summary of fee and expense information that will appear in the 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 will include four line-items under the 
heading ``Risks,'' each of which includes 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.\165\ Each of these line-items 
will include succinct descriptions of the respective risk.
---------------------------------------------------------------------------

    \165\ See rule 498A(b)(5)(ii); see also Instruction 3 to Item 3 
of amended Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    The first line-item is intended to convey that although variable 
contracts have elements of insurance, unlike most traditional forms of 
insurance, these products are subject to the risk of loss.\166\ 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.
---------------------------------------------------------------------------

    \166\ See rule 498A(b)(5)(ii); see also Instruction 3(a) to Item 
3 of amended Forms N-3, N-4, and N-6 (``State that an investor can 
lose money by investing in the Contract.'').
---------------------------------------------------------------------------

    One commenter thought the ``risk of loss'' disclosure might be 
confusing because variable contracts should be held for the long term 
and that it would be more appropriate to state that the contract may be 
subject to market fluctuations or risks.\167\ Another commenter stated 
that the disclosure should include the fact that high fees increase the 
risk of loss.\168\ While risk of loss manifests in many different ways, 
we believe the proposed language serves its intended purpose of putting 
investors on notice that they can lose money by investing in the 
contract, and therefore we are adopting the requirement as proposed.
---------------------------------------------------------------------------

    \167\ See ACLI Comment Letter.
    \168\ See AARP Comment Letter.
---------------------------------------------------------------------------

    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.\169\ 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).\170\ We 
received no comments on these line-items and are adopting them largely 
as proposed, although we have added a reference related to general or 
``fixed account'' investment options to clarify for investors who might 
not understand that fixed account investment options have their own 
unique risks (such as credit risk).
---------------------------------------------------------------------------

    \169\ See rule 498A(b)(5)(ii); see also Instruction 3(b) to Item 
2 of amended Forms N-3, N-4, and N-6 (``State that a Contract is not 
a short-term investment and is not appropriate for an investor who 
needs ready access to cash, accompanied by a brief explanation.'').
    \170\ See rule 498A(b)(5)(ii); see also Instruction 3(c) to Item 
2 of amended 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), that each investment option (including any fixed account 
investment option) will have its own unique risks, and that the 
investor should review these investment options 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.
---------------------------------------------------------------------------

    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 
solvency of the insurance company. One commenter noted that this line-
item is especially important because variable annuity products bear 
liquidity and single entity credit risk of the insurance company.\171\ 
We agree and are adopting this line-item largely as proposed, but have 
added a reference to obligations related to general or ``fixed 
account'' investment options to clarify this point for investors who 
might not understand that any fixed account investment options may 
still be subject to the insurer's solvency and claims-paying 
ability.\172\
---------------------------------------------------------------------------

    \171\ See Comment Letter of Chris Tobe (Nov. 1, 2018).
    \172\ See rule 498A(b)(5)(ii); see also Instruction 3(d) to Item 
2 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 (including 
under any fixed account investment options), guarantees, or benefits 
are subject to the claims-paying ability of the Depositor.'').
---------------------------------------------------------------------------

    As part of these disclosures, the registrant is required to state 
that additional information about the insurance company, including, if 
applicable, its financial strength ratings, may be obtained upon 
request, and indicate how such requests can be made (e.g., via toll-
free telephone number).\173\ In lieu of providing the portion of this 
statement regarding the availability of the insurance company's 
financial strength ratings, a registrant could include the insurance 
company's financial strength rating(s).\174\ One commenter suggested 
requiring a brief description of the insurer that includes the 
identification of the entity that is responsible for the insurance 
obligations under the contract.\175\ Although that and other related 
information can be helpful to investors, and is required to be 
disclosed in variable contract statutory prospectuses, we do not 
believe that this line-item in the Key Information Table is the 
appropriate location for such disclosures.\176\ As discussed above, the 
risks section of the Key Information Table is intended to provide 
succinct descriptions of certain key risks, as opposed to providing 
general factual information that is redundant with disclosures provided 
elsewhere in the prospectus and the registration statement.
---------------------------------------------------------------------------

    \173\ See rule 498A(b)(5)(ii); see also Instruction 3(d) to Item 
2 of amended Forms N-3, N-4, and N-6 (e.g., from Form N-4, ``Further 
state that more information about the Depositor, including if 
applicable its financial strength ratings, is available upon 
request, and indicate how such requests can be made (e.g., via toll-
free telephone number)''). See also Item 1(b)(1) of amended Form N-
3, amended Form N-4, and amended Form N-6 (requiring the back cover 
page of the statutory prospectus to include a toll-free (or collect) 
telephone number for investor inquiries); rule 498A(b)(2)(v)(B) 
(requiring the front cover page of the initial summary prospectus to 
include a toll-free telephone number and email address for investor 
inquiries).
    \174\ See Instruction to Instruction 3(d) to Item 2 of amended 
Forms N-3, N-4, and N-6.
    \175\ See VIP Working Group Comment Letter.
    \176\ See, e.g., Item 6 of amended Form N-4 (``General 
Description of Registrant, Depositor, and Portfolio Companies''); 
Item 26(g) of amended Form N-4 (``Reinsurance Contracts'').
---------------------------------------------------------------------------

    A fifth line-item, which will 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).\177\ For example, a 
variable life insurance contract may

[[Page 25981]]

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. We received no comments on this 
line-item and are adopting it as proposed.
---------------------------------------------------------------------------

    \177\ See rule 498A(b)(5)(i); see also Instruction 3(e) to Item 
32 of amended 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.'').
---------------------------------------------------------------------------

    Some commenters identified other risks relevant to certain subsets 
of investors and contracts and suggested those risks be added to the 
Key Information Table.\178\ We decline to revise the Key Information 
Table to include those additional risks because the required 
disclosures in the Key Information Table are intended to identify key 
risks that are common to all variable insurance contracts, and we do 
not believe that any of the suggested additional risks are necessarily 
common across all variable insurance contracts. As discussed further 
below, we are also adopting, as proposed, a new requirement in Forms N-
3 and N-4 that, like the current parallel requirement in Form N-6, 
requires the registrant to summarize the principal risks of purchasing 
a contract in a consolidated risk section within the statutory 
prospectus.\179\ Registrants have the flexibility to discuss any 
principal risks when responding to this requirement, including 
principal risks relevant to specific subsets of investors and 
contracts.
---------------------------------------------------------------------------

    \178\ See Comment Letter of Jill Lydos (Jan. 2, 2019) (stating 
that other important risks are not included in the initial summary 
prospectus, such as the risk of divorce affecting insurance benefits 
in a joint contract and the risk that, for an investor in a 
qualified contract with a withdrawal benefit, the withdrawal amount 
may not be sufficient to cover the required minimum distributions); 
see also Breacher Comment Letter.
    \179\ See rule 498A(b)(5)(i); see also Instruction 1(c) to Item 
2; Item 5 of amended 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.
---------------------------------------------------------------------------

(iii) Restrictions
    As proposed, the Key Information Table requires 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 designed this section of 
the table to include separate line-items for each of these topics under 
the heading ``Restrictions.'' \180\ 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.
---------------------------------------------------------------------------

    \180\ See rule 498A(b)(5)(i); see also Instruction 4 to Item 2 
of amended Forms N-3, N-4, and N-6. We recognize that there may be 
overlap between the line-items for ``Investments'' and ``Optional 
Benefits,'' since many optional benefits limit the investments 
available to investors.
---------------------------------------------------------------------------

    The ``Investments'' line-item requires registrants to disclose 
whether there are any restrictions that may limit the investments 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.\181\ The ``Optional Benefits'' line-item requires 
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.\182\ We 
included 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.
---------------------------------------------------------------------------

    \181\ See rule 498A(b)(5)(i); see also Instruction 4(a) to Item 
2 of amended Forms N-3, N-4, and N-6 (``State whether there are any 
restrictions that may limit the investments that an investor 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.'').
    As a conforming change, we are changing the name of this line-
item from ``Investment Options'' as proposed in Forms N-4 and N-6 to 
``Investments'' to match the name of this line-item in amended Form 
N-3. See Item 2 of amended Forms N-3, N-4, and N-6.
    \182\ See rule 498A(b)(5)(ii); see also Instruction 4(b) to Item 
2 of amended 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 that exceed limits 
specified by the terms of an optional benefit may affect the 
availability of the benefits by reducing the benefit by an amount 
greater than the value withdrawn, and/or could terminate the 
benefit.''). In a change from the proposal, registrants must state 
that this restriction or limitation may be triggered when 
withdrawals exceed limits specified by the terms of an optional 
benefit, which we believe will help investors better understand the 
circumstances under which this may occur.
---------------------------------------------------------------------------

    One commenter recommended placing greater emphasis on the 
investment restrictions associated with portfolio company options by 
renaming this section of the Key Investment Table ``Investment 
Restrictions,'' which would focus solely on benefit-related investment 
restrictions and the impact of not complying with such investment 
restrictions (including contract termination), and requiring all 
disclosure regarding restrictions or limitations related to optional 
benefits to be described in other sections of the initial summary 
prospectus.\183\
---------------------------------------------------------------------------

    \183\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting the Restrictions line-items in the Key Information 
Table as proposed. As explained in the Proposing Release, we chose not 
to require a description of the specific restrictions and limitations 
associated with each of the available investment options and optional 
benefits because doing so would likely add significant length to the 
table, and such information will be provided in other parts of the 
initial summary prospectus, as well as the statutory prospectus.\184\ 
Requiring a short description of these restrictions or limitations in 
the Key Information Table will alert investors of their existence. 
Investors looking for detailed descriptions of each such restriction or 
limitation may then review the ``[Other]'' Benefits Available Under the 
Contract'' section. Finally, we decline to place greater emphasis on 
investment related restrictions in the Restrictions line-item, such as 
by renaming it ``Investment Restrictions,'' as this section is intended 
to cover all types of limitations or restrictions, including any non-
investment related limitations or restrictions.
---------------------------------------------------------------------------

    \184\ See, e.g., rule 498A(b)(5)(iv), Item 12(a) of amended Form 
N-3, and Item 11(a) of amended 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, will be required to 
include a brief description of restrictions/limitations associated 
with each benefit); see also rule 498A(b)(5)(ix), Item 19 of amended 
Form N-3, and Item 18 of amended 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 will be required to 
include a separate table indicating which portfolio companies are 
available under each of the benefits offered under the contract).
---------------------------------------------------------------------------

(iv) Taxes
    Because variable contracts are subject to different tax rules than 
other investment products, with both tax advantages and potential tax 
impacts in certain circumstances, we are requiring that the Key 
Information Table include tax-related disclosures. The ``Tax 
Implications'' line-item of the table, which will appear under the 
heading ``Taxes,'' requires 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

[[Page 25982]]

contract.\185\ A registrant must also 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.\186\
---------------------------------------------------------------------------

    \185\ See rule 498A(b)(5)(i); see also Instruction 5 to Item 2 
of amended Forms N-3, N-4, and N-6.
    \186\ Id.
---------------------------------------------------------------------------

    One commenter stated that the tax consequences of purchasing a 
variable contract should be explained, and provided a list of six 
examples to include in the Key Information Table.\187\ Another 
recommended adding disclosure regarding required minimum distributions 
for group contracts.\188\
---------------------------------------------------------------------------

    \187\ See AARP Comment Letter (recommending disclosure that, 
among other things, purchasing an annuity in an IRA in order to 
defer income is unnecessary since the IRA already is tax-deferred; 
funding an annuity with tax-deferred dollars gives the investor no 
additional tax benefits; and funding an annuity with after-tax money 
provides that all future gains are tax-deferred, but any gains are 
taxed at a higher ordinary income tax rate than capital gains 
rates).
    \188\ See Breacher Comment Letter.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, the tax disclosure in the 
Key Information Table is meant to alert investors to tax implications 
of their investment in a location using a presentation we believe 
investors are most likely to see and understand. While we agree that 
additional tax information could provide context for investors, it 
would also add length to what is intended to be a brief and targeted 
description in a summary document. Moreover, similar to the other line-
items in the Key Information Table, additional detail about the tax 
implications of an investment in a variable contract will also be 
available in the statutory prospectus.\189\ Finally, the tax disclosure 
is meant to include tax considerations that are generally applicable 
across all variable contracts, rather than a discussion of all tax 
considerations that may be relevant to a particular contract or 
investor. For these reasons we decline to add to the list of tax 
disclosures in the Key Information Table, and are adopting this 
requirement as proposed.
---------------------------------------------------------------------------

    \189\ See, e.g., Item 15 of amended Form N-3, Item 14 of amended 
Form N-4, and Item 15 of amended Form and N-6.
---------------------------------------------------------------------------

(v) Conflicts of Interest
    As proposed, the Key Information Table must include, if 
applicable,\190\ 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 requires registrants to disclose, 
if applicable, that an investment professional may be paid for selling 
the contract to investors.\191\ A registrant must describe the basis 
upon which such compensation is typically paid (e.g., commissions, 
revenue sharing, compensation from affiliates and third parties). A 
registrant providing the required disclosure also must 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). This requirement 
reflects analogous disclosure that appears in mutual fund summary 
prospectuses \192\ 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.
---------------------------------------------------------------------------

    \190\ A 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 Item 2 of amended Forms N-3, N-4, 
and N-6.
    \191\ See rule 498A(b)(5)(i); see also Instruction 6(a) to Item 
2 of amended Forms N-3, N-4, and N-6.
    \192\ See 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 broker-dealer or other intermediary 
and your salesperson to recommend the fund over another investment).
---------------------------------------------------------------------------

    The ``Exchanges'' line-item requires 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.\193\ A registrant must further 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. When a contract owner purchases a new annuity 
contract to replace an existing one, the new contract is referred to as 
a replacement contract.\194\ 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.
---------------------------------------------------------------------------

    \193\ See rule 498A(b)(5)(i); see also Instruction 6(b) to Item 
2 of amended Forms N-3, N-4, and N-6.
    \194\ Replacement contracts usually occur in connection with a 
tax-free exchange of non-qualified 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.
---------------------------------------------------------------------------

    Several commenters sought to expand the scope of the conflicts of 
interest disclosure,\195\ while others asked us to narrow it.\196\ We 
are adopting this line-item as proposed. As noted above, the variable 
contract summary prospectus conflict of interest disclosures were 
modeled on the parallel requirement for mutual fund summary 
prospectuses. Based on our experience with the mutual fund summary 
prospectus regime we believe the required disclosure strikes the right 
balance of alerting investors to certain conflicts in a summary 
document, while accommodating additional detail that may be described 
in the statutory prospectus.
---------------------------------------------------------------------------

    \195\ See CAI Comment Letter (asking that insurers be permitted 
to disclose other specific conflicts of interest that may be 
applicable to their products or services); Cardozo Clinic Comment 
Letter (recommending that conflicts of interest be removed from the 
Key Information Table and included in a separate section immediately 
following Key Information Table); AARP Comment Letter (recommending 
a requirement to disclose whether the person selling the variable 
contract is acting in the best interest of the investor.).
    \196\ See ACLI Comment Letter (stating that because investment 
professional fees are not traditionally part of the contract, 
disclosure of those types of fees should not be required).
---------------------------------------------------------------------------

(vi) General Instructions
    In addition to the proposed instructions specific to each line-item 
in the Key Information Table, we are adopting a set of general 
instructions to the table. As proposed, to streamline the disclosure 
and encourage registrants to use plain-English, investor-friendly 
principles when drafting the disclosures, the general instructions 
require registrants to disclose the required information in the tabular 
presentation reflected in the form, in the order specified.\197\ 
However, registrants are permitted to exclude any disclosures that are 
not applicable or modify any of the statements required to appear in 
the table so long as the modified statement contains comparable 
information.\198\
---------------------------------------------------------------------------

    \197\ See rule 498A(b)(5)(i); see also Instruction 1(a) to Item 
2 of amended Forms N-3, N-4, and N-6.
    \198\ See Instruction 1(a) to Item 2 of amended Forms N-3, N-4, 
and N-6.
---------------------------------------------------------------------------

    In a change from the proposal, notwithstanding this instruction and 
a General Instruction permitting the use of alternate terminology under 
certain conditions, the title, headings, and sub-headings for this 
tabular presentation may not be modified or substituted with alternate 
terminology unless otherwise provided.\199\ We believe having a 
standardized title, headings, and sub-

[[Page 25983]]

headings for the Key Information Table facilitates the ability of 
investors to easily compare key information and features for different 
variable contracts. Several commenters acknowledged the importance of 
an investor's ability to compare variable contracts across different 
insurance companies,\200\ and we believe the use of standardized terms 
in this manner within the Key Information Table could facilitate 
comparability.
---------------------------------------------------------------------------

    \199\ Id. See also General Instruction C.3.(d)(ii) to amended 
Forms N-3, N-4, and N-6.
    \200\ See, e.g., Jackson Comment Letter; Pacific Life Comment 
Letter.
---------------------------------------------------------------------------

    The general instructions require registrants to provide cross-
references or links in electronic versions of the summary prospectus to 
the location in the statutory prospectus where the subject matter 
required by the line-item is described in greater detail.\201\ As 
explained in the Proposing Release, we believe that providing cross-
references and links (or similar technological access) will help 
investors who seek additional information quickly find more detailed 
information that may be important to them.\202\ The cross-reference or 
link need not necessarily be a page number or page range; \203\ 
instead, a registrant could cross-reference or link to a particular 
section or sub-section, or heading or sub-heading, in the statutory 
prospectus.
---------------------------------------------------------------------------

    \201\ See rule 498A(b)(5)(i); see also General Instruction 1(b) 
to Item 2 of amended Forms N-3, N-4, and N-6. The 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.
     We also separately proposed that any cross-reference that is 
included in an electronic version of a summary prospectus must be an 
active hyperlink. See proposed rule 498A(i)(4). As discussed below, 
we are not adopting this requirement. See also infra Section II.A.6.
    \202\ See Proposing Release, supra note 6, at nn.162 and 
accompanying text.
    \203\ We recognize that there may be operational challenges in 
syncing page numbers, especially between lengthy documents. See CAI 
Comment Letter (stating that page numbers are often in flux until 
the last moments prior to finalization).
---------------------------------------------------------------------------

    In response to comments,\204\ we are modifying this general 
instruction in the context of the Key Information Table to allow 
registrants to provide another means of facilitating access through 
equivalent methods or technologies that lead directly to the relevant 
cross-referenced information.\205\ In the context of the Key 
Information Table, this gives registrants the flexibility to provide a 
continuously visible sidebar in the summary prospectus that includes 
hyperlinks to sections in the statutory prospectus, as an alternative 
to providing a separate link for each line-item in the Key Information 
Table that links directly to the section in the statutory prospectus 
where the subject matter of that line-item is discussed in additional 
detail. Registrants who choose this option generally should provide a 
cross-reference for each line-item in the Key Information Table that 
directly corresponds to the appropriate heading in the sidebar (because 
otherwise an investor may find it difficult to determine which of the 
headings in the sidebar will provide more detailed information 
regarding that line-item).
---------------------------------------------------------------------------

    \204\ See CAI Comment Letter (stating that proposed rule 
498A(h)(1)(iii), which was modeled on parallel provisions in rule 
498(e)(2)(iii) and applies to the summary prospectus as a whole, 
provides greater flexibility than the proposed form instruction, 
which would require direct links between the Key Information Table 
and the statutory prospectus with no alternative means); ACLI 
Comment Letter (recommending that the proposed requirement for 
additional embedded links be removed, and parallel the practices 
currently required in mutual fund summary disclosure).
    \205\ See rule 498A(i)(4) (``[A]ny website address or cross-
reference that is included in an electronic version of the Summary 
Prospectus must include an active hyperlink or provide another means 
of facilitating access through equivalent methods or technologies 
that lead directly to the relevant website address or cross-
referenced information.''); Instruction 1(b) to Item 2 of amended 
Forms N-3, N-4, and N-6 (``Cross-references in electronic versions 
of the Summary Prospectus and/or Statutory Prospectus should link 
directly to the location in the Statutory Prospectus where the 
subject matter is discussed in greater detail, or should provide a 
means of facilitating access to that information through equivalent 
methods or technologies.'').
---------------------------------------------------------------------------

    Finally, in keeping with our goal of providing a brief tabular 
presentation of key facts that can be easily digested by investors, the 
instructions provide that all disclosures in the Key Information Table 
should be short and succinct, consistent with the limitations of a 
tabular presentation.\206\
---------------------------------------------------------------------------

    \206\ See rule 498A(b)(5)(i); see also Instruction 1(c) to Item 
3 of amended Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

Overview of the Contract
    We are adopting, largely as proposed, the requirement that an 
initial summary prospectus include a section describing certain basic 
and introductory information about the contract and its benefits, under 
the heading ``Overview of the [Variable Annuity/Life Insurance] 
Contract.'' \207\ We are making only one substantive modification from 
the proposal related to this section. As proposed, this section would 
have appeared as the first substantive section of the initial summary 
prospectus, but as discussed above, this section will follow the Key 
Information Table under the final rule.
---------------------------------------------------------------------------

    \207\ See rule 498A(b)(5)(ii); see also Item 3 of amended Forms 
N-3, N-4, and N-6; infra Section II.C.2.c.
---------------------------------------------------------------------------

    Purpose of Contract. As proposed, the requirement to briefly 
describe the purpose(s) of the contract in general terms \208\ 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.\209\
---------------------------------------------------------------------------

    \208\ See rule 498A(b)(5)(ii); see also Item 3(a) of amended 
Forms N-3, N-4, and N-6.
    \209\ One commenter recommended that to provide greater context 
for investors, this section should provide comparative information, 
stating ``for example, if the purpose of the contract is `to provide 
or supplement the investor's retirement income,' the purpose should 
also state that other types of investments or products can achieve 
the same result.'' See AARP Comment Letter. We decline to require 
this type of disclosure because it would not provide enough 
contextual information about the other products to permit 
comparison, and we do not require this type of disclosure for any 
other investment product.
---------------------------------------------------------------------------

    Phases of Contract (for Variable Annuity Contracts). As proposed, 
the requirement to include a brief description of the accumulation 
(savings) phase and annuity (income) phases of the contract \210\ is 
meant to provide basic information about how the variable annuity 
contract functions, which in turn will 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 highlights the effect of annuitization on the ability to 
make withdrawals and the continuation of contract benefits.\211\
---------------------------------------------------------------------------

    \210\ See rule 498A(b)(5)(ii); see also Item 3(b) of amended 
Forms N-3 and N-4.
    \211\ See Cardozo Clinic Comment Letter (describing retail 
investors that failed to understand consequences of annuitizing, the 
adverse impact of withdrawals on optional benefits, and the fact 
that certain benefits can only be elected during the accumulation 
phase).
---------------------------------------------------------------------------

    This discussion requires a brief overview of the investment options 
available under the contract (that is, portfolio companies and any 
general or fixed account option).\212\ The registrant

[[Page 25984]]

also must 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 
Item 19 of amended Form N-3), and provide a cross-reference to the 
Appendix.\213\ Finally, the registrant must 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.\214\
---------------------------------------------------------------------------

    \212\ However, a detailed explanation of the separate account, 
sub-accounts, portfolio companies, and any ``fixed account'' 
(general account) investment options is not required. See 
Instruction 2 to Item 2(b)(1) of amended Forms N-3 and N-4.
    \213\ See rule 498A(b)(5)(ii); see also Instruction 1 to Item 
3(b)(1) of amended Forms N-3 and N-4.
    \214\ See rule 498A(b)(5)(ii); see also Item 3(b)(2) of amended 
Forms N-3 and N-4.
---------------------------------------------------------------------------

    Premiums (for Variable Life Insurance Contracts). For the same 
reasons discussed in the Proposing Release, instead of requiring a 
description of the phases of the contract as with variable annuities, 
Form N-6 requires the ``Overview'' section to briefly describe the 
payment of premiums under the variable life insurance contract. This 
description of premiums must 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 should 
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.\215\
---------------------------------------------------------------------------

    \215\ See rule 498A(b)(5)(ii); see also Item 3(b) of amended 
Form N-6. The instructions will require the registrant to disclose 
that additional information on the portfolio companies is provided 
in an Appendix to the summary prospectus, and provide a cross-
reference to the Appendix. In addition, the instructions note that a 
detailed explanation of the separate account, sub-accounts, 
portfolio companies, and any ``fixed account'' (general account) 
investment options is not required. See rule 498A(b)(5)(ii); see 
also Instructions to Item 3(b)(3) of amended Form N-6.
---------------------------------------------------------------------------

    Unlike variable annuities, variable life insurance generally 
requires the investor to make continuing 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 will include a summary of 
the contract's primary features, including annuity benefits, death 
benefits, withdrawal options, loan provisions, and any available 
optional benefits.\216\ If applicable, the registrant must state that 
the investor will incur an additional fee for selecting a particular 
benefit. Because registrants will discuss many of these subjects in 
other sections of the initial summary prospectus in greater detail (and 
will discuss each of these subjects in more detail in the contract 
statutory prospectus), this paragraph is intended to be summary in 
nature.
---------------------------------------------------------------------------

    \216\ See rule 498A(b)(5)(ii); see also Item 3(c) of amended 
Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    One commenter suggested that the proposed list of overview topics 
was reasonable, but requested flexibility to allow registrants to 
prepare appropriate disclosures based on their products, markets, and 
customers.\217\ A second commenter suggested that the contract's 
primary features and options should be listed in order of 
importance.\218\ Because we believe the item requirements for the 
``Overview'' section focuses on the most important features and options 
of a contract, while also giving registrants sufficient flexibility to 
tailor the disclosures in the manner best designed to briefly explain 
each product's features, we are adopting the substantive requirements 
for this section as proposed.
---------------------------------------------------------------------------

    \217\ See ACLI Comment Letter.
    \218\ See Breacher Comment Letter.
---------------------------------------------------------------------------

Standard Death Benefits
    We are modifying our proposed approach to death benefit disclosures 
in the initial summary prospectus. To highlight standard death benefit 
limitations and the possibility of its termination, the Commission 
proposed to require a section briefly describing the contract's 
standard death benefit,\219\ immediately followed by a separate section 
describing any optional death benefits, as well as standard and 
optional living benefits.
---------------------------------------------------------------------------

    \219\ See proposed 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.
---------------------------------------------------------------------------

    We received several comments suggesting that we eliminate the 
standard death benefit as a standalone section of the initial summary 
prospectus for variable annuities because, as one commenter explained, 
``investors typically don't purchase variable annuities for their death 
benefits, which don't generally require an additional fee.'' \220\ 
Instead, commenters recommended that for variable annuities standard 
death benefits should be discussed in conjunction with the ``Other 
Benefits Available Under the Contract.'' \221\
---------------------------------------------------------------------------

    \220\ See CAI Comment Letter; Comment Letter of Yassi Abdullah 
(Dec. 31, 2019) (``the standard death benefit isn't such a big deal 
under my contract.''); Comment Letter of Kristin Bowler (Feb. 11, 
2019) (stating that the standard death benefit is ``not that 
important.''). The respondents to our Feedback Flier collectively 
identified the standard death benefit as the ``least useful'' 
section of the hypothetical initial summary prospectus.
    \221\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, in a change from the proposal, we 
are not requiring variable annuity registrants to include a separate 
section of the initial summary prospectus briefly describing the 
standard death benefit. Registrants will instead provide standard death 
benefit information with all other standard and optional benefits, as 
discussed below.
    One commenter stated that ``the concept of a `standard' death 
benefit generally does not apply to [variable life insurance] 
contracts.'' The commenter noted that instead, variable life insurance 
contracts generally offer a choice of two or three death benefit 
options, none of which is standard.\222\ This commenter recommended 
retaining a standalone section of the initial summary prospectus to 
describe variable life insurance contract death benefits, but suggested 
eliminating ``Standard'' from the heading, to be simply re-titled 
``Death Benefits.'' This commenter also stated that the initial summary 
prospectus should summarize death benefit information rather than 
requiring almost all the information about death benefits in the 
variable life insurance contract's statutory prospectus.
---------------------------------------------------------------------------

    \222\ See CAI Comment Letter (stating that ``these death 
benefits generally are: (a) Face amount (the ``level'' death 
benefit); (b) face amount plus cash or contract value (the 
``increasing'' death benefit); and in some cases, (c) return of 
(net) premium.'')
---------------------------------------------------------------------------

    In response to these comments, we are revising the rule to clarify 
that ``standard death benefits'' exclude optional or supplemental death 
benefits available for a separate charge.\223\ To the extent that 
variable life insurance contracts present investors with a choice among 
several death benefit options whose costs are already reflected in the 
base contract, we believe that those options should be disclosed as 
part of the ``standard death benefit'' disclosures. To the extent that 
death benefits are available for a separate charge, those benefits 
should be presented as part of the section ``Other Benefits Available 
Under the Contract.'' \224\ We are retaining the heading ``Standard 
Death Benefits'' in the initial summary prospectus to

[[Page 25985]]

distinguish the standard variable life insurance contract death 
benefits from any optional death benefits.
---------------------------------------------------------------------------

    \223\ See rule 498A(b)(5)(iii); Item 10(a) of amended Form N-6; 
see also infra Section II.C.2.k.
    \224\ See rule 498A(b)(5)(iv); Item 11(a) of amended Form N-6; 
see also infra Section II.C.2.l.
---------------------------------------------------------------------------

    As proposed, the rule requires disclosure of the forms the benefit 
may take and the form of benefit that will be provided if a particular 
form has not been selected, which should address the issue raised by 
the commenter regarding the various death benefit options that are 
generally offered by variable life insurance contracts. We are adopting 
the rule, as proposed, to require an initial summary prospectus for 
variable life insurance contracts to include certain key information 
regarding those standard death benefits.\225\ Among other things, the 
initial summary prospectus requires, for each standard death benefit, 
when the insurance coverage is effective, when the death benefit is 
calculated and payable, how the death benefit is calculated, who has 
the right to choose the form of benefit and the procedure for choosing 
the form of benefit, the forms the benefit may take, and whether there 
is a minimum death benefit guarantee associated with the contract.
---------------------------------------------------------------------------

    \225\ See rule 498A(b)(5)(iii); Item 10(a) of amended Form N-6; 
see also infra Section II.C.2.k.
---------------------------------------------------------------------------

    Finally, as proposed, under the registration form amendments, 
variable life insurance registrants will include in the statutory 
prospectus more detailed disclosures relating to standard death 
benefits, including how an investor may change the face amount of the 
death benefit, and how contract values and death benefits are affected 
by the investment performance of the portfolio companies, expenses, and 
deduction of charges. This additional information may help an investor 
who wants to understand the mechanics of how standard death benefits 
operate later in the contract lifecycle. However, we are not requiring 
that additional information to be included in the initial summary 
prospectus because we believe it would not be as critical to a basic 
initial understanding of the benefits, including any risks and 
limitations.
[Other] Benefits Available Under the Contract
    We are requiring, largely as proposed, registrants to summarize 
standard and optional benefits available to the investor under the 
contract. We understand that insurers commonly consider these types of 
benefits to be primary features of variable contracts.\226\ Because 
these benefits are also often key differentiators between competing 
products, we are requiring, largely as proposed, specific disclosures 
in both the statutory prospectus and the initial summary prospectus.
---------------------------------------------------------------------------

    \226\ See Proposing Release, supra note 6, at n.17 and 
accompanying text (regarding the prevalence of optional benefits).
---------------------------------------------------------------------------

    As discussed above, variable annuity contracts will not have a 
standalone section for standard death benefits, so we are retitling the 
heading for this section ``Benefits Available Under the Contract'' and 
requiring this summary table to include information about any standard 
and optional annuity or other living benefits, as well as any standard 
and optional death benefits that the variable annuity contract 
offers.\227\ Since variable life insurance contracts will disclose 
standard death benefits in a separate section of the prospectus, in 
this section they will disclose non-standard death benefits (i.e., 
optional or supplemental death benefits available for a separate 
charge) as well as living contract benefits (such as income benefits, 
disability riders, long-term care insurance) under the heading ``Other 
Benefits Available Under the Contract.'' \228\ For purposes of this 
discussion, we refer to this table in the variable annuity and variable 
life insurance contract registration forms as the Benefits Table.
---------------------------------------------------------------------------

    \227\ See rule 498A(b)(5)(iv); see also Item 11(a) of amended 
Form N-3; Item 10(a) of amended Form N-4.
    \228\ See Item 11(a) of amended Form N-6.
---------------------------------------------------------------------------

    Because benefit terms can be complex, we are requiring the 
information to be provided in a uniform tabular presentation to make 
these important disclosures easier for investors to read, understand, 
and compare. Largely as proposed, the Benefits Table requires the name 
of each benefit, its purpose, whether the benefit is standard or 
optional, and a brief description of limitations or restrictions.\229\
---------------------------------------------------------------------------

    \229\ For 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 Item 11(a) of amended Form N-3; 
Instruction 6 to Item 10(a) of amended Form N-4; Instruction 6 to 
Item 11(a) of amended Form N-6.
---------------------------------------------------------------------------

    In a change from the proposal, we are requiring the Benefits Table 
in Forms N-3 and N-4 to disclose the maximum fees (as a stated 
percentage of contract value, benefit base, etc.) associated with each 
benefit listed in the table(s), and revising the table heading to state 
``Maximum Fee.'' \230\ Our proposal would have required disclosure of 
``associated fees,'' but several commenters asked for clarification 
regarding whether registrants should disclose the maximum or current 
fees associated with the benefits, and whether fees could change over 
time.\231\
---------------------------------------------------------------------------

    \230\ See Instruction 5 to Item 11(a) of amended Form N-3; 
Instruction 5 to Item 10(a) of amended Form N-4; Instruction 5 to 
Item 11(a) of amended Form N-6.
    \231\ See [Feedback Flier] Comment Letters (seeking 
clarification regarding whether the ``Fee'' in the ``Other Benefits 
Under the Contract'' table was the current or maximum fee); see also 
VIP Working Group Comment Letter; Nedar Comment Letter; LeRoy 
Comment Letter.
---------------------------------------------------------------------------

    Variable contracts typically include provisions that allow insurers 
to increase the fees associated with benefits up to a maximum charge, 
which can be significantly higher than the current fee. To help 
investors understand how much fees can be raised over time, we are 
revising the proposed instructions to the Benefits Table to clarify 
that registrants must disclose the maximum charge that investors could 
pay for each benefit.\232\ Also in a change from the proposal, the 
final instructions to this table in Forms N-3 and N-4 will permit 
registrants to disclose the current charge in a separate column, if the 
disclosure of the current charge is no more prominent than, and does 
not obscure or impede understanding of, the disclosure of the maximum 
charge.\233\ Collectively, this parallels the presentation of these 
charges in the Fee Table included in Forms N-3 and N-4.\234\
---------------------------------------------------------------------------

    \232\ For example, the table could disclose ``up to 1.5%'' or 
provide similar disclosure. See Instruction 5 to Item 11 of Form N-
3; Instruction 5 to Item 10 of Form N-4. Where an insurer reserves 
the right to charge a fee, the table must include the maximum amount 
that may be charged, even if the insurer does not currently charge 
the fee.
    \233\ See Instruction 6 to Item 11 of Form N-3; Instruction 6 to 
Item 10 of Form N-4.
    \234\ See Instruction 5 to Item 4 of amended Forms N-3 and N-4.
---------------------------------------------------------------------------

    For variable life products registered on Form N-6, where fees are 
based in part on the personal characteristics of the insured, we 
recognize that a maximum fee applicable to an insured in the highest 
possible mortality risk category (e.g., an elderly smoker) may not be 
relevant to a typical investor. For these reasons, this item in Form N-
6 does not require disclosure of maximum fees, but instead requires a 
statement explaining that the Fee Table contains information about the 
fees for each benefit.\235\ We are adopting this requirement as 
proposed.
---------------------------------------------------------------------------

    \235\ As discussed above, the Fee Table includes the minimum 
fee, maximum fee, and fee for a representative investor for each 
benefit. See supra note 652 and accompanying text. This information 
should help provide better context for investors to understand the 
fees for the other benefits available under the contract.
---------------------------------------------------------------------------

    Under the form amendments, a registrant must include in the 
statutory prospectus the Benefits Table, as well as additional 
disclosures in narrative form relating to benefits, such as further 
descriptions of each benefit, whether it is standard or optional, 
descriptions of

[[Page 25986]]

the benefits' limitations, restrictions and risks, and one or more 
examples illustrating the operation of each benefit.\236\ We believe 
that requiring the initial summary prospectus to include only the 
Benefits Table and not the additional narrative disclosures is 
appropriate for the scope of the initial summary prospectus.\237\ 
Consistent with the layered disclosure approach, investors who want 
more information about benefits may refer to the more extensive 
narrative disclosures in the contract statutory prospectus. Because the 
initial summary prospectus is intended for new investors and limited to 
features that are currently offered, benefits that are no longer 
available should not be included in the Benefits Table in the summary 
prospectus, but should be described in the statutory prospectus.\238\
---------------------------------------------------------------------------

    \236\ See Items 11(b) and (c) of amended Form N-3 and 
instruction to same; Items 10(b) and (c) of amended Form N-4 and 
instruction to same; Items 11(b) and (c) of amended Form N-6 and 
instruction to same.
    \237\ Registrants may, but are not required to, provide in the 
initial summary prospectus cross-references or links to these 
additional narrative disclosures in the contract statutory 
prospectus.
    \238\ See CAI Comment Letter (requesting that the Commission 
clarify that benefits (including versions and iterations of a single 
benefit) that are owned by existing contract owners but no longer 
for sale should not appear in an initial summary prospectus.'').
---------------------------------------------------------------------------

    We are also adopting, as proposed, instructions that allow 
registrants offering 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.\239\ Registrants may also include appropriate titles, 
headings, or other information that might promote clarity and 
facilitate understanding of the table(s).\240\ For example, if certain 
benefits are only available to certain investors, or are mutually 
exclusive, the table could include headings to identify which benefits 
are affected and to whom they are available. 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.
---------------------------------------------------------------------------

    \239\ See Instruction 1(b) to new Item 11(a) of amended Form N-
3; Instruction 1(b) to amended Item 10(a) of amended Form N-4; 
Instruction 1(b) to Item 11(a) of amended Form N-6. Registrants that 
choose to use a single table should consider whether grouping 
together multiple benefits of the same type, with appropriate 
headings, might similarly permit better comparisons of those 
benefits.
    \240\ See Instruction 1(c) to new Item 11(a) of amended Form N-
3; Instruction 1(c) to new Item 10(a) of amended Form N-4; 
Instruction 1(c) to Item 11(a) of amended Form N-6.
---------------------------------------------------------------------------

    One commenter suggested that a one-page description of each rider 
may be more appropriate than the proposed Benefits Table.\241\ In 
reacting to the Benefits Table contained in the hypothetical initial 
summary prospectus, some commenters also asked for more information, 
including how much a benefit pays, the likelihood that a benefit will 
pay out, and how much can be withdrawn annually.\242\ While we 
recognize that the information in the Benefits Table only provides a 
brief description of the benefits, we believe that because variable 
contract features are typically complex, even a short description of 
each benefit available under the contract could significantly expand 
the length of what is designed to be a short and concise document. 
Because we believe retail investors are more likely to read a shorter 
document that briefly tells them about benefits available under the 
contract, and since more information will be available in the full 
contract prospectus,\243\ we are not requiring the Benefits Table in 
the initial summary prospectus to include more information about those 
benefits.
---------------------------------------------------------------------------

    \241\ See VIP Working Group Comment Letter.
    \242\ See Comment Letter of Jake Sleder (Nov. 5, 2018) (``Sleder 
Comment Letter''); Breacher Comment Letter; M. Bowler Comment 
Letter; Nedar Comment Letter; Anonymous Comment Letter (Dec. 28, 
2018) (``Anonymous Comment Letter III'').
    \243\ See infra Section II.C.2.l.
---------------------------------------------------------------------------

Buying the Contract (for Variable Annuity Contracts) and Premiums (for 
Variable Life Insurance Contracts)
    We are adopting, largely as proposed, the requirement that the 
initial summary prospectus 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.\244\ 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.
---------------------------------------------------------------------------

    \244\ See rule 498A(b)(5)(v); see also Item 12(a) of amended 
Form N-3; Item 11(a) of amended Form N-4; Item 9(a) through (c) of 
amended Form N-6. With the exception of renumbering certain 
provisions, we made no other changes to this item as presented in 
current Forms N-3 and N-4.
---------------------------------------------------------------------------

    For variable annuity contracts, this will 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.\245\ For variable life insurance contracts, this will include 
a description of the purchase procedures, premium amount, and premium 
due dates.\246\
---------------------------------------------------------------------------

    \245\ See rule 498A(b)(5)(v); see also Item 12(a) of amended 
Form N-3; Item 11(a) of amended Form N-4.
    \246\ See rule 498A(b)(5)(v); see also Item 9(a) through (c) of 
amended Form N-6.
---------------------------------------------------------------------------

    One commenter noted that as proposed, the initial summary 
prospectus for variable life insurance contracts would include 
virtually all of the information required to be in the Premiums section 
of the variable life insurance statutory prospectus, and asked that we 
instead permit a brief summary of the specified premium 
information.\247\ In response to the commenter's suggestion, we are 
revising the rule to require an initial summary prospectus for variable 
life insurance contracts to include only certain key information 
regarding premiums.\248\ Among other things, the initial summary 
prospectus requires registrants on Form N-6 to describe the provisions 
of the contract that relate to premiums and the procedures for 
purchasing a contract, the factors that determine the amount of any 
required premiums, and the provisions of the contract that relate to 
premium due dates and the operation of any grace period.
---------------------------------------------------------------------------

    \247\ See CAI Comment Letter; see also Proposing Release, supra 
note 6, at n.181.
    \248\ See rule 498A(b)(5)(v); see also Item 9(a) through (c) of 
amended Form N-6; see infra Section II.C.2.m.
---------------------------------------------------------------------------

    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, but we are persuaded by the 
commenter that a more concise summary that is limited to key 
information regarding premiums is more likely to be useful to investors 
and is appropriate for the initial summary prospectus. We also note 
that, as proposed, additional information on purchases and premiums 
will appear in the statutory prospectus. For example, the statutory 
prospectus will also include information on the manner in which 
purchase or premium payments are credited, and the identity of each 
principal underwriter.\249\
---------------------------------------------------------------------------

    \249\ See Item 12 of amended Form N-3; Item 11 of amended Form 
N-4; Item 9 of amended Form N-6.
---------------------------------------------------------------------------

Contract Lapse (for Variable Life Insurance Contracts)
    We are adopting, largely as proposed, the requirement that the 
initial

[[Page 25987]]

summary prospectus for a variable life insurance contract include 
certain information about the possibility of contract lapse, under the 
heading ``How Your Contract Can Lapse.'' \250\ Specifically, the 
initial summary prospectus must 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,\251\ understanding the risk of contract lapse is 
important when deciding whether to invest in a variable life insurance 
contract.
---------------------------------------------------------------------------

    \250\ See rule 498A(b)(5)(vi); see also Item 14(a) of amended 
Form N-6 (requiring a brief summary of the disclosures required by 
paragraphs (b) through (e) of amended Item 14); see infra Section 
II.C.2.p.
    \251\ For 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.
---------------------------------------------------------------------------

    The Commission proposed that the initial summary prospectus would 
include the same information on contract lapse that would appear in the 
contract statutory prospectus. One commenter suggested that, consistent 
with a layered disclosure approach, the initial summary prospectus 
should only include a brief summary of the lapse and reinstatement 
information required in the full statutory prospectus.\252\ In response 
to comments and consistent with our layered disclosure approach, we are 
revising the rule to require an initial summary prospectus for variable 
life insurance contracts to include only certain key information 
regarding contract lapse.\253\ We were persuaded by the commenter that 
a more concise summary that is limited to key information regarding 
premiums is more likely to be useful to investors and is appropriate 
for the initial summary prospectus. Among other things, the initial 
summary prospectus requires registrants on Form N-6 to state when and 
under what circumstances a contract can lapse, the effect of lapse, and 
under what circumstances a contract may be reinstated.
---------------------------------------------------------------------------

    \252\ See CAI Comment Letter.
    \253\ See rule 498A(b)(5)(vi); see also Item 14(a) through (c) 
of amended Form N-6; see infra Section II.C.2.p.
---------------------------------------------------------------------------

Surrenders or Withdrawals
    Largely as proposed, the initial summary prospectus must include 
certain information about contract surrenders or withdrawals, under the 
heading ``Making Withdrawals: Accessing the Money in Your Contract.'' 
\254\ This will include 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.
---------------------------------------------------------------------------

    \254\ See rule 498A(b)(5)(vii); see also Item 13(a) of amended 
Form N-3; Item 12(a) of amended Form N-4; Item 12(a) of amended Form 
N-6.
---------------------------------------------------------------------------

    Several commenters observed that investors would also benefit from 
a description of the negative consequences of partial withdrawals on 
death and living benefits.\255\ We agree that such information would be 
useful for investors, and have revised the relevant form requirements 
to additionally require the initial summary prospectus to briefly 
describe the potential impact of such surrenders or withdrawals.\256\ 
Given that variable contracts are long-term investments that may entail 
high surrender fees, it is important to clearly explain the withdrawal 
and surrender terms to new variable contract investors, including the 
consequences of withdrawals on death and living benefits. To clarify 
the scope of paragraph (a), and to simplify this item in general, we 
are also removing references to ``partial surrender'' and ``partial 
withdrawal'' (which both have the same meaning as ``withdrawal'') so 
that this item will only refer to ``surrender'' and ``withdrawal,'' 
which we believe are more plain English.\257\
---------------------------------------------------------------------------

    \255\ See CAI Comment Letter; Transamerica Comment Letter; AARP 
Comment Letter.
    \256\ See rule 498A(b)(5)(vii); see also Item 13(a) of amended 
Form N-3; Item 12(a) of amended Form N-4; Item 12(a) of amended Form 
N-6; see also infra Section II.C.2.n.
    \257\ For example, as proposed, references to ``surrender'' 
appeared in paragraph (a) while references to ``partial surrender'' 
appeared in paragraphs (a) through (d). As amended, references to 
``surrender'' appear in paragraphs (a) through (d) while all 
references to ``partial surrender'' are removed from this item. 
Among other things, this change clarifies that only the most 
important information about surrenders is required to be included in 
the summary prospectus pursuant to paragraph (a), while other 
information about surrenders should be disclosed in the statutory 
prospectus. This is consistent with the layered disclosure approach 
embodied in the summary prospectus and helps to ensure that the 
information in the summary prospectus regarding surrenders is not 
simply a full recitation of the same information contained in the 
statutory prospectus.
---------------------------------------------------------------------------

    Additional information on surrenders and withdrawals will appear in 
the statutory prospectus. For example, the statutory prospectus must 
include more detailed information on surrenders and withdrawals, sub-
account allocation, involuntary redemptions, and revocation rights 
(free look period).\258\
---------------------------------------------------------------------------

    \258\ See Item 13(b) through (d) of amended Form N-3; Item 12(b) 
through (d) of amended Form N-4; Item 12(b) through (d) of amended 
Form N-6.
---------------------------------------------------------------------------

Additional Information About Fees
    As proposed, the initial summary prospectus must include the Fee 
Table (including, for variable annuity contracts, the expense example), 
that will appear in the statutory prospectus, under the heading 
``Additional Information About Fees.'' \259\ 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.\260\ We are 
also adopting, largely as proposed, certain amendments to the Fee Table 
for each type of variable contract, as discussed below in Section 
II.C.2.d.
---------------------------------------------------------------------------

    \259\ See rule 498A(b)(5)(viii); see also Item 4 of amended 
Forms N-3, N-4, and N-6.
     The initial summary prospectus fee information will 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.
    \260\ In addition, the Fee Table details the minimum and maximum 
total operating expenses the portfolio companies charge annually, as 
well as an example intended to help the investor compare the cost of 
investing in different variable contracts.
---------------------------------------------------------------------------

    We are requiring 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 high-level 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.\261\
---------------------------------------------------------------------------

    \261\ See supra Section II.A.1.c.ii.(a).
---------------------------------------------------------------------------

    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. Because a rate sheet is no different than a change to any other 
term in the prospectus, the rate sheet approach permits the filing of a 
497 filing instead of a rule 485(a) filing to implement that material 
change.
    Several commenters sought clarification regarding when a change to

[[Page 25988]]

the contract would require the filing of a rate sheet supplement for an 
initial summary prospectus, and about the corresponding delivery 
obligations for rate sheet supplements.\262\ As we noted in the 
proposal, we do not believe that the summary prospectus framework will 
affect the current practice of using rate sheets. When a rate (relating 
to fees, withdrawal rates, crediting rates, etc.) disclosed in any 
prospectus (initial, updating, or statutory) changes, the prospectus 
must be updated with the new rate and the update filed with the 
Commission, and the revised disclosures must be provided to investors 
affected by the rate change.\263\
---------------------------------------------------------------------------

    \262\ See CAI Comment Letter; VIP Working Group Comment Letter; 
Transamerica Comment Letter.
    \263\ For example, if the rate sheet is updating information in 
a summary prospectus or the statutory prospectus, the document 
should describe how the rate sheet process works, and the rate sheet 
supplement should be affixed to the front of the document. In 
addition, the rate sheet supplement should be available on the 
website where current prospectuses and certain other documents must 
be posted online under rule 498A(h). As a best practice, all current 
rates should be separately posted on the website.
---------------------------------------------------------------------------

    Two commenters suggested that instead of filing rate sheets, 
insurers should provide current rates to investors as marketing 
materials at the point of sale.\264\ Because a variable contract's fees 
and rates are material information, we do not believe relegating this 
information to marketing materials is sufficient, and are not making 
the suggested change.
---------------------------------------------------------------------------

    \264\ See CAI Comment Letter; Transamerica Comment Letter.
---------------------------------------------------------------------------

Appendix: Portfolio Companies/Investment Options Available Under the 
Contract
    We are requiring, largely as proposed, an initial summary 
prospectus 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.\265\ 
Commenters generally supported our proposal to include this Appendix in 
the initial summary prospectus.\266\ While no commenters opposed the 
Appendix, we did receive a number of recommendations to modify certain 
aspects of the Appendix, some of which we are incorporating into the 
final version. In addition, we are making certain other changes 
discussed below.
---------------------------------------------------------------------------

    \265\ See rule 498A(b)(5)(ix); see also Item 18 of amended Form 
N-3; Item 17 of amended Form N-4; Item 18 of amended Form N-6.
    \266\ See, e.g., ICI Comment Letter; AARP Comment Letter 
(commending the ``proposal for a summary disclosure for the 
underlying portfolio companies. We submit that a concise disclosure 
is needed.''); Capital Group Comment Letter; ACLI Comment Letter; 
Comment Letter of American International Group (Mar. 15, 2019) 
(``AIG Comment Letter''). In addition, the respondents to our 
Feedback Flier collectively identified the Appendix as the second 
``most useful'' section of the hypothetical initial summary 
prospectus (after the Key Information Table).
---------------------------------------------------------------------------

    Format/Scope. 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, and are requiring, as proposed, 
the format specified in the introductory sentence of the relevant form 
item.\267\ The Commission also proposed an instruction that registrants 
only include portfolio companies that are currently offered under the 
contract, and we are adopting this instruction with a modification, as 
described below.\268\
---------------------------------------------------------------------------

    \267\ See Item 17 of amended Form N-4; Item 18 of amended Form 
N-6. 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, tax-advantaged 
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).
    \268\ See 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.
---------------------------------------------------------------------------

    One commenter asked us to clarify whether the ``currently offered'' 
standard includes portfolio company options in which current, but not 
new, investors are permitted to invest (``soft closed'' fund 
options).\269\ This commenter suggested that an instruction be added to 
the Appendix specifying that soft closed fund options should not be 
included in the Appendix appearing in an initial summary prospectus, 
but should be included in the Appendix appearing in an updating summary 
prospectus and in a Statutory Prospectus, with an explanation (in a 
footnote or otherwise) of the limited availability of the options.
---------------------------------------------------------------------------

    \269\ See CAI Comment Letter (explaining that ``the Portfolio 
Company associated with a soft closed fund option may or may not be 
issuing new shares. Instead, when a Portfolio Company option is soft 
closed, the insurer limits the ability of some or all contract 
owners to invest in the subaccount corresponding to that Portfolio 
Company.'').
---------------------------------------------------------------------------

    We are modifying the form instruction to state that the Appendix 
must only include portfolio companies that are investment options under 
the contract (not just those that are ``currently offered,'' as 
proposed), and clarifying that registrants must indicate if investments 
in any of the portfolio companies offered under the contract are 
subject to a restriction (because of a ``soft'' or ``hard'' 
close).\270\ This change is designed to require summary and statutory 
prospectuses to include all of the portfolio companies available under 
the contract in the Appendix, not just those that are currently 
offered. However, because the initial summary prospectus may describe 
only a single contract currently offered for sale,\271\ the Appendix 
will only list the portfolio companies that are investment options 
under that particular contract.
---------------------------------------------------------------------------

    \270\ See Instruction 1(a) to Item 18 of amended Form N-3, Item 
17 of amended Form N-4, and Item 18 of amended Form N-6; see infra 
Section II.C.2.t.
    \271\ See rule 498A(b)(1).
---------------------------------------------------------------------------

    Contents. The Commission proposed that the Appendix 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 expenses).\272\
---------------------------------------------------------------------------

    \272\ See Instructions 2-4, 7 to Item 18 of amended Form N-3; 
Instructions 2-4, 7 to Item 17 of amended Form N-4; Instructions 2-
4, 7 to Item 18 of amended Form N-6.
     For purposes of this discussion, we use the term ``portfolio 
company'' throughout, even though the Appendix for Form N-3 
registrants will use the term ``investment option.''
---------------------------------------------------------------------------

Type or Investment Objective
    Regarding the proposed requirement that the Appendix include the 
portfolio company's type or investment objective, one commenter 
recommended that we require only the investment type (or primary asset 
class), which is similar to 401(k) fee disclosures, and not the 
investment objective.\273\ Another commenter, which conducted its own 
online survey of variable annuity investors regarding certain aspects 
of the proposed Appendix, stated that its testing indicates that ``if 
either `Investment Objective' information or `Investment Type' (i.e., 
one of these data fields, but not both) were to be included in the 
Appendix, ``Investment Objective'' would be more useful to investors.'' 
\274\ In light of these varying

[[Page 25989]]

comments, we continue to believe that it is appropriate to permit 
registrants the flexibility to choose the approach they believe most 
clearly and effectively communicates a portfolio company's investment 
category to retail investors, and are adopting this aspect of the 
Appendix as proposed.\275\
---------------------------------------------------------------------------

    \273\ See AARP Comment Letter.
    \274\ See Comment Letter of Broadridge Financial Solutions, Inc. 
(Mar. 15, 2019) (``Broadridge Comment Letter'') (reporting that 
based on a 4-day online survey of 120 individuals that self-
identified as current variable annuity investors and were asked to 
review a modified version of the proposed Appendix that replaced 
information on ``investment type'' with ``investment objective, 
``nearly 90% said ``Investment Objective'' was more helpful than 
``Investment Type.'').
    \275\ See Instruction 2 to Item 18 of amended Form N-3, 
Instruction 2 to Item 17 of Form N-4, and Instruction 2 to Item 18 
of Form N-6.
---------------------------------------------------------------------------

Name of Portfolio Company and Its Adviser or Subadviser
    In response to our proposal to include a column with the name of 
each portfolio company and its adviser or subadviser, one commenter 
stated that that the Appendix should only identify sub-advisers ``whose 
actions are likely to impact the fund significantly,'' and an 
instruction should limit the requirement to sub-advisers that are 
responsible for a significant portion of a portfolio company's net 
assets, consistent with the approach for mutual funds.\276\ We agree, 
and have modified the relevant instruction to mirror the approach in 
Form N-1A for consistency between the forms.\277\
---------------------------------------------------------------------------

    \276\ See ICI Comment Letter (citing Instruction 2 to Item 5(b) 
of Form N-1A).
    \277\ See Instruction 3 to Item 18 of amended Form N-3, 
Instruction 3 to Item 17 of Form N-4, and Instruction 3 to Item 18 
of Form N-6; see also Instruction 2 to Item 5(a) of Form N-1A.
---------------------------------------------------------------------------

Portfolio Company Expenses and Performance
    A number of commenters opposed our proposal to require the Appendix 
to include each portfolio company's expense ratio and/or performance 
information.\278\ One commenter stated that insurers should not be 
responsible for disclosing specific data that is in each portfolio 
company's prospectus, and would be available at the website specified 
in the legend for the summary prospectus.\279\ Several recommended 
eliminating this requirement, and replacing it with a legend or cross-
reference stating where and how up-to-date portfolio company data can 
be obtained (e.g., on portfolio company and insurance company 
websites).\280\ Two commenters suggested that electronic versions of 
the summary prospectus should be required to include direct links to 
the portfolio company summaries in the Appendix.\281\
---------------------------------------------------------------------------

    \278\ See CAI Comment Letter (opposing fee and performance 
information); Brighthouse Comment Letter (opposing fee and 
performance information); Transamerica Comment Letter (opposing fee 
and performance information); Lincoln Comment Letter (opposing 
performance information); Ameritas Comment Letter (opposing 
performance information).
    \279\ See CAI Comment Letter.
    \280\ See CAI Comment Letter; Lincoln Comment Letter; 
Brighthouse Comment Letter; Transamerica Comment Letter.
    \281\ See AIG Comment Letter; CFA Comment Letter.
---------------------------------------------------------------------------

    Commenters also opposed this requirement asserting that gathering 
the information for each portfolio company offered under a contract 
would be administratively burdensome (and in some cases, potentially 
infeasible given filing-related timing constraints).\282\ They 
explained that insurers must rely on the portfolio companies to 
transmit their current expense ratios to them in time to meet the 
variable contracts' registration statement filing (and printing and 
mailing) deadlines. They noted that because portfolio companies often 
do not finalize their expense information until shortly before they 
file their annual registration statement updates, there is a very 
narrow window of time for insurers to collect, verify, and incorporate 
current portfolio company expense ratios into the variable contract 
prospectuses, which, like portfolio company prospectuses, must be filed 
by May 1.\283\ Several commenters suggested there would also be 
operational and timing challenges associated with obtaining portfolio 
company performance data.\284\
---------------------------------------------------------------------------

    \282\ See CAI Comment Letter; Lincoln Comment Letter; Ameritas 
Comment Letter; Brighthouse Comment Letter; ACLI Comment Letter.
    \283\ See Lincoln Comment Letter; Ameritas Comment Letter; 
Brighthouse Comment Letter; CAI Comment Letter; ACLI Comment Letter; 
AIG Comment Letter; Transamerica Comment Letter.
    \284\ See ACLI Comment Letter; Brighthouse Comment Letter.
---------------------------------------------------------------------------

    Commenters also expressed concern about being dependent on the 
cooperation of third-parties (particularly unaffiliated portfolio 
companies) to obtain the required portfolio company data in time to 
include the information in their variable contract initial summary (and 
other) prospectuses.\285\ One commenter recalled that Form N-4 
previously required expense ratios for each portfolio company in the 
Fee Table, stating ``that requirement was later eliminated, and in this 
respect, the proposed requirement represents a step backwards.'' \286\
---------------------------------------------------------------------------

    \285\ See CAI Comment Letter; ACLI Comment Letter (asking us to 
encourage portfolio companies to share the required information with 
them in a timely manner); Lincoln Comment Letter; Ameritas Comment 
Letter; Brighthouse Comment Letter; AIG Comment Letter; Transamerica 
Comment Letter.
    \286\ See CAI Comment Letter (citing Disclosure of Costs and 
Expenses by Insurance Company Separate Accounts Registered as Unit 
Investments Trusts, Investment Company Act Release No. 25802 (Nov. 
13, 2002) [67 FR 69973 (Nov. 19, 2002)] (``2002 Adopting 
Release'')).
---------------------------------------------------------------------------

    Two commenters also opposed including portfolio company performance 
in the Appendix on the grounds that performance would be quickly become 
outdated, whereas more current and frequently updated performance data 
is generally available online.\287\ They expressed concern that having 
to disclose portfolio company performance, in addition to the expense 
ratios, would further exacerbate the timing and operational challenges 
associated with disclosing this information in the Appendix.
---------------------------------------------------------------------------

    \287\ See Brighthouse Comment Letter; CAI Comment Letter.
---------------------------------------------------------------------------

    We recognize these timing and coordination concerns, and that these 
challenges increase for variable contracts that offer contracts with a 
large number of portfolio companies. Regarding portfolio expense 
information, however, insurers currently must obtain current expense 
ratios for each portfolio company to ensure the accuracy of the range 
of lowest and highest portfolio company expenses in the Fee Table--a 
requirement that we leave undisturbed in this document. In addition, 
the fact that some insurers provide expense information for each 
portfolio company shows that it is currently feasible to obtain and 
disclose this information,\288\ and may soon be easier with the aid of 
new technology solutions.\289\
---------------------------------------------------------------------------

    \288\ See Brighthouse Comment Letter (stating that ``[it] has 
continued to include fund-by-fund expense ratios (but not 
performance data) in our prospectuses even after such requirement 
was eliminated from Form N-4 (which requires only the highest and 
lowest fund expense ratios to be disclosed).'').
    \289\ As discussed below, we recently required mutual funds to 
use Inline XBRL to tag their risk/return summaries, which may make 
it easier for insurers to ``scrape'' the data they need to populate 
their variable contract Appendixes. See infra Section II.D. See also 
infra note 892.
---------------------------------------------------------------------------

    We acknowledge, as one commenter noted, that Form N-4 previously 
required expense ratios for each portfolio company in the Fee Table. 
However, as explained in the 2002 Adopting Release, the Commission 
removed the requirement in an effort to streamline the Fee Table, which 
had grown lengthy and complex, and instead required Form N-4 
registrants to disclose a range showing the lowest and highest expenses 
for portfolio companies available under the contract.\290\ We are now 
once again requiring disclosure of portfolio company expense 
information--but in the Appendix, as opposed to the Fee Table. As 
discussed below we believe that it is appropriate to require this 
disclosure, particularly in light of the

[[Page 25990]]

portfolio company prospectus delivery option we are adopting.
---------------------------------------------------------------------------

    \290\ See 2002 Adopting Release, supra note 286.
---------------------------------------------------------------------------

    Regarding the concern that obtaining portfolio company performance 
data may also present operational and timing challenges for insurers, 
we note that a portfolio company's performance information must be 
included in its annual report that is typically filed and publicly 
available by early March,\291\ which should provide sufficient time for 
a registrant to obtain such information before the variable contracts' 
registration statement annual update must be filed. As is the case with 
the portfolio company expense information, the portfolio company 
performance information is also part of the risk/return summary that 
will be tagged using the Inline XBRL format.
---------------------------------------------------------------------------

    \291\ See 17 CFR 270.30e-1 (rule 30e-1 under the Investment 
Company Act). All insurance product portfolio companies have a 
December 31 fiscal year-end, and must transmit their annual reports 
to shareholders within 60 days after that date. Form N-CSR, which 
must be filed no later than 10 days after the transmission of the 
annual report, must contain a copy of the annual report to 
shareholders, which is made publicly available on EDGAR.
---------------------------------------------------------------------------

    We are also concerned that eliminating portfolio company fee and 
performance data from the Appendix, as commenters suggest, will not 
benefit investors. 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, and designed the Appendix with that in mind. A portfolio 
company's expense ratio and performance provide key information that, 
if eliminated from the Appendix, would significantly reduce its 
usefulness to investors. We do not believe an Appendix that provides a 
legend or cross-reference stating where a portfolio company's 
prospectus may be found allows investors to as efficiently and 
effectively compare investment options as one that includes expense and 
performance information. Moreover, once an investor has purchased a 
variable contract, information about portfolio companies is the most 
important information he or she needs when considering how to invest 
new premiums and whether to reallocate current contract values to 
different investment options.\292\ In a layered disclosure regime, 
including portfolio company expense and performance information in the 
updating summary prospectus is the type of key information that we 
believe should be provided to investors.
---------------------------------------------------------------------------

    \292\ See Appendix A of the Memorandum from the Division of 
Investment Management regarding a May 29, 2019 Meeting with 
Representatives of the Committee of Annuity Insurers (materials 
provided by Committee of Annuity Insurers participants state that 
``the ongoing information most relevant to existing contract owners 
relates to their investment options'').
---------------------------------------------------------------------------

    In addition, the Appendix is designed to help facilitate the new 
optional portfolio company delivery option. 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, 
under rule 498A, portfolio company prospectus delivery obligations may 
be satisfied if the portfolio company summary and statutory 
prospectuses are posted at the website address specified on the 
variable contract summary prospectus.\293\
---------------------------------------------------------------------------

    \293\ See infra Section II.B.
---------------------------------------------------------------------------

    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. For investors that do not choose to review portfolio 
company prospectuses posted at the specified website, the Appendix may 
contain all the information they receive about their investment 
options. If we were to eliminate fee and performance information from 
the Appendix, as some commenters suggest, a new investor (who would 
have previously received the prospectuses) would have the burden of 
locating, obtaining, and reviewing the prospectus for each portfolio 
company available under the contract to discern the very information we 
are proposing to require insurers to include in the Appendix. We 
believe that instead of shifting more responsibility to the investor, 
registrants should supply the portfolio company fee and performance 
information in the Appendix. Accordingly, we are requiring, largely as 
proposed, the Appendix to include portfolio company expense and 
performance information, with certain modifications as discussed below.
    Several commenters asked that, consistent with parallel 
requirements for open-end funds set forth in Form N-1A, we permit 
insurers to disclose, in addition to the gross expense ratio, a 
portfolio company's net expense ratio, and require those that choose to 
do so to include a footnote explaining the effect of waivers on 
portfolio company expenses.\294\ One commenter, in viewing the Appendix 
in the hypothetical initial summary prospectus, asked whether the 
expense ratio was gross or net, and if the expense ratio was derived 
from the portfolio company prospectus, which would reflect the current 
fee, or its annual report, which would reflect the previous year's 
expense ratio.\295\
---------------------------------------------------------------------------

    \294\ See CAI Comment Letter; ICI Comment Letter; Brighthouse 
Comment Letter.
    \295\ See Breacher Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, in a change from the proposal, we 
are requiring registrants to disclose under the column heading 
``Current Expenses,'' the expense ratio currently charged by each 
portfolio company offered under the contract.\296\ We believe that 
current expenses provide more pertinent information to investors than 
gross expenses in the case of portfolio companies operating pursuant to 
an expense reimbursement or fee waiver arrangement.\297\ To alert 
investors that the costs for some portfolio companies could increase, 
we are requiring registrants, in a change from the proposal, to 
identify each portfolio company subject to an expense reimbursement or 
fee waiver arrangement, and provide a footnote stating that annual 
expenses reflect temporary fee reductions.\298\
---------------------------------------------------------------------------

    \296\ See Instruction 4 to Item 18 of amended Form N-3; 
Instruction 4 to Item 17 of amended Form N-4; Instruction 4 to Item 
18 of Form N-6. The expense ratio we proposed would not have 
reflected any waivers and reimbursements that reduce the portfolio 
company's rate or return. ``Current Expenses,'' as adopted, reflects 
these waivers and reimbursements.
    \297\ For portfolio companies that are not operating under 
expense reimbursement or fee waiver arrangements, current expenses 
will be the same as gross expenses.
    \298\ Id.
---------------------------------------------------------------------------

    We are also modifying the Appendix requirements to account for fund 
facilitation fees, or ``platform charges'' as they may more commonly be 
understood by investors.\299\ We believe that all the charges 
associated with choosing a particular portfolio company should be 
presented in the Appendix, not just those charged at the portfolio 
company level. If a registrant charges a platform charge for any 
portfolio company, the Appendix must include a separate column that 
discloses the current platform charge associated with any portfolio 
company offered under the contract, along with a separate column that 
sums the portfolio company's current expenses plus any platform

[[Page 25991]]

charge.\300\ In addition, the column that discloses each portfolio 
company that has a platform charge must include a footnote indicating 
the highest level to which any relevant platform charge may be 
increased.\301\
---------------------------------------------------------------------------

    \299\ See generally supra note 160 and accompanying and 
following text (discussing fund facilitation fees and comments 
received regarding those fees).
    Fund facilitation fees, or platform charges, were not explicitly 
addressed in the proposal, but one commenter questioned how insurers 
should treat them. See VIP Working Group Comment Letter. We believe 
it is appropriate to incorporate them into the forms and provide 
instructions on their treatment as part of the Appendix 
requirements.
    \300\ See Instructions 5 and 6 to Item 17 of amended Form N-4; 
Instructions 5 and 6 to Item 18 of amended N-6. Form N-3 registrants 
do not have platform charges because they have a one tier structure, 
as discussed above. See supra note 160.
    \301\ See General Instruction 5 to Item 17 of amended Form N-4; 
General Instruction 5 Item 18 of amended Form N-6.
---------------------------------------------------------------------------

    To help investors identify the most relevant disclosures among the 
various combinations of portfolio company expenses and platform 
charges, the column displaying the sum of the portfolio company's 
current expenses plus platform charges must be presented in a manner 
reasonably calculated to draw investor attention to that column.\302\ 
In addition, the legend preceding the table in the Appendix must also 
state that the current expenses and performance columns displayed in 
the table do not reflect the other fees and expenses that the contract 
may charge, such as platform charges.\303\
---------------------------------------------------------------------------

    \302\ Platform charges were not explicitly addressed in the 
proposal. See supra note 299.
    \303\ See supra notes 300-301 (discussing the requirement to 
include a column displaying platform charges separately from current 
expenses, as well as a column displaying platform charges plus 
current expenses); infra note 327.
---------------------------------------------------------------------------

    One commenter recommended that we remove the proposed Annual 
Contract Expenses column from the Investment Option Appendix for Form 
N-3 registrants because it duplicates information in the Fee 
Table.\304\ We believe some duplication is warranted to ensure that 
investors have key data, including expense information, about the 
available investment options located in one place. In addition, because 
the updating summary prospectus does not include a Fee Table, providing 
expense information in the Appendix ensures that current investors also 
receive the information. For these reasons, we are not making the 
requested change.
---------------------------------------------------------------------------

    \304\ See CAI Comment Letter.
---------------------------------------------------------------------------

    In a change from the proposal, we are revising the disclosure 
requirements for registrants on Form N-3 to clarify that if the 
registrant is a multiple class fund, the registrant only needs to 
disclose expenses and performance for one class.\305\ Investors who 
wish to obtain more information about portfolio company expenses for 
other classes can consult the information presented in the Fee 
Table.\306\ The Appendix is intended to facilitate the ability of 
investors to compare the portfolio companies available under the 
contract, and therefore changes that would equally affect the expenses 
and performance of all portfolio companies, such as changes due to 
class, would not be helpful in facilitating the ability of investors to 
select a particular portfolio company. This issue is not relevant for 
registrants on Forms N-4 and N-6 because those are two-tiered products 
with separate expenses at the contract level and the portfolio company 
level (e.g., changes in expenses due to class will not be reflected in 
the expenses of portfolio company).
---------------------------------------------------------------------------

    \305\ See Instructions 4-5 to Item 18 of amended Form N-3. 
Additionally, Instructions 4-5 cross-reference instructions in Form 
N-3 regarding calculation of expenses and performance as opposed to 
instructions in Form N-1A, as proposed. However, because those 
instructions in Form N-3 mirror the parallel instructions in Form N-
1A, this change in cross-references does not affect the substantive 
disclosure requirements for the Appendix in Form N-3.
    \306\ See Instruction 7 to Item 4 of amended Form N-3 (providing 
that for a contract with more than one class, the registrant must 
provide a separate response for each class); see generally supra 
Section II.A.1.c.ii.(h) (discussing the Fee Table).
---------------------------------------------------------------------------

    Some commenters had specific suggestions or concerns regarding the 
performance information. One commenter recommended permitting variable 
contracts to include a statement telling investors where and how they 
could obtain more current portfolio company performance 
information.\307\ We agree that this information is useful for 
investors and consistent with our layered disclosure approach, and are 
modifying the form instructions to permit such information to be 
included in the legend immediately preceding the table in the 
Appendix.\308\
---------------------------------------------------------------------------

    \307\ See ICI Comment Letter; see also supra note 287 and 
accompanying text.
    \308\ See Instruction 1(e) to Item 17 of amended Form N-4; 
Instruction 1(e) to Item 18 of amended Form N-6; see also Item 
4(b)(2) of Form N-1A (parallel instruction); see infra note 324.
---------------------------------------------------------------------------

    Three commenters stated that portfolio company performance data 
could be misleading or confusing because it would not reflect recurring 
separate account or contract charges, and it could conflict with the 
variable contract performance information contained in other materials 
that do include these charges.\309\ To address these concerns, we are 
modifying the item requirements to clarify what is (and is not) 
included in the performance and expense information in the 
Appendix.\310\
---------------------------------------------------------------------------

    \309\ See Lincoln Comment Letter; Brighthouse Comment Letter; 
Ameritas Comment Letter.
    \310\ See Item 18 of amended Form N-3, Item 17 of amended Form 
N-4, and Item 18 of amended Form N-6. See infra note 327 and 
following text.
---------------------------------------------------------------------------

    Two commenters asked that the performance information be permitted 
to include returns for the life of the fund if in existence for more 
than 10 years, to align with mutual fund disclosure requirements.\311\ 
Because we believe that presenting performance over 1, 5, and 10 year 
periods makes it easier for investors to compare fund performance, and 
because as part of the layered disclosure framework returns for the 
life of the fund are in a portfolio company's summary prospectus, which 
will be available online or upon request, we are not making this 
suggested change.
---------------------------------------------------------------------------

    \311\ See ICI Comment Letter; Capital Group Comment Letter.
---------------------------------------------------------------------------

    Several commenters asked for the Appendix to convey information 
about the risks associated with investment options.\312\ To make the 
Appendix more approachable for investors, we designed it to be concise, 
including only certain information about the available portfolio 
companies. Because variable contracts commonly offer hundreds of 
portfolio companies, and each portfolio company may have many risks, 
requiring risk information could quickly expand the length of the 
Appendix, which would make it less useful for investors and therefore 
we are not adopting this suggestion.
---------------------------------------------------------------------------

    \312\ See Comment Letter of Barry Iris (Jan. 17, 2019); 
Anonymous Comment Letter II (suggesting that the Appendix include a 
measure of relative risks for each fund, i.e., low, medium, high).
---------------------------------------------------------------------------

    The Commission proposed that if the availability of one or more 
portfolio companies varies by benefit offered under the contract, 
registrants would be required to include another table that showed 
which portfolio companies were available under each of those 
benefits.\313\ One commenter strongly opposed this second tabular 
presentation, stating it would be difficult, and in some cases 
infeasible, for insurers to distill the numerous possible variations in 
investment restrictions, clearly and concisely, into the simple table 
suggested by the proposed forms and the hypothetical initial summary 
prospectus.\314\ This commenter also stated that the proposed 
disclosure about benefit-related investment restrictions in ``Other 
Benefits Available under the Contract'' provides investors with a clear 
understanding that not all portfolio companies or investment options 
may be available for investment, with additional information about such 
restrictions in the statutory prospectus. Another commenter stated that 
the investment option table could be lengthy, especially since the 
restrictions change over time (even for the same

[[Page 25992]]

contract benefit), and recommended removing this disclosure requirement 
if the insurer imposes guardrails that prevent an investor from 
violating these investment restrictions.\315\
---------------------------------------------------------------------------

    \313\ See 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.
    \314\ See CAI Comment Letter.
    \315\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    We are requiring the Appendix in the initial summary prospectus (as 
well as the updating summary and statutory prospectuses) to indicate 
which portfolio companies are subject to benefit-related investment 
restrictions.\316\ We recognize that providing a reader-friendly 
tabular depiction of the investment limitations associated with certain 
variable contracts may be challenging for certain insurers, 
particularly those that offer multiple optional benefits, or benefits 
that have complicated investment restrictions. However, we believe the 
initial summary prospectus should alert investors which portfolio 
companies are (or are not) available for investment depending on the 
optional benefit they choose, as that information could affect their 
investment decisions. The initial summary prospectus will be limited to 
a single contract currently available for sale, which by its nature 
will limit the number of variations, and thus complexity, of the 
benefit-related investment restrictions insurers will be required to 
disclose to new purchasers.\317\
---------------------------------------------------------------------------

    \316\ Instruction 1(f)(2) to Item 17 of amended Form N-4; 
Instruction 1(f)(2) to Item 18 of amended Form N-6.
    \317\ We understand that many insurers currently use sales 
materials to illustrate the benefits-related investment restrictions 
to potential purchasers in a manner that is similar to our proposed 
approach.
---------------------------------------------------------------------------

    In contrast, we believe it may be more difficult to succinctly 
condense all the investment-related restrictions associated with 
multiple optional benefits for multiple contracts over a period of 
years in an updating summary prospectus, which, as discussed below, may 
describe multiple contracts.\318\ However, because a current investor's 
optional benefits may be voided if he or she inadvertently fails to 
comply with certain investment limitations, we believe the updating 
summary prospectus should, at a minimum, alert investors that 
restrictions apply.
---------------------------------------------------------------------------

    \318\ See infra Section II.A.2.b.
---------------------------------------------------------------------------

    Accordingly, and in response to comments,\319\ we are revising the 
instruction to provide greater flexibility to registrants in depicting 
such information to investors.\320\ In addition, we are requiring 
additional disclosure in the legend preceding the Appendix alerting 
investors that, depending on the optional benefits they choose, they 
may not be able to invest in certain portfolio companies.\321\ This 
approach is designed to minimize the Appendix's length and complexity, 
while addressing investor protection concerns. Accordingly, this 
flexibility may encourage issuers to develop more concise and effective 
ways to present the information to investors.
---------------------------------------------------------------------------

    \319\ See CAI Comment Letter (seeking clarification that the 
language in the proposed instruction permitting ``any other 
presentation that might promote clarity and facilitate 
understanding'' would allow multiple tables, narrative explanations, 
annotations, and other approaches or combinations).
    \320\ Instruction 1(f)(2) to Item 17 of amended Form N-4; 
Instruction 1(f)(2) to Item 18 of amended Form N-6. The proposed 
instructions would have required a separate table indicating these 
investment-related restrictions without this added flexibility.
    \321\ See Instruction 1(f)(1) to Item 17 of amended Form N-4; 
Instruction 1(f)(1) to Item 18 of amended Form N-6. See infra note 
324.
---------------------------------------------------------------------------

    Legends. We are requiring, largely as proposed, certain legends to 
precede the table in the Appendix. We are modifying certain aspects of 
the proposed legends to provide a more straightforward presentation, as 
suggested by several commenters, as well as to highlight investor 
attention to potential investment limitations, as discussed above.\322\
---------------------------------------------------------------------------

    \322\ See AARP Comment Letter; CAI Comment Letter; ICI Comment 
Letter.
---------------------------------------------------------------------------

    The first paragraph of the legend must state, as proposed: ``The 
following is a list of [Investment Options/Portfolio Companies] 
available under the Contract.'' \323\ In a change from the proposal, 
for registrants on Forms N-4 and N-6 for which the availability of 
portfolio company options varies by benefit offered under the contract, 
the legend will also state, ``[d]epending on the optional benefits you 
choose under the Contract, you may not be able to invest in certain 
Portfolio Companies.''
---------------------------------------------------------------------------

    \323\ See rule 498A(b)(5)(ix); Item 18 of amended Form N-3; Item 
17 of Form N-4; Item 18 of amended Form N-6.
---------------------------------------------------------------------------

    As proposed, the legend will 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.\324\ For registrants on Form N-3, the legend will 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.\325\ 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.\326\
---------------------------------------------------------------------------

    \324\ For registrants on Forms N-4 and N-6, the legend will read 
as follows:
    ``The following is a list of Portfolio Companies available under 
the Contract. More information about the Portfolio Companies is 
available in the prospectuses for the Portfolio Companies, which may 
be amended from time to time and can be found online at [__]. You 
can request this information at no cost by calling [__] or by 
sending an email request to [__].''
    Registrants that offer portfolio companies that are subject to 
benefits-related investment restrictions must add the statement, 
``Depending on the optional benefits you choose, you may not be able 
to invest in certain Portfolio Companies.'' See Instruction 1(f)(1) 
to Item 17 of amended Form N-4 and Instruction 1(f)(1) to Item 18 of 
amended Form N-6.
    Registrants that are not relying upon rule 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. See Instruction 1(d) to 
Item 17 of amended Form N-4 and Instruction 1(d) to Item 18 of 
amended Form N-6.
    \325\ For registrants on Form N-3, the legend will read as 
follows:
    ``The following is a list of Investment Options available under 
the Contract. 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 rule 498A(b)(5)(ix); Item 18 of amended Form N-3.
    \326\ See rule 498A(b)(5)(ix); Instruction 1(c) to Item 17 of 
amended Form N-4; Instruction 1(c) to Item 18 of amended Form N-6.
---------------------------------------------------------------------------

    We had proposed the second paragraph of the legend to state:

    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.

    We are requiring, with some modifications from the proposal, the 
second paragraph of the legend for variable contracts registered on 
Forms N-4 and N-6 to state as follows:

    The expense and 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 [, such as platform 
charges].\327\ Expenses would be higher and performance would be 
lower if these charges were included. Each Portfolio Company's past 
performance is not necessarily an indication of future 
performance.\328\
---------------------------------------------------------------------------

    \327\ See General Instruction 5 to Item 17 of amended Form N-4; 
General Instruction 5 to Item 18 of Form N-6. This additional phrase 
is only required for registrants that charge platform fees.
    \328\ See Item 17 of amended Form N-4; Item 18 of amended Form 
N-6.

    These revisions are intended to streamline the legends in response 
to commenters' concerns, to clarify which charges are, and are not, 
included in the

[[Page 25993]]

performance calculation, and to tell investors where they can find 
current performance information.
    In contrast, because insurance charges are already reflected in the 
expenses and 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 will state, largely as proposed: \329\
---------------------------------------------------------------------------

    \329\ The proposed legend did not include ``current expenses.''

    The current expenses and 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.\330\
---------------------------------------------------------------------------

    \330\ See Item 18 of amended Form N-3.

    Form N-3. For variable contracts registered on Form N-3, 
registrants may omit the required Appendix and instead provide more 
detailed disclosures for the investment options offered under the 
contract required by Item 19 of amended Form N-3.\331\ Item 19 requires 
narrative disclosure for each investment option regarding its 
investment objectives and principal investment strategies, and 
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.\332\
---------------------------------------------------------------------------

    \331\ See rule 498A(b)(5)(ix); Item 19 of amended Form N-3.
    \332\ See text following note 797 (discussing Item 19 of amended 
Form N-3); see also Item 4(b)(2) of Form N-1A.
---------------------------------------------------------------------------

2. Updating Summary Prospectus
a. Overview
    Today, variable contract investors are typically sent a copy of the 
updated current contract statutory prospectus each year.\333\ New rule 
498A permits 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.\334\
---------------------------------------------------------------------------

    \333\ Investors generally must be provided with a prospectus 
when they make additional purchase payments or reallocate variable 
contract value. See Proposing Release, supra note 6, at nn.27-29 and 
accompanying text. As proposed, an updating summary prospectus that 
complies with rule 498A 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.
    \334\ See rule 498A(c).
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    The comments we received relating to the updating summary 
prospectus were generally supportive.\335\ Although commenters did not 
raise broad objections to this aspect of our proposal, they raised 
concerns with and/or requested clarification on specific issues, as 
discussed in more detail below. We are adopting the proposed updating 
summary prospectus framework substantially as proposed, with some 
modifications in response to issues raised by commenters.
---------------------------------------------------------------------------

    \335\ See, e.g., CAI Comment Letter; Lincoln Comment Letter; 
ACLI Comment Letter. Many commenters elected to provide detailed 
comments on the initial summary prospectus, stating that their 
comments also applied to the updating summary prospectus. See, e.g., 
CAI Comment Letter; AARP Comment Letter.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, we are not requiring that 
registrants send a current 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 to new investors. 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 from 
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, as proposed, the updating 
summary prospectus will include certain of the information required in 
the initial summary prospectus that we consider most relevant to 
investors when considering additional investment decisions.
    Finally, as proposed, 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.\336\ 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.
---------------------------------------------------------------------------

    \336\ Rule 498A(c)(1).
---------------------------------------------------------------------------

    Several commenters sought clarification regarding whether insurers 
could use an updating summary prospectus even if the insurer did not 
provide an initial summary prospectus to existing investors that 
previously received a full statutory prospectus.\337\ Under new rule 
498A, an insurer could use an updating summary prospectus even if the 
insurer did not provide an initial summary prospectus to an existing 
investor that previously received a full statutory prospectus. The rule 
only requires an insurer to use an initial summary prospectus for each 
currently offered contract described in the statutory prospectus if the 
insurer wishes to use an updating summary prospectus.\338\
---------------------------------------------------------------------------

    \337\ See ACLI Comment Letter; CAI Comment Letter; Transamerica 
Comment Letter.
    \338\ Thus, if each contract in a registration statement is no 
longer offered to new investors (and therefore the insurer would no 
longer have a need to use an initial summary prospectus), an insurer 
may continue to use an updating summary prospectus.
---------------------------------------------------------------------------

b. Contracts That May Be Included in the Updating Summary Prospectus
    As proposed, the new rule permits the updating summary prospectus 
to describe one or more contracts covered in the statutory prospectus 
to which the updating summary prospectus relates.\339\ This scope is 
different than that of the initial summary prospectus, which may only 
cover a single contract that the registrant currently offers for 
sale.\340\ Similar to the initial summary prospectus, however, the new 
rule also permits an updating summary prospectus to describe more than 
one class of a contract.\341\
---------------------------------------------------------------------------

    \339\ See rule 498A(c)(2). If there are multiple statutory 
prospectuses in a registration statement, a separate updating 
summary prospectus would be required for each such statutory 
prospectus.
    \340\ See supra Section II.A.1.b.
    \341\ 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 currently offered contract).
---------------------------------------------------------------------------

    Given the limited subset of information provided in the updating 
summary prospectus, we believe permitting registrants to combine 
multiple contracts will not cause investor confusion in the same way 
that combining disclosure about multiple contracts in the initial 
summary prospectus might.\342\ Furthermore, we understand that there 
are generally not a significant number of changes that occur to an 
individual contract year-over-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

[[Page 25994]]

changes, even if changes to multiple contracts are included, will not 
be overly lengthy, and will not prevent investors from reading or 
understanding the applicable disclosures.\343\ Finally, combining 
multiple contracts could make the updating summary prospectus 
significantly more efficient for registrants to produce and distribute.
---------------------------------------------------------------------------

    \342\ See infra text following note 598 (discussing new General 
Instruction C.3.(e)(i) to Forms N-3, N-4, and N-6 regarding the 
permitted inclusion of multiple contracts in a single prospectus).
    \343\ A registrant must indicate in this section, to the extent 
appropriate, whether certain described contract changes are only 
applicable to certain contracts in the statutory prospectus. See 
rule 498A(c)(6)(i)(B).
---------------------------------------------------------------------------

    Commenters widely agreed with the proposed approach, and supported 
the optionality to allow the updating summary prospectus to include 
multiple contracts under the statutory prospectus to which the summary 
prospectus relates.\344\ Accordingly, we are adopting this approach as 
proposed.
---------------------------------------------------------------------------

    \344\ See, e.g., ACLI Comment Letter.
---------------------------------------------------------------------------

c. Preparation of the Updating Summary Prospectus
    The following chart outlines the information required in an 
updating summary prospectus under new rule 498A. As proposed, along 
with specifying required cover page disclosures, the rule references 
particular disclosure items from Forms N-3, N-4, and N-6. The required 
information must appear in the same order, and under the relevant 
corresponding headings, as specified by the rule.\345\
---------------------------------------------------------------------------

    \345\ See rule 498A(c)(6).

                               Table 3--Outline of the Updating Summary Prospectus
----------------------------------------------------------------------------------------------------------------
                                                                      Item of         Item of         Item of
             Heading in updating summary prospectus               amended Form N- amended Form N- amended Form N-
                                                                         3               4               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                        2               2
     [Contract].................................................
 
    Appendix: [Investment Options/Portfolio Companies] Available              17              18
     Under the [Contract]\346\ 18 or 19.........................
----------------------------------------------------------------------------------------------------------------

i. Cover Page and Table of Contents
---------------------------------------------------------------------------

    \346\ Registrants on Form N-3 may omit the Appendix specified by 
Item 18 of amended Form N-3, and instead provide the more detailed 
disclosures about the investment options offered under the contract 
required by Item 19 of amended Form N-3. See infra note 788 and 
accompanying text.
---------------------------------------------------------------------------

    Identifying Information. As proposed, the following information 
will be required to appear on the front cover page or at the beginning 
of the updating summary prospectus:
     The depositor'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.\347\
---------------------------------------------------------------------------

    \347\ See rule 498A(c)(3)(i) through (iv). We are not requiring 
the cover page of the updating summary prospectus to include the 
registrant's name. See supra Section II.A.1.c.i.
---------------------------------------------------------------------------

    Legend. The cover page or beginning of the updating summary 
prospectus is required to include the following legend:

    The prospectus for the [Contract] contains more information 
about the [Contract], including its features, benefits, and risks. 
You can find the current prospectus and other information about the 
[Contract] online at [__]. You can also obtain this information at 
no cost by calling [__] or by sending an email request to [__].\348\
---------------------------------------------------------------------------

    \348\ See supra note 86 (discussing requirements of the 
registrant's internet address and contact information).
---------------------------------------------------------------------------

    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.\349\
---------------------------------------------------------------------------

    \349\ See rule 498A(c)(3)(v).

    Like the cover page or beginning of the initial summary prospectus, 
the cover page or beginning of the updating summary prospectus will be 
required to include identifying information about the variable 
contract, as well as a legend including certain general information 
that will be applicable to all variable contracts. The portions of the 
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 will appear on the cover page or 
beginning of the initial summary prospectus.\350\ As with the initial 
summary prospectus, a registrant could modify this required legend so 
long as the modified legend includes comparable information.\351\ 
Likewise, the updating summary prospectus will also include a legend 
informing investors about the optional internet availability of 
shareholder reports, if applicable, pursuant to the requirements of 
rule 30e-3.\352\
---------------------------------------------------------------------------

    \350\ See rule 498A(b)(2)(v); see also supra note 86. The legend 
in the updating summary prospectus will note that ``an updated 
prospectus'' is available online, whereas the initial summary 
prospectus will note that it summarizes key features of the 
contract.
    \351\ See rule 498A(c)(3)(v); see also rule 498A(b)(2)(v)(A).
    \352\ See infra note 623.
---------------------------------------------------------------------------

    Similar to the initial summary prospectus, if a registrant 
incorporates any information by reference into the updating summary 
prospectus, the rule requires the registrant to include in the legend 
certain information about the document(s) from which the information 
was incorporated.\353\ The free look period legend that will appear on 
the cover page or beginning of the initial summary prospectus is not 
appropriate in the context of the updating summary prospectus, because 
the free look period is not applicable to additional investments after 
the initial purchase.
---------------------------------------------------------------------------

    \353\ See infra Section II.A.7.

---------------------------------------------------------------------------

[[Page 25995]]

    In response to requests from commenters urging that we streamline 
the legends where possible, the legend on the cover page or beginning 
of the updating summary prospectus also reflects certain streamlining 
changes that mirror revisions made to the parallel legend in the 
initial summary prospectus.\354\
---------------------------------------------------------------------------

    \354\ See text following note 95.
---------------------------------------------------------------------------

    EDGAR Contract Identifier. As proposed, we are also requiring 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).\355\
---------------------------------------------------------------------------

    \355\ See rule 498A(c)(4)(ii). As in the case of the initial 
summary prospectus, this requirement is designed to allow Commission 
staff and others to more easily link the updating summary prospectus 
with other filings associated with the contract.
---------------------------------------------------------------------------

    Table of Contents. As proposed, the new rule permits an updating 
summary prospectus, like the initial summary prospectus, to include a 
table of contents.\356\ 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.\357\
---------------------------------------------------------------------------

    \356\ See rule 498A(c)(5).
    \357\ Rule 481(c).
---------------------------------------------------------------------------

ii. Content of the Updating Summary Prospectus
    New rule 498A specifies the content and order required in an 
updating summary prospectus.\358\ 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.\359\
---------------------------------------------------------------------------

    \358\ See rule 498A(c)(6).
    \359\ See supra note 106.
---------------------------------------------------------------------------

(a) Description of Changes to the Contract
    The updating summary prospectus is required to include a concise 
description of certain changes to the contract made after the date of 
the most recent updating summary prospectus or statutory prospectus 
that was sent or given to investors.\360\ As proposed, these changes 
include those that relate to (1) the availability of portfolio 
companies (or investment options under a variable annuity registered on 
Form N-3) under the contract,\361\ (2) the Fee Table,\362\ (3) the 
standard death benefit (for variable life insurance contracts),\363\ 
and (4) the benefits available under the contract.\364\
---------------------------------------------------------------------------

    \360\ See 17 CFR 230.423 (rule 423 under the Securities Act) 
(regarding the date of the prospectus).
    \361\ See rule 498A(c)(6)(i). A change that has affected 
availability of portfolio companies (or investment options) includes 
changes in the portfolio companies (or investment options) offered 
under the contract or available in connection with any optional 
benefit. See also Item 18 of amended Form N-3; Item 17 of amended 
Form N-4; Item 18 of amended Form N-6.
    \362\ See rule 498A(c)(6)(i); see also Item 4 of amended Forms 
N-3, N-4, and N-6.
    \363\ See rule 498A(c)(6)(i); see also Item 10 of amended Form 
N-6. See supra Section II.A.1.c.ii.(c).
    \364\ See rule 498A(c)(6)(i); see also Item 11 of amended Forms 
N-3 and N-6; Item 10 of amended Form N-4.
---------------------------------------------------------------------------

    In a change from the proposal, we are also requiring the updating 
summary prospectus to include a concise description of changes to other 
items that are included in an initial summary prospectus. Specifically, 
we are requiring a discussion of changes that relate to the Key 
Information Table,\365\ the overview of the contract,\366\ purchases 
and contract value (premiums for variable life insurance 
contracts),\367\ surrenders and withdrawals,\368\ and lapse (for 
variable life insurance contracts).\369\ Although we would not expect 
these additional items to change very frequently (for example, many 
relate to terms that are set by the contract or reflect Commission or 
state insurance regulatory requirements), given their importance, we 
believe that investors should be notified of any changes with respect 
to these items.
---------------------------------------------------------------------------

    \365\ See rule 498A(c)(6)(i); see also Item 2 of amended Forms 
N-3, N-4, and N-6.
    \366\ See rule 498A(c)(6)(i); see also Item 3 of amended Forms 
N-3, N-4, and N-6.
    \367\ See rule 498A(c)(6)(i); see also Item 12 of amended Form 
N-3; Item 11 of amended Form N-4; Item 9 of amended Form N-6.
    \368\ See rule 498A(c)(6)(i); see also Item 13 of amended Form 
N-3; Item 12 of amended Forms N-4 and N-6.
    \369\ See rule 498A(c)(6)(i); see also Item 14 of amended Form 
N-6.
---------------------------------------------------------------------------

    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.\370\ 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.
---------------------------------------------------------------------------

    \370\ See 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 rule requires.
---------------------------------------------------------------------------

    These contract changes will be described under the heading 
``Updated Information About Your [Contract].'' \371\ This legend will 
be required to follow the heading:
---------------------------------------------------------------------------

    \371\ See rule 498A(c)(6)(i).

    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].\372\
---------------------------------------------------------------------------

    \372\ See rule 498A(c)(6)(i)(A).

    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 each 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.
    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. One commenter 
noted that ``because investors currently obtain disclosure about 
contract changes in a piecemeal fashion through different sequential 
updating disclosure, it may be helpful and constructive for investors 
to have a list in one place about contract changes in the updating 
prospectus.'' \373\
---------------------------------------------------------------------------

    \373\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    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

[[Page 25996]]

change and how it will affect them.\374\ For example, this could 
include stating that an optional benefit 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 is no longer available under the contract to new 
investors although current investors may continue to make investments, 
this change should be disclosed in the discussion of changes to the 
contract, even though in the Appendix the portfolio company will have a 
footnote (or similar indication) alerting investors that investments in 
the portfolio company are restricted to current investors.
---------------------------------------------------------------------------

    \374\ See rule 498A(c)(6)(i)(B).
---------------------------------------------------------------------------

    In the proposal, we had stated that ``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.'' \375\ Commenters asked whether the updating summary 
prospectus should, in the discussion of changes to the contract, 
disclose changes to the expense ratio of the portfolio companies.\376\ 
Because the Appendix will present updated portfolio company information 
as to portfolio company expenses (as well as performance), we do not 
expect changes to portfolio company expenses to be disclosed in the 
discussion of changes to the contract section, even in cases where the 
``Annual Portfolio Company Expenses'' table in the Fee Table is changed 
to reflect a new range.
---------------------------------------------------------------------------

    \375\ See Proposing Release, supra note 6, at n.236 and 
accompanying text.
    \376\ See CAI Comment Letter (seeking clarification because the 
proposal indicates that a change in expense ratio should be 
disclosed, ``which would lead to voluminous, technical, and lengthy 
disclosure that would obscure information and reduce the 
effectiveness of the updating summary prospectus.''); ACLI Comment 
Letter (stating that providing details about changes to underlying 
fund expenses would be burdensome, and recommending that the 
disclosure state that underlying fund expenses can be expected to 
change and investors should consult the Appendix discussing them in 
greater detail). We agree that the proposing release contained an 
example that may have led to this misimpression, and have replaced 
this with another example.
---------------------------------------------------------------------------

    One commenter stated that the updating summary prospectus should be 
able to include changes that have occurred outside of the limited time 
period specified in proposed rule 498A.\377\ Because we are seeking to 
limit the amount of information in the updating summary prospectus to 
key information in order make it more approachable for investors, we 
decline to expand its scope to include information beyond the specified 
period. This commenter also stated that since the delivery of the last 
updating summary or statutory prospectus, insurers may have delivered 
supplements to those documents. As a result, highlighting and repeating 
those disclosures in the updating summary prospectus could be 
confusing. This commenter recommended we permit insurers to omit 
information that has been disclosed in a prior updating summary 
prospectus or statutory prospectus supplements delivered to investors 
(and if insurers include it, they should be able to clarify that the 
information was previously communicated).\378\ We do not share the 
commenter's concern that investors will become confused and in fact 
believe that permitting such omission could result in piecemeal 
disclosures that are less useful to investors, and are therefore not 
making the suggested change.\379\
---------------------------------------------------------------------------

    \377\ See CAI Comment Letter.
    \378\ Id.
    \379\ See supra note 373.
---------------------------------------------------------------------------

    Another commenter suggested that we not require the delivery of an 
updating summary prospectus in the case of additional investments in a 
variable contract, as they will receive an updating summary prospectus 
annually, as well as prospectus supplements throughout the year, as 
necessary, for certain changes to the contract and/or portfolio company 
information.\380\ We agree with the commenter's interpretation and note 
that the Commission did not propose, and we are not adopting, a 
requirement to deliver an updating summary prospectus each time an 
investor makes an additional investment.\381\
---------------------------------------------------------------------------

    \380\ See Transamerica Comment Letter.
    \381\ See infra Section II.A.3 for further discussion on the 
delivery of amendments to contract prospectuses.
---------------------------------------------------------------------------

Key Information
    As proposed, the updating summary prospectus must include the same 
Key Information Table that appears in the initial summary 
prospectus.\382\ As discussed above, this table streamlines certain 
important concepts about the variable contract in a presentation that 
is designed to be easy to read and navigate.\383\
---------------------------------------------------------------------------

    \382\ See rule 498A(c)(6)(iii). This disclosure will be the same 
information required by Item 2 of Forms N-3, N-4, and N-6.
    \383\ See supra Section II.A.1.c.ii.(a).
---------------------------------------------------------------------------

    Because investors may make additional investments in the variable 
contract, we are requiring 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 will include only this Key Information 
Table as summary disclosure about the contract's key information, and 
will not also include the additional disclosure that the initial 
summary prospectus will 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 contract, or 
use a different presentation approach that consistently discloses the 
required information for each contract in the required order.\384\ For 
example, if the only Key Information Table disclosure that will vary by 
contract is the fee information, a prospectus that describes multiple 
contracts could include a single Key Information Table that discloses 
separate fee information in the

[[Page 25997]]

``Fees and Expenses'' line-items for each contract.
---------------------------------------------------------------------------

    \384\ See ACLI Comment Letter (supporting this flexibility as 
``allowing an approach that makes the most sense for each 
company.'').
---------------------------------------------------------------------------

    One commenter opposed including the line-item for investment 
professional compensation in the Key Information Table, stating that 
once a contract has been purchased, information about investment 
professional compensation is not sufficiently relevant to be required 
in the table.\385\ Because investment professionals may present 
investors with other opportunities to invest in variable contracts, or 
encourage them to terminate an existing contract and then purchase or 
exchange into a new one, we believe it is important to remind investors 
about potential conflicts of interest, and are retaining the 
requirement, as proposed.
---------------------------------------------------------------------------

    \385\ Id. (stating that Regulation Best Interest and Form CRS 
may resolve questions about appropriate disclosure concerning 
investment professional compensation).
---------------------------------------------------------------------------

Appendix: Portfolio Companies/Investment Options Available Under the 
Contract
    Finally, as proposed, the updating summary prospectus must include 
the Appendix, which provides summary information about the portfolio 
companies offered under the contract.\386\ This Appendix requirement is 
identical to the requirement for the Appendix in the initial summary 
prospectus.\387\ Like the requirement for the initial summary 
prospectus Appendix, Form N-3 registrants could omit the Appendix and 
instead provide the more detailed disclosures about the investment 
options offered under the contract that will be required by Item 19 of 
Form N-3.\388\
---------------------------------------------------------------------------

    \386\ Rule 498A(c)(6)(iv). This information on portfolio 
companies or investment options is the same information required by 
Item 17 of amended Form N-4 and Item 18 of amended Forms N-3 and N-
6.
     We received and considered several comments on the Appendix, 
which are discussed in Section II.A.1.ii.(i). See, e.g., supra note 
266.
    \387\ Paralleling a similar requirement for the initial summary 
prospectus, if the Appendix includes the information required by 
Item 18 of amended Form N-3, the Appendix must 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 Item 18 of 
amended Form N-3; rule 498A(c)(6)(iv).
    \388\ See rule 498A(c)(6)(iv); see also text following note 796 
(discussing Item 19 of amended Form N-3).
---------------------------------------------------------------------------

    Because the selection of portfolio companies or investment options 
will directly affect the performance, and 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.\389\
---------------------------------------------------------------------------

    \389\ As discussed above, we are requiring the Appendix in the 
initial and updating summary prospectuses to indicate which 
portfolio companies are subject to benefit-related investment 
restrictions. See supra note 316 and accompanying text.
---------------------------------------------------------------------------

3. Interim Amendments to Contract Statutory Prospectuses
    One commenter asked for clarity regarding when contract 
prospectuses and summary prospectuses must be updated, and when 
information related to those updates must be delivered to 
investors.\390\ We believe that the use of initial and updating summary 
prospectuses to satisfy prospectus delivery requirements generally 
should mirror today's summary prospectus delivery practices for mutual 
funds. To the extent there are amendments to the statutory prospectus 
that occur between annual updates (i.e., on an off-cycle basis) and an 
investor who received a summary prospectus makes a subsequent 
contribution to, or reallocates contract value within, their contract:
---------------------------------------------------------------------------

    \390\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

     If the amendment affects information contained in the 
current summary prospectus (including any of the four categories of 
changes that will be disclosed as part of the ``Updated Information 
About Your [Contract]'' section of an updating summary prospectus), we 
believe that the summary prospectus would be amended (e.g., by sticker 
or supplement) and the amendment provided to investors as necessary to 
meet any requirements to deliver a current statutory prospectus for the 
contract; \391\ and
---------------------------------------------------------------------------

    \391\ Section 5(b)(2) of the Securities Act.
---------------------------------------------------------------------------

     If the amendment does not affect information contained in 
the current summary prospectus, we do not believe that the summary 
prospectus would be amended and therefore, no amendment would need to 
be provided to investors.
4. 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.\392\ As proposed, new rule 498A provides 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, described below.
---------------------------------------------------------------------------

    \392\ 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 Proposing Release supra note 6 at nn.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.
---------------------------------------------------------------------------

    First, a person relying on new rule 498A will 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.\393\ This 
summary prospectus will 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.\394\
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    \393\ See supra note 392 (discussing the prohibition against 
carrying or delivering a security without otherwise accompanying it 
or preceding it with a statutory prospectus).
    \394\ See rule 498A(f)(1); see also supra note 333 and 
accompanying text.
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    Second, the summary prospectus generally may not be bound together 
with any other materials, except portfolio company summary and 
statutory prospectuses may be bound together with the contract summary 
prospectus,\395\ subject to certain conditions.\396\ Third, the summary 
prospectus must meet the rule's content requirements for an initial 
summary prospectus or updating summary prospectus (as 
appropriate).\397\ Finally, the initial summary prospectus, updating 
summary prospectus, contract statutory prospectus, and contract SAI 
must be publicly accessible, free of

[[Page 25998]]

charge, on a website in the manner that the rule specifies.\398\
---------------------------------------------------------------------------

    \395\ See rule 498A(f)(2).
    \396\ See rule 498A(f)(2)(i) and (ii). These materials may be 
bound 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.
    \397\ See rule 498A(f)(3).
    \398\ See rule 498A(f)(4) (in addition, a Form N-3 registrant 
will also be required to post its most recent annual and semi-annual 
reports to shareholders to the website); see also infra Section 
II.A.5.
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    Failure to comply with any of these requirements will prevent a 
person from relying upon the rule 498A 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 will result.\399\
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    \399\ As discussed below, the 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 rule, but not result in a violation of Section 
5(b)(2). See infra note 490 and accompanying text.
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    New rule 498A also provides 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) will not be deemed a prospectus under Section 
2(a)(10) of the Securities Act \400\ if:
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    \400\ 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. See Section 2(a)(10) of the Securities Act [15 
U.S.C. 77b(a)(10)(a)] (providing 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).
---------------------------------------------------------------------------

    (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 rule 
specifies.\401\
---------------------------------------------------------------------------

    \401\ See rule 498A(g).
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    This provision of the final rule, which is modeled on a 
corresponding provision of rule 498,\402\ 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.\403\
---------------------------------------------------------------------------

    \402\ See rule 498(d).
    \403\ See, 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)].
---------------------------------------------------------------------------

    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 
appear in the summary prospectus also will 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, 
will have the benefit of improved disclosures in the statutory 
prospectus.
    We received comments relating to the rule's conditions as to 
delivery of the summary prospectus. One commenter recommended that the 
summary prospectus should be delivered at the point of the investment 
recommendation,\404\ while another believed that retail investors 
should receive the initial summary prospectus ``the earlier of `the 
time of the `carrying or delivery' of the contract' or 10 days in 
advance of the effective date of the contract'' to allow time to make 
an educated investment decision and rescind the contract before the end 
of the free-look period.\405\ Because the proposed delivery requirement 
effectuates the requirements of a statutory provision, we are not 
modifying the timing of the prospectus delivery requirements, and are 
accordingly adopting this aspect of the rule as proposed.
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    \404\ See CFA Comment Letter (``For investors to make good use 
of disclosures, they need to receive the information early enough 
(e.g., point of recommendation) to incorporate it in their decision-
making process. Disclosure that arrives after a decision has already 
been made (e.g., point of sale) or worse, after a purchase has 
already been made, defeat the purpose of disclosure as a decision-
making tool.'').
    \405\ See AARP Comment Letter.
---------------------------------------------------------------------------

    Although the Commission did not propose a change to the delivery 
format (paper versus electronic) of summary prospectuses, we received a 
number of comments on this topic.\406\ One commenter asked that we 
allow insurers to deliver an electronic initial summary prospectus with 
links to the statutory prospectus at the point of sale.\407\ A second 
commenter suggested that we allow insurers to satisfy prospectus 
delivery obligations by posting the prospectuses on the company's 
website, provided that paper copies are available upon request,\408\ 
similar to the delivery requirements for the required online contract 
documents, discussed below.\409\ A third commenter stated that any 
summary prospectus should be provided to investors digitally and in 
hard copy.\410\ A fourth commenter urged us to require paper delivery 
as the default delivery of their prospectuses or summary prospectuses 
unless the retail investor has affirmatively chosen to receive these 
documents electronically.\411\ Another commenter stated that it did not 
see a ``need to modify the requirements to make clear that paper-based 
delivery is not the only permissible or desired delivery format.'' 
\412\
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    \406\ Several commenters asked that we take steps to modernize 
the electronic delivery framework. See VIP Working Group Comment 
Letter; CAI Comment Letter (requesting action with respect to the 
federal Electronic Signatures in Global and National Commerce Act of 
2000 (``E-SIGN''), which, as described, includes provisions that 
impose significant burdens on how informed consent may be obtained); 
Broadridge Comment Letter (stating that if technologies like QR 
codes and offers to enroll in e-delivery were permitted (but not 
required) to be included in the new disclosure, the path to digital 
delivery could be smoother for the 85% of variable annuity investors 
who currently receive these documents in the mail). Because these 
issues go beyond the scope of this rulemaking, we do not address 
them here. However, recognizing the growth of different forms of 
electronic media and other technological developments, among other 
things, the Commission has stated that it plans to revisit its 
existing guidance regarding electronic delivery. See Form CRS 
Relationship Summary; Amendments to Form ADV, Investment Advisers 
Act Release No. 5247 (June 5, 2019) [84 FR 33492 (July 12, 2019)], 
at n.678.
    \407\ See AIG Comment Letter. This approach is permitted under 
existing rules, subject to certain conditions. See Proposing 
Release, supra note 6, at n.32.
    \408\ See Lincoln Comment Letter.
    \409\ See infra Section II.A.6.
    \410\ See Cardozo Clinic Comment Letter.
    \411\ See AARP Comment Letter; CFA Comment Letter (investors 
should continue to have the choice of how they prefer to receive 
disclosures--whether in paper or electronically).
    \412\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    To maintain a consistent regime across all investment products, the 
summary prospectus framework we are adopting in this document will not 
change the Commission's current guidance regarding electronic delivery. 
As discussed in the Proposing Release, although paper is the default 
format for delivery of prospectuses and certain other required 
disclosures, 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

[[Page 25999]]

information being provided; and (3) the issuer has evidence of 
delivery.\413\ Issuers relying on this guidance have typically 
satisfied the ``evidence of delivery'' requirement by obtaining 
informed consent to electronic delivery.\414\ We understand that 
investors that have elected electronic delivery of materials associated 
with their variable contract commonly receive an email that contains a 
link to the website where the materials are available.\415\
---------------------------------------------------------------------------

    \413\ See 1995 Release, supra note 19; 1996 Release, supra note 
19; 2000 Release, supra note 19.
    \414\ See Proposing Release supra note 6, at n.32 and 
accompanying text.
    \415\ One commenter requested clarification regarding an issue 
related to electronic delivery obligations generally. See CFA 
Comment Letter. Because these comments go beyond the scope of this 
rulemaking, we do not address them here. See also supra note 406.
---------------------------------------------------------------------------

5. Online Accessibility of Contract Statutory Prospectus and Certain 
Other Documents Relating to the Contract
    Under the final rule, as proposed, investors who receive an initial 
or updating summary prospectus will have access to 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.\416\ In our 
experience, layered disclosure for mutual funds has benefitted both 
investors and registrants, and we are adopting 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.\417\
---------------------------------------------------------------------------

    \416\ See rule 498(c)(4), (d)(4), (e), and (f).
    \417\ See 2012 Financial Literacy Study, supra note 108, at iv, 
xix.
---------------------------------------------------------------------------

a. Required Online Contract Documents
    As proposed, and under the final rule, 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''), will be 
required to be available online.\418\ This approach operationalizes the 
summary prospectus layered disclosure framework, with the summary 
prospectus provided in paper (or electronically) to investors, and 
additional information about the contract securities available online.
---------------------------------------------------------------------------

    \418\ See rule 498A(h)(1)(i) through (ii).
---------------------------------------------------------------------------

    The required online contract documents generally comprise the same 
set of documents that the mutual fund summary prospectus rules require 
to be posted online,\419\ 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 shareholder reports, but 
instead transmit the portfolio companies' annual and semi-annual 
shareholder reports to the investors in the contracts.
---------------------------------------------------------------------------

    \419\ See rule 498(e)(1).
---------------------------------------------------------------------------

    As with similar provisions in the mutual fund summary prospectus 
rule, these required online contract documents are 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 rule provides the summary prospectus to 
investors.\420\ Moreover, a current version of each of the required 
online contract documents must remain on that website for at least 90 
days following either:
---------------------------------------------------------------------------

    \420\ See rule 498A(h)(1); see also rule 498(e)(1).
---------------------------------------------------------------------------

     The time of the ``carrying or delivery'' of the contract 
security if a person is relying on the rule to satisfy its Section 
5(b)(2) prospectus delivery obligations; or
     If a person is relying on the rule to send communications 
that will not be deemed to be prospectuses, the time that the person 
sends or gives the communication to investors.\421\
---------------------------------------------------------------------------

    \421\ See rule 498A(h)(1).
---------------------------------------------------------------------------

    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 rule. One commenter stated the 
proposed 90-day timeframe for the availability of online information 
was too short (unless there were an archive requirement, in which case 
it suggested the 90-day timeframe could make sense), and that a year 
would be more helpful to investors.\422\
---------------------------------------------------------------------------

    \422\ See AARP Comment Letter.
---------------------------------------------------------------------------

    As a practical matter, because variable contracts (and their 
underlying portfolio companies) are generally continuously offered, a 
current contract prospectus and related documents would likely remain 
online for longer than 90 days. The 90 day period is also the timeframe 
required for the availability of online information under the mutual 
fund summary prospectus rule, and the Commission proposed that it be 
the same for variable contracts 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 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.\423\
---------------------------------------------------------------------------

    \423\ For example, an investor who has received the summary 
prospectus and would like to review more detail about a certain 
topic in the statutory prospectus would have at least 90 days to 
access the statutory prospectus that is available online.
---------------------------------------------------------------------------

    Two commenters recommended that we make the web-posting 
requirements more principles-based and less regimented.\424\ The 
proposed requirements for the availability of online information were 
designed to mirror the requirements in the mutual fund summary 
prospectus rule because we believed that investors and the industry 
would benefit from the consistency between the two summary prospectus 
regimes. Moreover, we believe it would be more appropriate to undertake 
a holistic review of the website posting (and possibly other 
technology-based) requirements for all investment products, including 
funds and variable contracts as part of a future initiative. Therefore, 
we are adopting the website posting requirements as proposed.
---------------------------------------------------------------------------

    \424\ See VIP Working Group Comment Letter; Anonymous Comment 
Letter III. One of these commenters suggested that we not be so 
prescriptive about the format of content, which appear to be paper-
based, and instead permit the flexibility that would allow for a 
website with tabs for each section instead of a serial document. The 
final rule does not prohibit a website with tabs for each section.
---------------------------------------------------------------------------

    Website Address at Which Required Online Contract Documents Are 
Available. Also as proposed, the website address must be specific 
enough to lead investors directly to the required online contract 
documents, although the website can be a central site with prominent 
links to each document.\425\ Thus, while contract documents may be 
hosted at multiple locations, for purposes of compliance with the rule, 
a summary prospectus may only include a single website address where 
each of the required online contract documents

[[Page 26000]]

may be accessed. This requirement is designed to ensure that the 
required online contract documents are collectively located at the same 
website address (or can be readily accessed from the same website 
address), as opposed to being scattered across various disconnected 
websites which could discourage investors from seeking those materials. 
As discussed below, if an insurer avails itself of the optional method 
of delivering portfolio company prospectuses, the portfolio company 
documents required to be made available online under that option must 
be accessible from the same website address used to access the required 
contract documents.\426\
---------------------------------------------------------------------------

    \425\ See rule 498A(b)(2)(v)(B).
    \426\ See infra Section II.B.
---------------------------------------------------------------------------

b. Formatting Requirements for Required Online Contract Documents
    The final rule, as proposed, requires that the online contract 
documents be presented in a manner that is human-readable and capable 
of being printed on paper in human-readable format.\427\ We received no 
comments on this aspect of the proposal. This formatting requirement is 
a condition of 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.\428\ The 
``human-readable'' presentation requirement is designed to impose a 
minimum standard of usability comparable to that of a paper document, 
although the electronic version could include additional features 
(e.g., fee calculators or pop-up explanations) that might enhance its 
usability relative to the paper version.\429\ Regarding usability, all 
portions of the document should be human-readable such that when an 
investor views the document electronically, the text is not cut off 
based on the screen size.
---------------------------------------------------------------------------

    \427\ See rule 498A(h)(2)(i).
    \428\ Rule 498(e)(2)(i).
    \429\ As 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 human-readable text. This condition does not impose any 
further requirements relating to user-friendliness of the 
presentation. See 2009 Summary Prospectus Adopting Release, supra 
note 17, at 85; see also infra note 444 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 or pop-up 
explanations) that present further opportunities to promote investor 
understanding).
---------------------------------------------------------------------------

    In addition, the final rule requires that the online materials be 
presented in a format, or formats, that are convenient for both reading 
online and printing on paper.\430\ The failure to comply with these 
``convenient for reading and printing'' formatting requirements will 
not, however, be a condition of reliance on the rule, because whether a 
particular format is convenient for reading online and printing depends 
on a number of factors and must be decided on a case-by-case 
basis.\431\ In order to provide certainty to market participants, we 
are therefore not mandating that this requirement be a condition of 
reliance on the rule, and thus the failure to comply with this 
requirement will 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.\432\ Such a failure will, however, constitute a 
violation of Commission rules.
---------------------------------------------------------------------------

    \430\ See rule 498A(i)(3); see also rule 498(f)(3) (parallel 
provision in the rule governing the use of mutual fund summary 
prospectuses). This condition could be satisfied by, for example, 
providing one format that is convenient for reading online, and 
another format that is convenient for printing on paper.
    \431\ See 2009 Summary Prospectus Adopting Release, supra note 
17, 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).
    \432\ See rule 498A(i)(5); see also rule 498(f)(5) (parallel 
provision in the rule governing the use of mutual fund summary 
prospectuses).
---------------------------------------------------------------------------

c. Linking Within and Between Documents
    As proposed, the final 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.\433\ These requirements, which are substantively 
identical to parallel provisions in the rule governing mutual fund 
summary prospectuses,\434\ are designed to promote the usability of the 
information that appears in these documents.
---------------------------------------------------------------------------

    \433\ See rule 498A(h)(2)(ii) and (iii); see also rule 
498A(i)(4); General Instruction 1(b) to Item 2 of Forms N-3, N-4, 
and N-6; see supra note 201 and accompanying text.
    \434\ See rule 498(e)(2)(ii) and (iii). As discussed below, the 
parallel provisions of rule 498A also include similar linking 
requirements for the portfolio company documents that the rule 
requires to appear online if a person were to rely on the rule's new 
delivery option for portfolio company prospectuses.
---------------------------------------------------------------------------

    The first linking requirement will 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.\435\ The 
second linking requirement will 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.\436\ This back-and-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 for the statutory prospectus or SAI, 
and vice versa.\437\ As discussed above, in response to commenters, we 
are modifying a separate aspect of the proposal that would have 
inadvertently negated the ability of registrants to use the indirect 
linking option.\438\
---------------------------------------------------------------------------

    \435\ See 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 appears 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 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 must provide the 
functionality that is required by the rule.
    \436\ See rule 498A(h)(2)(iii).
    \437\ Id. Under the latter option, links either have to be 
available at both the beginning and end of the summary prospectus, 
or have to remain continuously visible to persons accessing the 
summary prospectus. This requirement is designed to promote the 
links' prominence and accessibility to investors.
    \438\ See supra note 201 and accompanying text.
---------------------------------------------------------------------------

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.\439\ Variable 
contract disclosure documents tend to include industry-specific 
language in order to describe the sometimes complex features of these 
products. We recognize, therefore, that it may be particularly 
challenging to accurately describe a variable contract without

[[Page 26001]]

using certain terms that, while technically accurate, may be confusing 
or unfamiliar to retail investors. Accordingly, the final rule, as 
proposed, requires a summary prospectus to define any ``special terms'' 
elected by the registrant, using any presentation that clearly conveys 
their meaning to investors.\440\ This requirement reflects the 
instructions in Forms N-3, N-4, and N-6 (as well as similar 
instructions in the current version of these forms to define ``special 
terms'' in a glossary or index).\441\ The registrant will determine 
which terms constitute special terms. We generally believe that a 
special term is a term that is typically unfamiliar to a new contract 
investor and is important for the investor to understand key features 
of the contract.
---------------------------------------------------------------------------

    \439\ See rule 498A(b)(5), (6); General Instruction B.4(c) to 
amended Forms N-3, N-4 and N-6 (referencing 17 CFR 230.421 (rule 
421(d) under the Securities Act)).
    \440\ See 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 appears (for example, 
in a box to the side of the main text, or at the bottom of the 
page). Additionally, there are or may become available technological 
solutions for electronic versions of the summary prospectus. See 
infra note 444 and accompanying and following text.
    \441\ See General Instruction C.3(d) to Forms N-3, N-4, and N-6; 
see also Item 2 of current Forms N-3 and N-4.
---------------------------------------------------------------------------

    Two commenters responded favorably to the inclusion of a Special 
Terms section of the hypothetical initial summary prospectus, with one 
commenter stating its belief that ``the `Special Terms' section . . . 
will be helpful to the reader as it defines terms with which they may 
not be familiar,'' \442\ and another observing that ``because the 
Special Terms are the first thing people see, they are likely to read 
them more diligently.'' \443\
---------------------------------------------------------------------------

    \442\ See WFA Comment Letter.
    \443\ See Cardozo Clinic Comment Letter.
---------------------------------------------------------------------------

    In order to leverage technology to help investors understand the 
variable contract, the final rule includes provisions that are meant to 
enhance investors' understanding of special terms when they view the 
summary prospectus online. Specifically, the rule requires that 
investors either be able to view the definition of each special term 
used in an online summary prospectus upon command,\444\ 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.\445\ 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 to consider whether 
other technological tools associated with their online disclosure 
(e.g., pop-up explanations) present further opportunities to promote 
investor understanding.
---------------------------------------------------------------------------

    \444\ For 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.
    \445\ Rule 498A(h)(2)(iv).
---------------------------------------------------------------------------

    Two commenters supported the proposed approach. One commenter 
``commend[ed] the Commission for its requirement that investors 
accessing the summary prospectus should be able to view the definition 
of special terms upon command,'' and suggested that the requirement be 
expanded to all definitions to improve the readability of the 
document.\446\ Another commenter stated that electronic versions of the 
prospectus should have definitions for defined terms that pop up when 
clicked.\447\ Conversely, one commenter stated that requiring the 
definition of each special term used in an online summary prospectus to 
be viewed upon command, or to permit investors to move directly back 
and forth between each special term and the corresponding entry in any 
glossary in the summary prospectus, may be burdensome and excessive 
since an initial and updating summary prospectus has so many 
terms.\448\ This commenter recommended instead that insurers be 
permitted to make a link to a summary prospectus's glossary 
continuously visible, thereby allowing an investor to move back-and-
forth between the various sections of a summary prospectus and its 
glossary.
---------------------------------------------------------------------------

    \446\ See AARP Comment Letter.
    \447\ See Cardozo Clinic Comment Letter (``if the reader 
``clicks'' on a defined term, the definition of the term should 
automatically be shown to the reader'').
    \448\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting the requirement as proposed. We believe that 
registrants should provide investors with an easy and convenient means 
to understand the terms used to describe the investment product 
offered. Given the prevalence of different technological solutions that 
allow online documents to be viewed upon command, we are not persuaded 
that the burdens are as great as this commenter suggests. Moreover, we 
are concerned that for a registrant that chooses to make the table of 
contents for the statutory prospectus continuously available, the 
inclusion of a continuously available glossary would clutter an 
investor's visual field, potentially reduce the investor's focus, and 
detract attention away from the information in the summary documents.
    Commenters offered a variety of suggestions regarding technological 
tools that could enhance online disclosure to promote investor 
understanding. While several commenters agreed with the concept of an 
interactive fee calculator,\449\ they recommended that the final rule 
not require this functionality because of concerns about the 
feasibility of developing this feature for such a highly customized 
investment product,\450\ and raised questions about the relative 
benefits to investors.\451\
---------------------------------------------------------------------------

    \449\ See AARP Comment Letter; CAI Comment Letter; ACLI Comment 
Letter.
    \450\ See CAI Comment Letter (stating that interactive fee 
calculators would be very difficult to design for even a single 
contract, given the potential complications associated with multiple 
classes/versions, fee structures, features, investment restrictions, 
and optional benefits, and administering interactive fee calculators 
for entire books of business could be virtually impossible for many 
insurers); ACLI Comment Letter.
    \451\ See ACLI Comment Letter (stating that investors would 
receive the same fee information from the investment professional 
selling the variable contract, who could also explain the 
information, whereas use of an interactive calculator without the 
benefit of an explanation might serve to create investor confusion); 
Ameritas Comment Letter.
---------------------------------------------------------------------------

    One commenter suggested an interactive tool that could allow 
investors to vary the assumptions in a visual illustration to see the 
effect on policy value as the inputs are changed.\452\ Another 
commenter stated that a modern app-based disclosure solution is the 
best technology option to provide investors with streamlined, user-
friendly technology, and recommended that we add language to the final 
rule that specifically supports apps for delivery of content related to 
prospectus data for variable contracts.\453\ The final rule does not 
preclude the use of apps as a disclosure delivery channel provided all 
conditions of the rule are met, and, as we note below, we decline to 
add any additional language supporting their use. A different commenter 
suggested that the Commission should develop an application or other 
web-based tool to enable investors to compare the key information 
contained in summary prospectuses of different issuers in a manner 
similar to the way websites today enable consumers looking to purchase 
a new car to compare key features of vehicles of different 
manufacturers.\454\
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    \452\ See Baldwin Comment Letter.
    \453\ See Donnelley Financial Comment Letter I.
    \454\ See IRI Comment Letter I (``Rather than relying on 
investors or third parties to harness modern technology to give 
investors the ability to efficiently analyze and compare available 
information, the Commission, as the repository of all Summary 
Prospectus data, should itself harness such technology.'').

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[[Page 26002]]

    We appreciate all of these technological suggestions and are 
continuing to consider their usefulness in investor disclosures. As 
previously noted, however, because we believe it would be more 
efficient to undertake a holistic review of technology-based approaches 
for all investment products as part of a future initiative,\455\ we are 
adopting the requirements to define, and provide online viewing of, 
Special Terms as proposed. We nonetheless encourage registrants and 
other industry participants to consider how technology can be used to 
improve the communication of information to investors, particularly as 
investors trend toward using applications and other technologies to 
access information.
---------------------------------------------------------------------------

    \455\ See supra note 424 and subsequent text.
---------------------------------------------------------------------------

e. Ability To Retain Documents
    The final rule, as proposed, also requires 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.\456\ Like the online version of 
these documents, the retainable version of the documents must be in a 
format that: (1) Is human-readable 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.\457\ 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.\458\ These conditions are substantively 
identical to parallel provisions in the rule governing mutual fund 
summary prospectuses.\459\
---------------------------------------------------------------------------

    \456\ See rule 498A(h).
    \457\ See rule 498A(h)(2)(i) through (ii).
    \458\ One commenter said we should require that downloaded 
documents retain links that enable a user to move readily between 
related passages of multiple documents because without the links, 
the documents do not provide complete information to investors. See 
AARP Comment Letter. We do not agree that the lack of an active link 
diminishes the completeness of the information in the documents, and 
decline to make the suggested change.
    \459\ See rule 498(e)(3).
---------------------------------------------------------------------------

    In addition, the rule mandates 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.\460\ Like the 
``convenient for reading and printing'' online formatting 
requirements,\461\ the failure to comply with these formatting 
requirements for retained electronic documents is not a condition for 
reliance on the rule.\462\ Since the convenience of these formatting 
requirements must be decided on a case-by-case basis, we believe this 
approach will help provide certainty to market participants who seek to 
rely on the rule to satisfy prospectus delivery obligations.\463\
---------------------------------------------------------------------------

    \460\ See rule 498A(i)(3).
    \461\ See supra note 430 and accompanying text.
    \462\ See rule 498A(i)(5).
    \463\ See supra notes 431 and 432 and accompanying text.
---------------------------------------------------------------------------

f. Safe Harbor for Temporary Noncompliance
    Compliance with the conditions in new rule 498A 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 rule to meet prospectus 
delivery obligations under Section 5(b)(2) of the Securities Act.\464\ 
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.
---------------------------------------------------------------------------

    \464\ See rule 498A(f)(4) (Section 5(b)(2) transfer of the 
contract security is satisfied if, among other things, the 
conditions in rule 498A(h) are satisfied).
---------------------------------------------------------------------------

    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 rule's conditions regarding the availability of the 
required online contract documents.\465\ Commenters expressed support 
for the proposed safe harbor provision,\466\ and the final rule, as 
proposed, contains a provision for temporary noncompliance, which is 
substantively identical to a parallel provision in the rule governing 
mutual fund summary prospectuses.\467\ 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 
rule to satisfy prospectus delivery obligations is 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.\468\
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    \465\ Such events might, for example, include system outages or 
other technological issues, natural disasters, acts of terrorism, or 
pandemic illnesses.
    \466\ See ACLI Comment Letter. See also Comment Letter of Martha 
Chemas (Mar. 8, 2019) (``Chemas Comment Letter'') (suggesting a safe 
harbor in the case of a denial of service attack or similar outage 
while the website was under attack).
    \467\ See rule 498A(h)(4); see also rule 498(e)(4).
    \468\ Id. 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. See Proposing Release, supra 
note 6, at nn.285.
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6. Other Requirements for Summary Prospectus and Other Contract 
Documents
a. Delivery Upon Request
    Proposed rule 498A included certain requirements relating to the 
delivery of paper or electronic copies of required online contract 
documents upon request.\469\ We are adopting these requirements as 
proposed.
---------------------------------------------------------------------------

    \469\ See rule 498A(i)(1).
---------------------------------------------------------------------------

    Under the final rule, an investor who receives a contract summary 
prospectus and who would also like to review the contract's statutory 
prospectus, SAI, and, in the case of a variable contract registered on 
Form N-3, its most recent annual and semi-annual report to shareholders 
is 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, a registrant (or financial 
intermediary distributing the contract) is required to send a paper or 
electronic copy of the required online contract documents to any person 
requesting such a copy. 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.
    A registrant or intermediary is also required to send electronic 
copies of these documents upon request within three business days. 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

[[Page 26003]]

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. 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.
    As proposed and under the final rule, investors who prefer paper 
copies of the statutory prospectus but do not have ready access to the 
internet (or the ability to print out the statutory prospectus that is 
made available online) will 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 will need to follow the summary prospectus legend's 
instruction on how to request paper copies of the statutory prospectus 
each time a new statutory prospectus is available. Those that do not 
take the additional step of requesting a paper copy of the statutory 
prospectus will not receive the statutory prospectus in their preferred 
format.
    Two commenters supported this framework.\470\ One of those 
commenters stated that the ability to obtain a paper copy of the 
prospectus without charge through a toll-free number provides a 
functional and practical mechanism for investors to obtain a paper 
copy, and advised against mandating opt-in or opt-out practices 
concerning future delivery of paper prospectuses, which would impose 
unnecessary tracking responsibilities and costs that would greatly 
overshadow the marginal benefit to consumers.\471\ In contrast, a 
separate commenter asserted that investors who want paper should be 
able to permanently elect to receive the full statutory prospectus and 
underlying fund documents.\472\
---------------------------------------------------------------------------

    \470\ See, e.g., NAIFA Comment Letter (``Any investor who wants 
to receive more detailed information should have access to more 
detailed, second-tier disclosures upon request and without cost. 
Firms should be required to provide hard-copy versions of these 
second-tier disclosures free of charge to any investor who requests 
a hard-copy disclosure document.''); ACLI Comment Letter.
    \471\ See ACLI Comment Letter (predicting that, based on 
insurers' experiences under the current paper delivery regime, few 
variable contract purchasers are likely to request a paper copy 
after the initial purchase).
    \472\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    While registrants may choose to give investors the option to 
permanently elect to receive the full statutory prospectus and 
underlying fund documents, we are not requiring registrants to provide 
that option. As discussed throughout this release, we believe the 
layered disclosure framework contemplated by the rule (i.e., sending or 
receiving the summary prospectus and making the statutory prospectus 
and underlying fund materials available online and upon request) will 
benefit the majority of investors and generally represents an 
improvement over the current disclosure regime.\473\ Moreover, we 
believe that this 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. Although certain investors may prefer 
statutory prospectuses rather than summary prospectuses, we believe 
that such investors are likely willing to seek out detailed information 
to inform their investment decisions.\474\ We believe that for these 
investors, the additional effort required to access the statutory 
prospectus online or request paper or electronic statutory prospectuses 
will be incrementally minimal.\475\
---------------------------------------------------------------------------

    \473\ See generally infra Section IV.C.1.a.i.(a).
    \474\ See generally infra Section IV.C.1.a.i.(b).
    \475\ See id. (noting that investors may need to manually enter 
a hyperlink from a paper updating summary prospectus or open a link 
to a website containing the statutory prospectus in such 
circumstances).
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b. Prominence Requirement
    The final rule also requires that, generally like mutual funds, a 
contract summary prospectus must be given greater prominence than any 
materials that accompany the summary prospectus.\476\ As discussed in 
the Proposing Release, this requirement is designed 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 it includes.\477\ 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.\478\ The only commenter who addressed this aspect of the 
proposal offered mixed support.\479\ We continue to believe the 
prominence requirement benefits investors and are adopting it as 
proposed.
---------------------------------------------------------------------------

    \476\ See rule 498A(i)(2); see also rule 498(f)(2).
    \477\ See Prospectus Release, supra note 6, at nn.293-294 and 
accompanying text.
    \478\ Id. A summary prospectus 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, satisfies 
this requirement.
    \479\ See ACLI Comment Letter (stating ``We support the 
proposal's narrative that the summary prospectus should be the first 
among several documents listed electronically or delivered in a 
bundle. This approach has worked well in the mutual fund industry 
and can be expected to work equally well for variable contract 
disclosure,'' while also stating ``Imposing prominence requirements 
is unnecessary.'').
---------------------------------------------------------------------------

c. Hyperlinking of website Addresses in Electronic Versions of Summary 
Prospectus
    Largely as proposed, we are also requiring any website address 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.\480\ This provision is intended to ensure that 
investors viewing electronic versions are able to easily access website 
addresses that are included in the summary prospectus.\481\
---------------------------------------------------------------------------

    \480\ See rule 498A(i)(4). In addition, a parallel requirement 
applies to statutory prospectuses. See General Instruction C.3.(i) 
to Forms N-3, N-4, and N-6.
    \481\ A summary prospectus filed on EDGAR must not include a 
functioning link to an external location, as our rules prohibit 
hyperlinking to websites, locations, or other documents that are 
outside of the EDGAR system. See 17 CFR 232.105 [rule 105 of 
Regulation S-T]. Because this is an existing EDGAR restriction, we 
do not believe it is necessary to add this provision to rule 498A. 
Thus, in a change from the proposal, rule 498A does not include this 
provision.
---------------------------------------------------------------------------

    One commenter stated that requiring active hyperlinks for website 
addresses referenced in electronic versions of the initial summary 
prospectus could be administratively burdensome because insurers would 
need to monitor to ensure the disclosed website locations were accurate 
and functioning.\482\ The cover page of the initial summary prospectus 
must provide a website where investors can obtain the summary and 
statutory prospectuses (and certain other contract documents),\483\ and 
the legend in the Appendix in the initial summary prospectus must 
include a website where investors can access the portfolio company 
prospectuses (and, if applicable, access updated performance 
information).\484\ However, the rule and form requirements give 
registrants the

[[Page 26004]]

flexibility to determine whether to provide the required information on 
the registrant's website, or a third party website. Because the 
availability of more detailed information is a key component to a 
layered disclosure approach, enabling access to that information is 
fundamental to the framework. We therefore believe it is reasonable, 
and not unduly burdensome, for a registrant to ensure that the website 
address it chooses to include in the electronic version of its summary 
prospectuses has an active link, and are adopting this aspect of the 
rule largely as proposed.\485\
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    \482\ See Ameritas Comment Letter.
    \483\ See rule 498A(b)(2)(v)(B) (``The legend must provide a 
website address, other than the address of the Commission's 
electronic filing system . . . that investors can use to obtain the 
Statutory Prospectus and other materials . . . [t]he website address 
must be specific enough to lead investors directly to the Statutory 
Prospectus and other materials that are required to be accessible 
under paragraph (h)(1) of this section . . . [t]he website could be 
a central site with prominent links to each document.''); see also 
rule 498A(c)(3)(v) (parallel requirements); rule 498A(h)(1) 
(required online documents).
    \484\ See General Instruction 1(d) to Item 18 of amended Form N-
3; General Instructions 1(b) and (e) to Item 17 of Form N-4; General 
Instructions 1(b) and (e)(e) to Item 18 of amended Form N-6.
    \485\ See rule 498A(i)(4).
---------------------------------------------------------------------------

    However, as discussed above, in response to comments we are 
modifying this requirement to allow registrants to provide another 
means of facilitating access through equivalent methods or technologies 
that lead directly to the relevant website address.\486\ This change is 
intended to give registrants the flexibility to provide hyperlinks in a 
continually visible sidebar, or some equivalent means of facilitating 
access from the summary prospectus.
---------------------------------------------------------------------------

    \486\ See rule 498A(i)(4) (``[A]ny website address that is 
included in an electronic version of the Summary Prospectus must 
include an active hyperlink or provide another means of facilitating 
access through equivalent methods or technologies that lead directly 
to the relevant website address.''). See also supra note 205 and 
accompanying text.
---------------------------------------------------------------------------

d. Hyperlinking of Cross-References in Electronic Versions of Summary 
Prospectus
    Although we proposed that registrants provide hyperlinks for cross-
references included in an electronic version of the summary 
prospectus,\487\ we recognize that the summary prospectus could contain 
multiple cross-references to both internal disclosures as well as 
external documents, and implementing and maintaining active hyperlinks 
for those cross-references could be burdensome or in some cases 
infeasible (e.g., cross-references to individual external documents 
that are specific to each investor).\488\ We also believe that 
hyperlinked cross-references may be largely unnecessary because rule 
498A provides that the summary prospectus, statutory prospectus, and 
SAI must include links or otherwise permit persons accessing those 
documents to move directly back and forth between each section heading 
in a table of contents and the section of the document referenced in 
that topic heading, as well as between each section of the summary 
prospectus and any section of the statutory prospectus and SAI (or, 
alternately, have continuously visible links that allow persons 
accessing those documents to move directly back and forth between each 
section heading in a table of contents and the section of the document 
referenced in that topic heading).\489\ Therefore, we are eliminating 
the proposed requirement, but we nonetheless encourage registrants to 
use hyperlinks and other tools to provide investors with means to more 
easily read and access information in electronic versions of documents 
relating to their contract.
---------------------------------------------------------------------------

    \487\ Compare rule 498A(i)(4) as proposed (requiring hyperlinks 
for both website addresses and cross-references) with final rule 
498A(i)(4) (requiring hyperlinks only for website addresses). See 
also Proposing Release, supra note 6, in the text accompanying notes 
295 and 296 and General Instruction C.3.(i) to Forms N-3, N-4, and 
N-6 as proposed.
    \488\ See, e.g., Item 4 of amended Forms N-3, N-4, and N-6 
(cross-referencing the contract specifications page from each 
investor's contract).
    \489\ See rule 498A(h)(2)(ii) and (iii).
---------------------------------------------------------------------------

e. Failure To Comply With Other Requirements in Rule
    Under the final rule, as proposed, the failure to comply with the 
``other requirements'' in the new rule will 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.\490\ Commenters supported 
this approach, noting especially the potential for technological 
challenges to impact the ability of a person seeking to rely on the 
rule to comply with certain requirements.\491\ One commenter also 
raised concerns regarding how compliance with certain requirements 
might be determined, and the potential subjectivity involved in that 
assessment.\492\ We received no comments opposing or suggesting 
modifications to this aspect of the proposal and are adopting as 
proposed. Failure to comply with the ``other requirements'' in the rule 
will, however, constitute a violation of Commission rules.
---------------------------------------------------------------------------

    \490\ Rule 498A(i)(5). The final rule's requirements under 
paragraph (i)(3) 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 430 and 460 and accompanying text.
    \491\ See ACLI Comment Letter; Chemas Comment Letter.
    \492\ See Chemas Comment Letter (``How long could what is 
supposed to be an active hyperlink be a dead link before a 
registrant is deemed non-compliant with this proposed updated 
requirement?''); see also Proposing Release supra note 6, at n. 297 
(similar comments regarding the ``greater prominence'' requirement 
in the proposed mutual fund summary prospectus rule). Consistent 
with the requirements of the safe harbor for electronic delivery in 
rule 498A(h), a registrant should update a dead hyperlink when it 
knows or reasonably should have known that the hyperlink is dead. 
See also supra notes 406 and 415.
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7. Incorporation by Reference
a. Permissible Incorporation by Reference
    The final rule, as proposed, permits a registrant to incorporate by 
reference into the summary prospectus information contained in the 
contract statutory prospectus and SAI, subject to certain 
conditions.\493\ As discussed in the Proposing Release, we do not 
intend the variable contract summary prospectus to be a self-contained 
disclosure vehicle, but rather one element in a layered disclosure 
regime.\494\
---------------------------------------------------------------------------

    \493\ See rule 498A(d)(2). We received no comments on this 
aspect of the proposal.
    \494\ See Proposing Release, supra note 6, at n.300 and 
accompanying text.
---------------------------------------------------------------------------

    Any information incorporated by reference must 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.\495\ Under the final rule, a registrant is not permitted to 
incorporate by reference into the summary prospectus information from 
any other source. Moreover, a registrant may not incorporate by 
reference any information that will be required to appear in the 
contents of the initial summary prospectus or the updating summary 
prospectus.\496\
---------------------------------------------------------------------------

    \495\ Rule 498A(d)(2) references rule 30e-1 under the Investment 
Company Act, which applies only to management companies (Form N-3 
registrants). While rule 30e-2 under the Investment Company Act 
requires Form N-4 and Form N-6 registrants to transmit portfolio 
company annual and semi-annual shareholder reports to the investors 
in their trust accounts, these registrants do not incorporate by 
reference information from a portfolio company shareholder report 
into the contract prospectus. See CAI Comment Letter (stating that 
the underlying fund summary or statutory prospectus should not be 
incorporated by reference into the variable contract summary 
prospectus). Accordingly, the final rule does not reference rule 
30e-2.
    \496\ See rule 498A(d)(2)(ii); see also supra Sections II.A.1 
(describing content requirements for the initial summary prospectus) 
and II.A.2 (describing content requirements for the updating summary 
prospectus).
---------------------------------------------------------------------------

    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.\497\ For example, if a contract statutory 
prospectus were to incorporate the

[[Page 26005]]

contract SAI by reference, the summary prospectus could not incorporate 
information in the SAI simply by referencing the statutory prospectus 
but will be required to reference the SAI directly.\498\
---------------------------------------------------------------------------

    \497\ See rule 498A(d)(2)(iii).
    \498\ Cf. rule 411(e) under the Securities Act (``[U]nless 
expressly permitted or required, disclosure must not be incorporated 
by reference from a second document if that second document 
incorporates information pertinent to such disclosure by reference 
to a third document.''). Rule 411 was recently amended as part of 
the 2019 FAST Act Modernization rulemaking adoption (which includes 
amendments to the Commission's rules on incorporation by reference). 
See FAST Act Modernization and Simplification of Regulation S-K, 
Securities Act Release No. 10618 (Mar. 20, 2019) [84 FR 12674 (Apr. 
2, 2019)] (``FAST Act Adopting Release''). General Instruction D.1 
to amended Forms N-3, N-4, and N-6 makes rule 411 applicable to 
incorporation by reference for a variable contract's statutory 
prospectus.
---------------------------------------------------------------------------

    Incorporation by reference is permissible 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.\499\ 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.\500\ 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.\501\ The legend must also explain that the incorporated 
information may be obtained, free of charge, in the same manner as the 
contract statutory prospectus.\502\
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    \499\ See rule 498A(d)(2)(i) (referencing rule 498A(h), among 
other paragraphs in the final rule); see also supra Section II.A.5.
    \500\ See rule 498A(b)(3)(i) and 498A(c)(4).
    \501\ Id. This requirement mirrors the requirements of rule 
498(b)(1)(v)(B), and is similar to the requirements of rule 411(e) 
under the Securities Act, which states that a document that 
incorporates information by reference must ``include an express 
statement clearly describing the specific location of the 
information you are incorporating by reference. The statement must 
identify the document where the information was originally filed or 
submitted and the location of the information within that 
document.''
    \502\ Id.; see also supra discussion in Section II.A.5 and 6.
---------------------------------------------------------------------------

    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, the final rule includes similar conditions for 
incorporation by reference for variable contract summary 
prospectuses.\503\
---------------------------------------------------------------------------

    \503\ See supra note 494 and accompanying text.
---------------------------------------------------------------------------

    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, is also not 
required to send or give the incorporated information to investors 
together with the summary prospectus.\504\ 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.
---------------------------------------------------------------------------

    \504\ Rule 498A(d)(1).
---------------------------------------------------------------------------

b. Effect of Incorporation by Reference
    Title 17 CFR 230.159 (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.\505\ As proposed, the final rule provides 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 rule's conditions.\506\ 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.\507\
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    \505\ See 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.
    \506\ Rule 498A(d)(3).
    \507\ See 2009 Summary Prospectus Adopting Release, supra note 
17, 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). 
See also infra note 571 and accompanying text.
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8. Filing Requirements for the Summary Prospectus
a. Form of Summary Prospectus
    Under the final rule and as proposed, registrants must file as an 
exhibit to the registration statement any form of any initial summary 
prospectus the registrant intends to use on or after the effective date 
of the registration statement. Registrants are only required to file 
the form of initial summary prospectus exhibit with an initial 
registration statement or with a pre-effective amendment or a post-
effective amendment filed in accordance with paragraph (a) of rule 485 
under the Securities Act. In a change from the proposal, however, 
registrants are not required to file any form of updating summary 
prospectus.\508\
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    \508\ See Item 32(r) of amended Form N-3; Item 26(o) of amended 
Form N-4; Item 29(r) of amended Form N-6. In modifying the proposed 
exhibit requirement, we revised the exhibit heading, replacing 
``Preliminary Summary Prospectuses'' with ``Form of Initial Summary 
Prospectus.''
---------------------------------------------------------------------------

    Commenters objected to filing a preliminary summary prospectus for 
each contract as unduly burdensome and time consuming for issuers to 
prepare and file and Commission staff to review, and instead 
recommended that insurers be permitted to file a ``form of'' or 
``template'' summary prospectus under rule 485(a) for contracts that 
are substantially similar, or that the registrant asserts is 
meaningfully representative of similar contracts pursuant to rule 
485(b)(1)(vii).\509\ In support of this request, one commenter asserted 
that staff review of the ``template'' or representative summary 
prospectus would provide adequate protection for investors, while 
relieving burdens on issuers and Commission staff.\510\
---------------------------------------------------------------------------

    \509\ See Lincoln Comment Letter; Brighthouse Comment Letter; 
Transamerica Comment Letter; ACLI Comment Letter. See also Section 
II.C.4.b.
    \510\ See ACLI Comment Letter; see also CAI Comment Letter, 
Brighthouse Comment Letter (seeking clarification regarding whether 
and how template and selective review might apply to summary 
prospectuses).
---------------------------------------------------------------------------

    We believe that it is important that Commission staff have the 
opportunity to review a variable contract's summary prospectus for 
compliance with the rule and the relevant form requirements prior to 
its first use. The approach for variable contract summary prospectus 
differs from that of mutual fund summary prospectuses, where the 
Commission did not require such a filing because the content of that 
summary prospectus is essentially identical to the content of the 
summary section of the statutory prospectus,

[[Page 26006]]

which is filed prior to its first use.\511\ In contrast, while some 
variable contract summary prospectus disclosures will be identical to 
those in the statutory prospectus,\512\ others will include only part 
of the information required in the statutory prospectus.\513\
---------------------------------------------------------------------------

    \511\ See 2009 Summary Prospectus Adopting Release, supra note 
17, 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).
    \512\ See, e.g., Items 2 and 3 of amended Forms N-3, N-4, and N-
6.
    \513\ See, e.g., Item 10(a) of amended Form N-6; Items 11(a), 
10(a), and 11(a) of Forms N-3; N-4, and N-6, respectively. (``Death 
Benefits'' for amended Form N-6, and ``[Other] Benefits Available 
Under the Contract'' for amended Forms N-3, N-4, and N-6.). While 
only certain information in the statutory prospectus is required to 
be included in the summary prospectus, rule 498A permits the summary 
prospectus to incorporate by reference some or all of the 
information contained in the statutory prospectus or SAI. See supra 
Section II.A.7.
---------------------------------------------------------------------------

    For example, the final rule requires an initial summary prospectus 
only to describe the features and options of the contract that the 
registrant currently offers,\514\ while the statutory prospectus (and 
updating summary prospectus) \515\ could include information regarding 
contracts that the registrant no longer sells to new investors. The 
initial and updating summary prospectuses will also present certain 
information in a different order than might appear in the contract 
statutory prospectus.\516\ 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.
---------------------------------------------------------------------------

    \514\ See rule 498A(b)(1).
    \515\ See rule 498A(c)(2) (updating summary prospectus).
    \516\ For example, in the initial summary prospectus, the Fee 
Table is located towards the end of the prospectus, with more 
summary type of fee information 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.
---------------------------------------------------------------------------

    For these reasons, we continue to believe it is important for the 
staff to review the form of initial summary prospectus. However, in 
response to commenter concerns, we note that nothing in the amended 
forms or the summary prospectus framework generally precludes the use 
of ``form of'' or ``template'' review pursuant to rule 485(b)(1)(vii). 
Thus, registrants are permitted to seek such staff review in 
appropriate circumstances.
    On the other hand, the updating summary prospectus will contain the 
Key Information Table and Appendix that will be in the statutory 
prospectus. Moreover, while the updating summary prospectus will also 
contain a brief summary of specified changes to the statutory 
prospectus (which we anticipate to typically be limited since variable 
contracts tend not to change their contract features very often), any 
material changes should be reflected in a post-effective amendment 
filing under rule 485(a), which will be marked to indicate such changes 
and subject to staff review.\517\ Because the information contained in 
the updating summary prospectus will mirror information contained in 
the statutory prospectus, we do not believe the staff needs to 
separately review a form of updating summary prospectus prior to first 
use. Therefore, to relieve burdens on registrants, we are not requiring 
it as an exhibit to the registration statement.
---------------------------------------------------------------------------

    \517\ See 17 CFR 232.301 (rule 301 of Regulation S-T). Changes 
may also be indicated in blacklined versions the registration 
statement that registrants or their counsel commonly supply to the 
staff as courtesy copies.
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b. Definitive Form of Summary Prospectus
    In addition to requiring registrants to file a form of initial 
summary prospectus with the Commission prior to use, we are, as 
proposed, amending rule 497 under the Securities Act to require a 
registrant to file a definitive form of summary prospectus--whether an 
initial summary prospectus or an updating summary prospectus--after it 
is first used.\518\ This will ensure that the Commission receives a 
copy of every summary prospectus in use.\519\ This is consistent with 
the filing requirement for mutual fund summary prospectuses under rule 
497.\520\
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    \518\ Rule 497(k).
    \519\ A summary prospectus filed with the Commission will 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.5.
    \520\ See rule 497(k).
---------------------------------------------------------------------------

    To allow investors and staff to more easily locate an initial 
summary prospectus or updating summary prospectus when searching on 
EDGAR, one commenter asked that we consider whether initial and 
updating summary prospectuses should be filed under differentiating 
form type designations (though noting that separate filing designations 
could cause filing errors).\521\ We agree and anticipate having 
different EDGAR submission types for initial and updating summary 
prospectus. Notice of EDGAR system readiness to accept summary 
prospectuses using differentiated filing types will be provided in a 
manner similar to notices of taxonomy updates and EDGAR Filer Manual 
updates. Until then, registrants may file definitive forms of summary 
prospectuses using submission type 497H2.
---------------------------------------------------------------------------

    \521\ See IRI Comment Letter I; Comment Letter of the Insured 
Retirement Institute (Nov. 6, 2019) (``IRI Comment Letter II'').
---------------------------------------------------------------------------

    Another commenter asked us to amend rule 497 so insurers could 
customize and make prospectuses more interactive without having to file 
every variation on EDGAR.\522\ While we support the goal of making 
prospectuses more interactive, as with statutory prospectuses, it is 
important for investor protection purposes that our staff is able to 
review every form of summary prospectus that is used.\523\ Accordingly, 
we are not modifying rule 497 as this commenter suggests.
---------------------------------------------------------------------------

    \522\ See Anonymous Comment Letter III.
    \523\ As noted above, however, we believe that only the initial 
summary prospectus needs to be filed prior to use. See supra text 
surrounding note 517.
---------------------------------------------------------------------------

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.\524\ Accordingly, as discussed in the 
proposal, 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.\525\
---------------------------------------------------------------------------

    \524\ 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, section 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)).
    \525\ Section 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.'').

---------------------------------------------------------------------------

[[Page 26007]]

    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.\526\ 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.\527\
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    \526\ See 2009 Summary Prospectus Adopting Release, supra note 
17, at n.344 and accompanying text.
    \527\ 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; 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. Id. at nn.111 and 
112; see also rules 498(f)(4) and 498(b)(3).
---------------------------------------------------------------------------

    For similar reasons, it is our view that while a variable contract 
summary prospectus under the final rule will 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 rule 498A does not have a comparable 
provision to the one 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 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 currently 
offered features and options will be the same.\528\ In addition, rule 
498A includes the same provisions regarding information permitted to be 
incorporated into the summary prospectus as those in rule 498.\529\
---------------------------------------------------------------------------

    \528\ See 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.c.ii.(a); see also 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.
    \529\ See rule 498A(d); see also rule 498(b)(3) (parallel 
provisions in the rule governing the use of mutual fund summary 
prospectuses).
---------------------------------------------------------------------------

    As discussed in the Proposing Release, the summary prospectus also 
would be subject to other liability and antifraud provisions of the 
federal securities laws.\530\
---------------------------------------------------------------------------

    \530\ See Proposing Release, supra note 6, at nn.329-332 and 
accompanying text.
---------------------------------------------------------------------------

9. Defined Terms in Final Rule
    We are adopting, substantially as proposed, a section of 
definitions for certain terms used throughout new rule 498A.\531\ 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-4) or other 
rules (e.g., ``statement of additional information'' as used in rule 
498); or (3) combine other defined terms in the rule (e.g., ``summary 
prospectus'').\532\ We received no comments regarding these terms.
---------------------------------------------------------------------------

    \531\ Rule 498A(a).
    \532\ Although proposed, we are not including in the final rule 
a definition for ``prospectus supplement'' because the term is not 
used elsewhere in the final rule. See proposed rule 498A(a)(8). This 
is the only change from the proposal regarding the rule's defined 
terms.
---------------------------------------------------------------------------

    In recognition that today a variable contract may offer classes 
with the same currently available features and options but different 
pricing structures, the Commission proposed to define ``class'' to mean 
a class of a contract that varies principally with respect to 
distribution-related fees and expenses.\533\ While we received comments 
suggesting we broaden the definition of ``class,'' \534\ we are 
adopting the definition as proposed, which we believe has an 
appropriate scope.\535\ We believe that investors value the ability to 
understand which fees apply to the products that they purchase, and 
defining ``class'' in relation to the fees charged ensures that 
investors will receive a level of granularity to the fees disclosed 
such that they should be better able to make an informed investment 
decision.\536\
---------------------------------------------------------------------------

    \533\ We understand that this is how the term is commonly used 
in industry practice. See Proposing Release, supra note 6, at note 
334.
    \534\ See CAI Comment Letter (a variable contract can and 
``frequently does have ``classes'' that differ in ways other than 
distribution-related fees and expenses . . . [t]hus, the concepts of 
classes with respect to mutual funds and classes with respect to 
variable products do not necessarily correspond. Indeed, with 
respect to variable products, the term ``class'' is often used 
interchangeably with ``versions''); see also ACLI Comment Letter 
(``While we do not suggest any specific additions or exclusions to 
the defined terms, we note that flexibility should be provided to 
permit a registrant's use of alternative terms used by the company 
in its contracts that reflect the substance of the defined terms in 
the proposal'').
    \535\ See also rule 498A(a) and 17 CFR 270.18f-3 (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)]'').
    \536\ See, e.g., Item 4 of Form N-4 (requiring separate 
responses for each Class regarding the Example in the Fee Table).
---------------------------------------------------------------------------

B. Optional Method To Satisfy Portfolio Company Prospectus Delivery 
Requirements

1. Current Delivery Practices for Portfolio Company Prospectuses
    As discussed in greater detail in the Proposing Release, we 
understand that summary prospectuses, as opposed to statutory 
prospectuses, are typically delivered to investors for all the 
underlying portfolio companies offered under the contract.\537\ As with 
contract prospectuses, portfolio company prospectuses may be delivered 
electronically pursuant to the Commission's guidance.
---------------------------------------------------------------------------

    \537\ See Proposing Release, supra note 6, at Section II.B.1 
(stating 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).
---------------------------------------------------------------------------

    Delivery of prospectuses for underlying portfolio companies is 
typically effected by the insurance company rather than the portfolio 
company. 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.

[[Page 26008]]

2. New Option To Satisfy Prospectus Delivery Requirements
a. Overview
    As proposed, new rule 498A provides an optional method for 
satisfying portfolio company prospectus delivery obligations under 
section 5(b)(2) of the Securities Act 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.\538\ This new option is available to Form N-4 and 
Form N-6 registrants, but is not available to Form N-3 registrants 
because they do not have underlying portfolio companies.
---------------------------------------------------------------------------

    \538\ Rule 498A(j). In a conforming change, we have revised the 
language in rule 498A(j)(1) regarding prospectus delivery 
obligations to more closely track the language in Section 5(b)(2) of 
the Securities Act.
---------------------------------------------------------------------------

    This option allows 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; \539\ (2) a summary prospectus is 
used for the portfolio company (only if the portfolio company is 
registered on Form N-1A); \540\ 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.\541\ In addition, the rule provides 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.\542\
---------------------------------------------------------------------------

    \539\ Rule 498A(j)(1)(i).
    \540\ Rule 498A(j)(1)(ii).
    \541\ Rule 498A(j)(1)(iii).
    \542\ Rule 498A(j)(2).
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    Many commenters agreed that the proposed delivery option for 
underlying portfolio company prospectuses would produce cost savings 
for funds and shareholders and directly align with shareholder 
preferences for accessing fund information online.\543\ Commenters also 
stated that the proposed delivery option would meaningfully improve the 
experience of investors by allowing them to navigate funds' prospectus 
disclosures in a manner responsive to their needs and financial 
sophistication.\544\ One commenter agreed with the optional nature of 
the proposed delivery option, stating that it would provide registrants 
time to build the process out for the delivery option.\545\ This 
commenter further agreed that a communication relating to a portfolio 
company should not be deemed a prospectus if the conditions of rule 
498A were satisfied.
---------------------------------------------------------------------------

    \543\ See, e.g., CAI Comment Letter; Comment Letter of the 
Independent Directors Council (Feb. 15, 2019); WFA Comment Letter; 
Comment Letter of TIAA (Feb. 15, 2019).
    \544\ See ACLI Comment Letter; Capital Group Comment Letter.
    \545\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    However, one commenter opposed the proposed delivery option on the 
grounds that investors who choose to receive their disclosures in paper 
are unlikely to seek out portfolio company prospectuses.\546\ The 
commenter noted, for example, that only a small percentage of variable 
annuity investors have chosen to receive disclosures electronically. 
Other commenters did not express either agreement or disagreement with 
the proposed delivery option, but requested clarity regarding the 
purpose and mechanics of this option.\547\ As noted below, the purpose 
of this option is to help reduce the volume of documents investors 
receive that may prevent effective disclosure. Under the layered 
disclosure framework we are adopting in this document, summary 
information as to the portfolio companies will be provided in the 
Appendix and more fulsome information available to investors online or 
on request.
---------------------------------------------------------------------------

    \546\ See CFA Comment Letter.
    \547\ See, e.g., Anonymous Comment Letter III (questioning why 
the Commission had proposed the optional delivery method); VIP 
Working Group (asking whether a filing on Form N-14 could 
incorporate by reference a portfolio company prospectus that is 
delivered pursuant to the optional delivery method). See supra 
Section II.B.2.d (discussing the delivery of portfolio company 
prospectuses in connection with Form N-14).
---------------------------------------------------------------------------

    We are concerned that the volume of disclosure materials variable 
contract investors currently receive may discourage them from reading 
the materials or prevent them from fully understanding these products. 
While the new 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 reader-
friendly 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 portfolio company 
prospectuses.\548\ We also note that, to the extent that an investor 
wants additional information regarding a portfolio company beyond that 
provided in the Appendix and cannot or chooses not to view that 
information online, the final rule provides that an investor may always 
request paper or electronic copies of these documents be sent to them 
at no charge to them.\549\
---------------------------------------------------------------------------

    \548\ Variable annuity contracts offer an average of 60 
portfolio companies as investment options. See supra note 16. 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 
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''), 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 60 portfolio companies would receive 
240 pages of portfolio company disclosure materials, in addition to 
the contract prospectus.
    \549\ Rule 498A(j)(3) and (i)(1).
---------------------------------------------------------------------------

    To address this issue, the new option for satisfying portfolio 
company prospectus delivery requirements provides investors with 
certain key summary information about underlying portfolio companies in 
an Appendix to the contract summary prospectus.\550\ This information 
is formatted in a tabular presentation to facilitate the ability of 
investors to compare key information relating to those portfolio 
companies.\551\ If an investor desires more detailed information about 
a particular portfolio company, prospectuses and other documents 
relating to the portfolio company will be available online and in paper 
or electronically upon request.
---------------------------------------------------------------------------

    \550\ A contract summary prospectus will include an Appendix 
that will provide for each portfolio company its name, type or 
investment objective, adviser and subadviser, expense information, 
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.C.2.t (discussing inclusion of this Appendix also 
in variable contracts' statutory prospectuses). Registrants on Form 
N-3, who will not be relying upon this optional method to satisfy 
portfolio company prospectus delivery obligations, will have the 
option of omitting the Appendix from the summary prospectus and 
instead providing more detailed disclosures for the investment 
options offered under the contract that will be required by new Item 
19 of Form N-3. See supra note 331 and accompanying text.
     In addition, each summary prospectus will also include a Key 
Information Table that will provide certain disclosures about 
portfolio company risks and investment restrictions. See supra 
discussion at Section II.A.1.c.ii.(a); see also infra Section 
II.C.2.b (discussing the Key Information Table in amended Forms N-3, 
N-4, and N-6).
    \551\ See supra note 267.
---------------------------------------------------------------------------

b. Conditions
    As a condition to relying on the new option, as proposed, we are 
requiring that the related variable contract use an initial summary 
prospectus for each

[[Page 26009]]

currently offered contract described under the related registration 
statement.\552\ One commenter stated that eliminating this condition 
would ``provide enhanced readable consumer disclosure'' by ``reducing 
the totality of the [paper] documentation that consumers must 
confront'' even when the registrant is not using a summary 
prospectus.\553\
---------------------------------------------------------------------------

    \552\ Rule 498A(j)(1)(i).
    \553\ See ACLI Comment Letter.
---------------------------------------------------------------------------

    We disagree. We continue to believe that this condition is an 
important part of the layered disclosure framework that we are 
establishing in this document. This requirement is designed to 
encourage registrants to utilize the summary prospectus framework and 
provide a more consistent disclosure experience to investors, and 
reinforces the parallel requirement by tying the use of an updating 
summary prospectus to the condition that an initial summary prospectus 
be used for each currently offered contract. Together, we expect that 
these requirements will provide significant incentives for registrants 
to embrace the new summary prospectus framework and will further the 
adoption of the new framework for the mutual benefit of investors and 
registrants. Therefore, we are requiring a variable contract to use an 
initial summary prospectus for each currently offered contract 
described under the related registration in order to rely upon the 
optional delivery method.
    As a second condition, as proposed, a portfolio company that is 
registered on Form N-1A must use a summary prospectus.\554\ Several 
commenters suggested that registrants should be able to use the 
optional method for delivering portfolio company prospectuses in order 
to reduce costs and provide consistent disclosures of portfolio company 
information even when portfolio company summary prospectuses are not 
available.\555\ Commenters also stated that not all portfolio companies 
currently use summary prospectuses, and concluded that the ability of 
insurers to rely on the optional delivery method rests at the mercy of 
those portfolio companies.\556\
---------------------------------------------------------------------------

    \554\ Rule 498A(j)(1)(ii).
    \555\ See CAI Comment Letter; Transamerica Comment Letter; ACLI 
Comment Letter.
    \556\ See CAI Comment Letter; ACLI Comment Letter. As discussed 
above, we estimate approximately 93% of mutual funds and ETFs use 
summary prospectuses. See supra note 21.
---------------------------------------------------------------------------

    Absent this requirement, we believe that portfolio companies may be 
disinclined to use summary prospectuses,\557\ potentially resulting in 
investors having to obtain information as to a particular portfolio 
company by reviewing a lengthy statutory prospectus offering multiple 
funds. We anticipate that this condition could further increase the 
likelihood that portfolio companies will use summary prospectuses, 
which will provide investors with summary information about portfolio 
companies that we believe they are more likely to use and understand.
---------------------------------------------------------------------------

    \557\ Portfolio companies today are incentivized to use summary 
prospectuses because of the cost savings associated with printing 
and mailing summary prospectuses as opposed to lengthier statutory 
prospectuses.
---------------------------------------------------------------------------

    We also note that use of the delivery option is not contingent on 
every portfolio company offered as an investment option under the 
contract using a summary prospectus. Rather, the delivery option is 
available on a portfolio company by portfolio company basis so an 
insurer will only be ineligible to use the delivery option as to those 
portfolio companies that do not use a summary prospectus. Thus, an 
insurer could use the delivery option to satisfy delivery obligations 
as to those portfolio companies using summary prospectuses, and 
continue to mail statutory prospectuses for those portfolio companies 
that do not use summary prospectuses as under current practice. 
Regardless of the method used to satisfy prospectus delivery 
obligations as to a given portfolio company, all portfolio companies 
offered under a variable contract shall be included in the 
Appendix.\558\
---------------------------------------------------------------------------

    \558\ See generally supra note 551.
---------------------------------------------------------------------------

    Finally, as a third condition to rely on the delivery option, as 
proposed, the portfolio company's current summary and statutory 
prospectus, SAI, and most recent annual and semi-annual shareholder 
reports (together, the ``required online portfolio company documents'') 
must be posted online under similar conditions for the posting of 
required online contract documents:
     The required online portfolio company documents 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 rule 498A(h)(1); 
\559\
---------------------------------------------------------------------------

    \559\ Rule 498A(j)(1)(iii).
---------------------------------------------------------------------------

     The required online portfolio company documents 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,\560\ and permit persons accessing the documents to move 
directly back and forth between each section heading in a table of 
contents and the corresponding section of the document; \561\
---------------------------------------------------------------------------

    \560\ Rule 498A(h)(2)(i); rule 498A(j)(1)(iii). In addition, as 
proposed, the documents must be presented on the website in a format 
or formats that are convenient for reading online and printing on 
paper. Rule 498A(i)(3)(i); rule 498A(j)(1)(iii).
    \561\ Rule 498A(h)(2)(ii).
---------------------------------------------------------------------------

     Persons accessing the required online portfolio company 
documents must be able to permanently retain, free of charge, an 
electronic version of such documents 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; \562\
---------------------------------------------------------------------------

    \562\ Rule 498A(j)(1)(iii); rule 498A(h)(3). In addition, as 
proposed, persons must be able to permanently retain these documents 
in a format or formats that are convenient for reading online and 
printing on paper. Rule 498A(j)(1)(iii); rule 498A(i)(3)(ii).
---------------------------------------------------------------------------

     Requested required online portfolio company documents must 
be sent in paper or electronically upon request within three business 
days after receiving a request; \563\ and
---------------------------------------------------------------------------

    \563\ Rule 498A(j)(1)(iii); rule 498A(i)(1).
---------------------------------------------------------------------------

     The safe harbor specified in paragraph (h)(4) of the rule 
will be available if the required online portfolio company documents 
are temporarily unavailable at the specified website.\564\
---------------------------------------------------------------------------

    \564\ Rule 498A(j)(1)(iii); rule 498A(h)(4).
---------------------------------------------------------------------------

    Several commenters urged the Commission to permit flexibility 
regarding the website where required online portfolio company documents 
would be posted, and stated that insurers should be permitted to 
include website addresses or links to portfolio companies' existing 
website document libraries.\565\ One commenter asserted that the costs 
of posting the required online portfolio company documents online in 
machine-readable format(s) would greatly outweigh the benefits.\566\ As 
discussed above, many commenters also commented on the web-posting 
requirements for variable contract materials in the context of the 
variable contract summary prospectus, and suggested that those 
requirements (which are largely replicated in the context of portfolio 
company materials) should be made more principles-based and less 
regimented.\567\
---------------------------------------------------------------------------

    \565\ See ICI Comment Letter; ACLI Comment Letter; CAI Letter.
    \566\ See ACLI Comment Letter.
    \567\ See, e.g., VIP Working Group Comment Letter; Anonymous 
Comment Letter III; see also supra Section II.A.5.
---------------------------------------------------------------------------

    We believe that the ``publicly accessible'' provision of the rule 
as proposed already contemplated flexibility for issuers with respect 
to website posting requirements. Therefore, as proposed, the final rule

[[Page 26010]]

permits flexibility regarding the website where the required online 
portfolio company documents are posted, so long as electronic versions 
of the required online portfolio company documents (or links to those 
documents) are posted at the same website where the required online 
contract documents for the variable contract prospectus (or links to 
those documents) are posted.\568\ This requirement is designed to allow 
flexibility regarding the location where electronic versions of those 
materials are posted (and permits the website to be hosted, for 
example, by a financial intermediary or other entity than the insurer), 
while still ensuring that access to all materials relating to the 
contract is provided in a central location.
---------------------------------------------------------------------------

    \568\ See rule 498A(j) (conditioning reliance upon the new 
portfolio company prospectus delivery option on satisfaction of the 
conditions in paragraphs (h)(1), (h)(2)(i) and (ii), and (h)(3) and 
(4)), (h)(1) (providing that the required online portfolio company 
documents must be posted online at the website address referenced in 
paragraph (h)(1), which refers to the website on the cover page or 
beginning of the summary prospectus where the required online 
contract documents are posted). As proposed, both sets of materials 
were required to be posted on the website specified on the cover 
page or beginning of the summary prospectus, but we revised rule 
498A(j)(1)(iii) to clarify that the website address used for the 
required online portfolio company documents must be the same website 
used for the required online contract documents.
---------------------------------------------------------------------------

    Also as proposed, the website address must be specific enough to 
lead investors directly to the required online portfolio company 
documents, although the website can be a central site with prominent 
links to each document.\569\ Thus, while portfolio company documents 
may be hosted at multiple locations, for purposes of compliance with 
the rule, a summary prospectus may only include a single website 
address where each of the required online portfolio company documents 
together with the required online contract documents may be accessed. 
This requirement is designed to ensure that the required online 
portfolio company documents are collectively located at the same 
website address (or can be readily accessed from the same website 
address) as the related variable contract materials, as opposed to 
being scattered across various disconnected websites which could 
discourage investors from seeking those materials.
---------------------------------------------------------------------------

    \569\ See rule 498A(b)(2)(v)(B).
---------------------------------------------------------------------------

    As discussed above, the Commission is currently engaged in an 
overall review of the retail fund investor experience. The Commission 
and its staff will continue to consider further in the broader context 
of that overall review whether more global changes to the online 
disclosure framework should be made with regards to the other issues 
raised by commenters regarding making the web-posting requirements more 
principles-based and less regimented, as well as whether documents 
should be required to be posted online in machine-readable format.\570\
---------------------------------------------------------------------------

    \570\ See Request for Comment on Fund Retail Investor 
Experience, supra note 548.
---------------------------------------------------------------------------

    Another commenter observed that proposed rule 498A did not clarify 
when information in a portfolio company's statutory prospectus is 
deemed to be conveyed to investors for purposes of rule 159 under the 
Securities Act.\571\ Although the commenter's letter only addressed a 
portfolio company's statutory prospectus, we believe similar concerns 
would also apply to a portfolio company's Statement of Additional 
Information and shareholder reports. Accordingly, in a change from the 
proposal, the final rule provides that information contained in the 
required online portfolio company documents is conveyed for purposes of 
rule 159 when portfolio company prospectus delivery obligations under 
section 5(b)(2) of the Securities Act are satisfied pursuant to the 
optional portfolio company prospectus delivery method.\572\
---------------------------------------------------------------------------

    \571\ See CAI Comment Letter. See generally supra note 505 
(discussing the significance of rule 159 in the context of liability 
under Sections 12(a)(2) and 17(a)(2) of the Securities Act).
    \572\ See rule 498A(j)(1).
---------------------------------------------------------------------------

    Finally, in a change from the proposal,\573\ we are correcting an 
oversight and adding language to the rule to clarify that failure to 
comply with the delivery upon request and ``convenient for reading and 
printing'' requirements with regards to the required online portfolio 
company documents will not negate the ability to rely on the portfolio 
company prospectus delivery method.\574\ This failure would, however, 
constitute a violation of Commission rules.
---------------------------------------------------------------------------

    \573\ The proposal addressed this issue for the summary 
prospectus itself, but not with regards to portfolio company 
prospectuses. See Proposing Release, supra note 6, at notes 264 and 
298 and accompanying text.
    \574\ See rule 498A(j)(3).
---------------------------------------------------------------------------

    The proposal did not address this issue, but we believe that this 
provision is consistent with our stated intention to both address the 
problem of the high volume of disclosure materials variable contract 
investors receive,\575\ and to build upon our experience regarding 
mutual fund summary prospectuses.\576\ The new language, which 
parallels a similar provision in rule 498,\577\ is intended to provide 
greater certainty to market participants who seek to rely on the rule, 
and conforms to similar language regarding the application of those 
same requirements to the ability of funds and financial intermediaries 
to rely on the rule to satisfy prospectus delivery obligations.\578\
---------------------------------------------------------------------------

    \575\ See Proposing Release, supra note 6, at Section II.B.2.a.
    \576\ Id. at note 46 and accompanying text.
    \577\ Rule 498(f)(5).
    \578\ See rule 498A(i)(5) (``Compliance with this paragraph (i) 
of this section is not a condition to the ability to rely on 
paragraph (f) or (g) of this section with respect to a Contract, and 
failure to comply with paragraph (i) does not negate the ability to 
rely on paragraph (f) or (g) of this section.'').
---------------------------------------------------------------------------

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.\579\ In addition, we understand that the amendment is 
typically delivered to investors, either by special mailing or by 
including it with another mailing, such as with the account statement 
or confirmation.\580\
---------------------------------------------------------------------------

    \579\ Rule 497 under the Securities Act.
    \580\ For 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.
---------------------------------------------------------------------------

    As proposed, the new option for satisfying portfolio company 
prospectus delivery requirements will require that current portfolio 
company summary prospectuses and statutory prospectuses are posted 
online. If a portfolio company amends its prospectus between annual 
updates, the updated prospectus (including any prospectus supplements) 
must be posted online. However, as proposed, we are not separately 
requiring delivery of portfolio company prospectus amendments to 
investors. Commenters generally supported this aspect of our 
proposal.\581\
---------------------------------------------------------------------------

    \581\ See, e.g., ACLI Comment Letter and CAI Comment Letter.
---------------------------------------------------------------------------

    In addition, if an interim amendment to a portfolio company 
prospectus affects the information provided in the initial or updating 
summary prospectus (e.g., a change to the type/investment objective or 
current expenses of the portfolio company provided in the required 
Appendix to the contract summary prospectus), then investors will 
receive notice of the change through an amendment to the contract 
summary prospectus which will be delivered to investors. As proposed, 
the new rule will not, however, affect the requirements to deliver 
other materials specified under other rules or terms of exemptive 
orders, and in such cases, the

[[Page 26011]]

materials specified under those rules or terms of exemptive orders must 
be delivered to investors.\582\
---------------------------------------------------------------------------

    \582\ See, e.g., 17 CFR 270.35d-1 (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).
---------------------------------------------------------------------------

d. Delivery of Portfolio Company Prospectuses in Connection With Form 
N-14 Proxy Statement/Prospectuses
    Management investment companies and business development companies 
use Form N-14 to register certain transactions under the Securities 
Act. These include a merger in which a vote or consent of the security 
holders of the company being acquired is not required, an exchange 
offer for securities of the issuer or another person, a public 
reoffering or resale of any securities acquired in an offering 
registered on Form N-14, or any combination of such transactions.\583\
---------------------------------------------------------------------------

    \583\ See General Instruction A to Form N-14.
---------------------------------------------------------------------------

    Among other things, Form N-14 requires the disclosure of certain 
information about the registrant and the company being acquired, such 
as fees, synopsis information of the information contained in their 
prospectuses, and risk factors.\584\ If the transaction will not be 
submitted to security holders of the registrant for approval or 
consent, then some of the required information about the company being 
acquired may be incorporated by reference from that company's current 
prospectus without being sent to investors, on the grounds that 
investors in the company being acquired have already received the 
prospectus for their fund.\585\
---------------------------------------------------------------------------

    \584\ See, e.g., Items 3, 5, and 6 of Form N-14.
    \585\ See Item 6.(2)(ii) of Form N-14.
---------------------------------------------------------------------------

    While the Commission did not propose any changes to Form N-14 in 
the Proposing Release, one commenter asked whether a filing on Form N-
14 could similarly incorporate by reference a portfolio company 
prospectus without delivering it if the investor had received a 
variable contract prospectus which offered the portfolio company as an 
underlying investment option.\586\ We believe the same policy rationale 
behind the incorporation by reference provision in current Form N-14 
should also apply here so long as prospectus delivery obligations for 
the portfolio company have been satisfied pursuant to the new portfolio 
company prospectus delivery option. Accordingly, we are now amending 
Form N-14 to provide that a portfolio company prospectus whose delivery 
obligations were satisfied via new rule 498A(j) may be incorporated by 
reference into a filing on Form N-14 without being sent to investors, 
so long as that portfolio company was listed in the variable contract 
summary prospectus Appendix at the time the disclosures required by 
Form N-14 were delivered to investors.\587\
---------------------------------------------------------------------------

    \586\ See VIP Working Group Comment Letter.
    \587\ See General Instruction G to amended Form N-14.
---------------------------------------------------------------------------

C. Amendments to Registration Forms

    We are adopting 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 summary prospectus framework. These 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 
adopting 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 revisions to Forms N-3 and N-4. Accordingly, we are 
adopting 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. We also 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.
    We are adopting amendments to the registration statement forms 
substantially as proposed with some modifications in response to 
comments on specific reporting items.\588\ The comments that we 
received relating to our proposal to amend variable contract 
registration statements were generally supportive of our efforts to 
improve the information that is provided to shareholders and filed with 
the Commission.\589\ Although commenters did not raise broad objections 
to our proposed amendments, commenters raised concerns with and/or 
requested clarification on various items, as discussed in more detail 
below. To the extent we received no comments on certain items, we are 
adopting them as proposed, as discussed further below.
---------------------------------------------------------------------------

    \588\ In a change from the proposal, we are also making non-
substantive amendments to the forms to standardize and conform the 
use of certain terminology and references to defined terms, such as 
changing references from ``contractowner'' to the more plain English 
term ``investor.''
    \589\ See, e.g., CAI Comment Letter (``[T]he Committee applauds 
the Commission for dedicating considerable time and effort to revamp 
the variable product registration statement forms. . . .''); XBRL 
U.S. Comment Letter (``Making variable annuity data consistent, 
comparable from product to product, and easily accessible on a 
timely basis, will improve the investor's ability to evaluate these 
offerings, and is a task best handled through standardized reported 
data.'').
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1. General Instructions
    We are adopting amendments to the General Instructions of Forms N-
3, N-4, and N-6 regarding the preparation and filing of registration 
statements. Although commenters did not raise broad objections to our 
proposed amendments, commenters raised concerns with and/or requested 
clarification on General Instruction C.3, as discussed in more detail 
below. To the extent we received no comments on the other General 
Instructions, we are adopting them as proposed.
    The amended General Instructions, like the General Instructions in 
current Form N-6,\590\ are structured to include four parts: (A) 
Definitions; (B) Filing and Use of Form; (C) Preparation of the 
Registration Statement; \591\ and (D) Incorporation by Reference.\592\ 
With the

[[Page 26012]]

exception of General Instruction C.3, these amendments are largely 
organizational in nature and incorporate minor changes that are not 
intended to significantly alter the content of the current General 
Instructions for these forms.
---------------------------------------------------------------------------

    \590\ While the amended General Instructions in Forms N-3 and N-
4 are structured like the General Instructions in current Form N-6, 
there are certain new instructions that we are adopting to add to 
each of the forms. See, e.g., amended 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.
    \591\ The final forms include, as part of the instruction to 
avoid excessive detail, technical or legal terminology, and complex 
language, amended General Instruction C.1.(c) which clarifies the 
instruction to avoid the use of formulas as the primary means of 
communicating certain terms or features of the contract. This 
specific text was not included in the proposal, and is not intended 
to discourage use of a formula, but rather, to clarify that if a 
formula is used in connection with a term or feature, investors are 
first provided appropriate plain English disclosure regarding the 
operation of the term or feature. This amendment is consistent with 
a frequent staff comment provided as part of the disclosure review 
process that is intended to help facilitate registration statement 
disclosures that are clear and concise.
    \592\ Amended General Instruction D also reflects the amendments 
recently adopted pursuant to the Commission's FAST Act rulemaking in 
2019. See FAST Act Adopting Release, supra note 501 (among other 
things, consolidating and harmonizing rules and instructions in 
registration statements regarding incorporation by reference). These 
amendments became effective April 2 and May 2, 2019.
     As discussed below in Section II.E, EDGAR will be modified to 
create a new submission type under which registrants may file 
required financial statements. Notice of EDGAR system readiness to 
accept filings pursuant to the new submission type will be provided 
in a manner similar to notices of EDGAR Filer Manual updates. This 
submission type will be available to all variable contract 
registrants, including those with actively selling or discontinued 
contracts. Thus, registrants may incorporate by reference into their 
post-effective amendment and other filings the financial statements 
filed under the new submission type.
---------------------------------------------------------------------------

    General Instruction C.3 provides 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 parallels 
Instruction C.3 of current Form N-6 in substance, except as described 
below.
Organization of Information
    As proposed, General Instruction C.3.(a) requires the disclosures 
in response to Item 2 (Key Information), Item 3 (Overview of the 
Contract), and Item 4 (Fee Table) of the registration forms to 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. One commenter stated that registrants should be given 
flexibility to present disclosure where it makes most logical sense, 
and recommended against an approach that would require those 
disclosures to be segregated and placed at the beginning of the 
statutory prospectus.\593\ Another commenter disagreed and supported 
the proposed order of the items in the amended forms and the related 
General Instructions.\594\ We continue to 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 and standardization of these disclosures 
will aid investors in comparing different products.\595\ We also 
believe that the instruction incorporates a certain degree of 
flexibility for issuers. As proposed and adopted, the instruction also 
provides 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.
---------------------------------------------------------------------------

    \593\ See ACLI Comment Letter.
    \594\ See CAI Comment Letter.
    \595\ The disclosure that amended Items 2 and 3 requires also 
will appear at the beginning of the initial summary prospectus. See 
supra note 60 and accompanying text.
---------------------------------------------------------------------------

Other Information
    As proposed, General Instruction C.3.(b) provides that, except in 
response to Items 2 and 3, a registrant is 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.\596\ 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.
---------------------------------------------------------------------------

    \596\ In a change from the proposal, this instruction further 
provides that information regarding non-principal risks that is not 
otherwise required to be in the prospectus must be disclosed in the 
SAI, as opposed to the prospectus, in accordance with the items 
regarding principal and non-principal risk disclosure. As discussed 
below, we believe that prospectus disclosure of non-principal risks 
that are not otherwise required to be in the prospectus could add 
complexity and length to the prospectus and obscure principal risks 
that are more relevant to investors, and therefore such non-
principal risks should only be included in the SAI. See note 690.
---------------------------------------------------------------------------

Presentation of Information
    As proposed, General Instruction C.3.(c) encourages registrants to 
use, as appropriate, question-and-answer presentations, tables, side-
by-side comparisons, captions, bullet points, numeric examples, 
illustrations or similar presentation methods.\597\ We believe that 
these alternative ways of presenting information could increase 
readability and that this instruction could encourage registrants to 
use these presentation options, where appropriate.
---------------------------------------------------------------------------

    \597\ See, e.g., Kleimann Presentation, supra note 112 
(encouraging, for example, the use of question-and-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).
---------------------------------------------------------------------------

Use of Terms
    As proposed, General Instruction C.3.(d)(i) 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.
    As discussed above, and in response to requests from commenters, 
General Instruction C.3.(d) includes new subparagraph (ii) which 
provides registrants with the flexibility to use alternate terminology 
other than that used by the form, so long as the alternate terminology 
clearly conveys the meaning of, or provides comparable information as, 
the terms used by the form.\598\
---------------------------------------------------------------------------

    \598\ See supra note 76 and accompanying text.
---------------------------------------------------------------------------

Use of Form To Register Multiple Contracts
    General Instruction C.3.(e) provides new guidance addressing when a 
registrant may describe multiple contracts in a single prospectus, and 
include multiple prospectuses in a single registration statement. We 
are generally adopting these amendments as proposed, with certain 
modifications described below.
    As proposed, General Instruction C.3.(e)(i) provides that 
registrants may describe multiple contracts in a single prospectus when 
the contracts are ``essentially identical.'' Whether the contracts are 
essentially identical will depend on the facts and circumstances. The 
instruction includes examples to provide guidance on this point, 
although we have revised one of the proposed examples to clarify that a 
contract that does not offer optional benefits could still be 
essentially identical to one that offers optional benefits without 
charge (e.g., optional benefits offered without charge may include 
dollar-cost averaging programs, automatic transfer programs, 
etc.).\599\ If a prospectus becomes unwieldy because of multiple 
discontinued or changed features such that an investor might become 
overwhelmed or confused, the registrant should consider issuing a new 
prospectus, which could be included in the same registration statement, 
as discussed further below.
---------------------------------------------------------------------------

    \599\ The examples clarify that a contract that does not offer 
optional benefits would not be essentially identical to one that 
does for a charge. Similarly, group and individual contracts would 
not be essentially identical. However, contracts that vary only due 
to state regulatory requirements would be essentially identical.
---------------------------------------------------------------------------

    One commenter asserted that the specific examples proposed by the 
Commission outlining when this practice would be permitted were 
unnecessarily restrictive. The

[[Page 26013]]

commenter suggested that the Commission should permit insurers 
reasonable flexibility to describe, in a single prospectus, the same 
contract (or contracts) offering different versions of a particular 
optional benefit, different combinations of optional benefits, and 
other variations.\600\
---------------------------------------------------------------------------

    \600\ See CAI Comment Letter.
---------------------------------------------------------------------------

    As the number of optional benefits offered under variable insurance 
contracts have proliferated, registrants have gravitated towards 
increasingly larger and more complex prospectuses, including 
prospectuses describing multiple contracts offering different versions 
and combinations of optional benefits, even though not all of those 
contracts or optional benefits would be relevant for investors to whom 
the prospectus would be sent or given.
    To provide guidance to registrants, and in order to avoid 
overwhelming investors with voluminous and potentially irrelevant 
prospectus information, General Instruction C.3.(e)(i) provides that 
registrants may only describe multiple contracts in a single prospectus 
when the included contracts are ``essentially identical,'' and further 
provides specific examples that we believe are helpful in outlining 
when this condition is met.
    General Instruction C.3.(e)(ii) further provides that a registrant 
may combine multiple prospectuses in a single registration statement 
under certain conditions. The Commission proposed permitting such 
combinations when the prospectuses describe contracts that are 
``essentially identical.''
    One commenter expressed confusion that the same standard would be 
used to determine when multiple contracts can be described in one 
prospectus and also when multiple prospectuses can be combined in one 
registration statement, even though different examples are provided to 
demonstrate what would be appropriate in each context.\601\ The 
commenter further stated that registrants currently have reasonable 
flexibility to include multiple reasonably related prospectuses in a 
single registration statement, and asserted that practice should be 
permitted if the prospectuses describe different versions or iterations 
of contracts that are on the same or substantially similar policy 
forms, offer different combinations and/or iterations of benefits, or 
address different distribution arrangements.
---------------------------------------------------------------------------

    \601\ Id.
---------------------------------------------------------------------------

    Although we agree that under certain circumstances it would be 
appropriate to include more than one prospectus in a single 
registration statement, as discussed above we believe that specific 
criteria will be helpful to provide guidance to registrants and to 
limit the potential for investors to become overloaded with voluminous 
and potentially irrelevant registration statement information. 
Accordingly, we have modified the General Instruction to permit 
registrants to combine multiple prospectuses in a single registration 
statement when the contracts are ``substantially similar.'' The 
instruction also includes examples to provide guidance on this point, 
as proposed, although we are modifying one of the proposed examples to 
replace the word ``enhanced'' with ``modified,'' because not all 
material changes to riders are necessarily improvements that 
``enhance'' the rider.\602\ We believe these examples are generally 
consistent with current industry practice.
---------------------------------------------------------------------------

    \602\ The 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 a ``modified'' version of the same 
contract (where the ``modified'' version modifies the features or 
options that the registrant offers under that contract).
---------------------------------------------------------------------------

    When a registrant files its initial registration statement and 
post-effective amendments thereto with the Commission, Commission staff 
could request the registrant to resubmit the filing with separate 
prospectuses or registration statements if the filing falls outside the 
guidelines specified in General Instruction C.3.(e). One commenter 
stated that many prospectuses currently describe more than one 
contract, and many variable product registration statements currently 
include more than one prospectus, and suggested that the Commission 
should grandfather such existing filings.\603\
---------------------------------------------------------------------------

    \603\ See CAI Comment Letter.
---------------------------------------------------------------------------

    Recognizing the potential confusion for existing investors and 
burdens for registrants associated with splitting up prospectuses and 
registration statements into multiple documents, we are exempting 
registrants from the requirement to take such actions as to existing 
prospectuses and registration statements.\604\ Existing prospectuses 
and registration statements as of the effective date of the form 
amendments are exempt from these requirements--that is, existing 
prospectuses that describe more than one contract, and existing 
registration statements that include more than one prospectus, will not 
need to be split into separate documents. However, after the effective 
date of the form amendments, a registrant that seeks to describe a new 
contract under a particular prospectus or add a new prospectus to a 
registration statement, must comply with the guidelines specified in 
General Instruction C.3.(e) as to that new contract or new prospectus. 
Further, while we generally believe that insurers should limit the 
contracts covered in a single prospectus and prospectuses covered in a 
single registration statement as discussed above, we also believe that 
the costs and burdens that would be imposed should we not provide this 
exemption may not justify the benefits of such limitations in the case 
of existing prospectuses and registration statements.\605\
---------------------------------------------------------------------------

    \604\ For the reasons set forth above, we find that this 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Investment Company Act. 
See Section 6(c) of the Investment Company Act; Section 28 of the 
Securities Act.
    \605\ See infra Sections II.E.2 and 3.a (taking a similar 
approach regarding discontinued contracts for similar reasons).
---------------------------------------------------------------------------

Order of Information in Prospectus
    As proposed, while paragraph (a) of General Instruction C.3 
generally requires registrants to disclose the information required by 
Items 2, 3, and 4 in numerical order at the front of the prospectus, 
General Instruction C.3.(e)(i)(A) allows registrants to depart from 
this requirement under certain circumstances.\606\ The amended 
instruction includes an example to provide guidance on this point, 
largely as proposed.\607\ Registrants that present Items 2, 3, and 4 
for each of several contracts sequentially or that utilize another 
presentation should consider whether investors might benefit from a 
brief explanation about how the information in the prospectus is 
presented, such as headings for each contract in the prospectus' table 
of contents and/or a brief narrative at the beginning of the prospectus 
explaining

[[Page 26014]]

the presentation.\608\ Registrants are encouraged to present 
information in a manner that limits repetition.\609\
---------------------------------------------------------------------------

    \606\ Specifically, registrants may do so when providing 
disclosure in a single prospectus for more than one contract. 
However, the order of information required by each item must remain 
the same, and they must still present the required information 
clearly and effectively.
    \607\ The example clarifies that a prospectus may present all of 
the Item 2 information for several contracts (e.g., by providing 
several Key Information Tables sequentially or by providing a single 
Key Information Table containing separate disclosures for each 
contract to the extent that such disclosures vary by contract), 
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.
    \608\ See General Instruction C.3.(e)(i)(A) to Forms N-3, N-4, 
and N-6.
    \609\ Id.
---------------------------------------------------------------------------

    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. In a change 
from the proposal, and consistent with our effort to provide greater 
clarity to investors,\610\ the amended forms contain a new instruction 
that requires registrants to generally include appropriate titles, 
headings, or any other information to promote clarity and facilitate 
understanding regarding which disclosures apply to which contract, if 
such disclosures vary based on the contract.\611\
---------------------------------------------------------------------------

    \610\ While not specific to use of a single prospectus to 
describe more than one contract, one commenter did raise a concern 
about the ability of investors to understand multiple contracts in 
the context of the initial summary prospectus. See AARP Comment 
Letter.
    \611\ See General Instruction C.3.(e)(i)(B).
---------------------------------------------------------------------------

Interactive Data Files
    In the case of contracts currently offered to new investors, 
paragraph (h) of General Instruction C.3 requires registrants to use 
the Inline XBRL format for the submission of certain required 
disclosures in the variable contract statutory prospectus.\612\ We 
discuss the requirement to file using Inline XBRL in Section II.D 
below.
---------------------------------------------------------------------------

    \612\ See General Instruction C.3.(h) to amended Forms N-3, N-4, 
and N-6; see also Items 3, 4, 5, 11, 18, and 19 of amended Form N-3; 
Items 3, 4, 5, 10, and 17 of amended Form N-4; Items 3, 4, 5, 10, 
11, and 18 of amended Form N-6.
---------------------------------------------------------------------------

Website Addresses
    Paragraph (i) of General Instruction C.3 requires any website 
address that is included in an electronic version of the statutory 
prospectus (i.e., electronic versions sent to investors or available 
online) to include an active hyperlink.\613\ In response to comments 
discussed below, in a change from the proposal, registrants may also 
utilize any other means of facilitating access that leads directly to 
the relevant website address or cross-referenced information. This 
instruction is intended to ensure that investors viewing electronic 
versions of the prospectus are able to easily access website addresses 
that are referenced in the prospectus and to provide registrants with 
flexibility to take advantage of potential technological improvements. 
This requirement does not apply to an electronic version of a statutory 
prospectus filed on the EDGAR system.\614\
---------------------------------------------------------------------------

    \613\ See General Instruction C.3.(i) to amended Forms N-3, N-4, 
and N-6.
    \614\ 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). Because this is an existing 
EDGAR restriction, we do not believe it is necessary to add this 
provision to registration statements. Thus, in a change from the 
proposal, amended Forms N-3, N-4, and N-6 do not include this 
provision.
---------------------------------------------------------------------------

    Although we proposed that this requirement would also apply to 
cross-references included in an electronic version of the statutory 
prospectus, for the reasons discussed above, and to parallel a similar 
change with regards to a parallel provision for summary prospectuses, 
we are not adopting this requirement with regards to electronic 
versions of the statutory prospectus.\615\
---------------------------------------------------------------------------

    \615\ See supra note 488 and accompanying and following text.
---------------------------------------------------------------------------

    Several commenters asserted that the proposed requirement could be 
burdensome because it would necessitate continuous maintenance to 
determine whether the hyperlinked websites have changed locations of 
information.\616\ From staff's experience with insurer websites, we 
understand that insurers typically link to landing pages which are 
unlikely to change locations, and thus any such burden would be minimal 
relative to the benefits investors and others receive from such 
hyperlinks. Another commenter asked for guidance regarding what would 
constitute noncompliance with regards to failure to update an active 
hyperlink that had become a ``dead link.'' \617\ Although a finding of 
noncompliance would depend on the facts and circumstances in question, 
we would generally consider the hyperlinking requirement to be met if 
the insurer has reasonable procedures in place to ensure compliance, 
and the insurer takes prompt action to ensure that the hyperlink is 
active as soon as practicable following the earlier of the time at 
which it knows or reasonably should have known that the hyperlink is 
not active.\618\
---------------------------------------------------------------------------

    \616\ See ACLI Comment Letter; Ameritas Comment Letter.
    \617\ See Chemas Comment Letter.
    \618\ Compare with rule 498A(h)(4) (providing safe harbor under 
similar circumstances with regards to the requirement to make 
certain documents available on a website, among other conditions).
---------------------------------------------------------------------------

2. Part A (Information Required in a Prospectus)
    Table 4 shows how our amendments revise the item requirements of 
Part A of the variable contract registration forms. Although commenters 
did not raise broad objections to our proposed amendments, commenters 
raised concerns with and/or requested clarification on various items, 
as discussed in more detail below. To the extent we received no 
comments on certain items, we are adopting them as proposed, as 
discussed further below.

                            Table 4--Amendments to Part A of Forms N-3, N-4, and N-6
----------------------------------------------------------------------------------------------------------------
        Item description           Amended  item No.       Form N-3            Form N-4            Form N-6
----------------------------------------------------------------------------------------------------------------
Front and Back Cover Pages (in     Form N-3:  Revised...........  Revised...........  Revised.
 Forms N-3 and N-4, currently      Item 1 (currently
 ``Cover Page'').                  Item 1).
                                   Form N-4:
                                   Item 1 (currently
                                   Item 1).
                                   Form N-6:
                                   Item 1 (currently
                                   Item 1).
Definitions.....................  N/A (currently,     Revised             Revised             N/A (incorporated
                                   Item 2 in Forms N-  (incorporated in    (incorporated in    in General
                                   3 and N-4).         General             General             Instructions).
                                                       Instructions).      Instructions).
Key Information.................   Form N-3:  New Item (also in   New Item (also in   New Item (also in
                                   Item 2.             ISP, USP).          ISP, USP).          ISP, USP).
                                   Form N-4:
                                   Item 2.
                                   Form N-6:
                                   Item 2.
Overview of the Contract........   Form N-3:  New Item (also in   New Item (also in   New Item (also in
                                   Item 3.             ISP).               ISP).               ISP).
                                   Form N-4:
                                   Item 3.
                                   Form N-6:
                                   Item 3.

[[Page 26015]]

 
Fee Table (in Form N-3,            Form N-3:  Revised (also in    Revised (also in    Revised (also in
 currently ``Synopsis or           Item 4 (currently   ISP).               ISP).               ISP).
 Highlights,'' in Form N-4,        Item 3).
 currently ``Synopsis,'' and in    Form N-4:
 Form N-6, currently ``Risk/       Item 4 (currently
 Benefit Summary: Fee Table'').    Item 3).
                                   Form N-6:
                                   Item 4 (currently
                                   Item 3)..
Condensed Financial Information.   Form N-3:  Revised...........  N/A...............  N/A.
                                   Item 17
                                   (currently Item
                                   4).
Principal Risks of Investing in    Form N-3:  New Item..........  New Item..........  Revised.
 the Contract (in Form N-6,        Item 5.
 currently ``Risk/Benefit          Form N-4:
 Summary: Benefits and Risks'').   Item 5.
                                   Form N-6:
                                   Item 5 (currently
                                   Item 2).
In Form N-3: General Description   Form N-3:  Revised...........  Revised...........  Revised.
 of Registrant, Insurance          Item 6 (currently
 Company, and Investment Options   Item 5).
 (currently ``General              Form N-4:
 Description of Registrant and     Item 6 (currently
 Insurance Company'').             Item 5).
In Forms N-4 and N-6: General      Form N-6:
 Description of Registrant,        Item 6 (currently
 Depositor, and Portfolio          Item 4).
 Companies.
Management......................   Form N-3:  Revised...........  N/A...............  N/A.
                                   Item 7 (currently
                                   Item 6).
Charges (in Form N-3, currently    Form N-3:  Revised...........  Revised...........  Revised.
 ``Deductions and Expenses,'' in   Item 8 (currently
 Form N-4, currently               Item 7).
 ``Deductions'').                  Form N-4:
                                   Item 7 (currently
                                   Item 6).
                                   Form N-6:
                                   Item 7 (currently
                                   Item 5).
General Description of Contracts   Form N-3:  Revised...........  Revised...........  Revised.
 (in Form N-4, currently           Item 9 (currently
 ``General Description of          Item 8).
 Variable Annuity Contracts'').    Form N-4:
                                   Item 8 (currently
                                   Item 7).
                                   Form N-6:
                                   Item 8 (currently
                                   Item 6).
Annuity Period..................   Form N-3:  Revised...........  Revised...........  N/A.
                                   Item 10
                                   (currently Item
                                   9).
                                   Form N-4:
                                   Item 9 (currently
                                   Item 8).
Premiums........................   Form N-6:  N/A...............  N/A...............  Revised
                                   Item 9 (currently                                          (part also in
                                   Item 7).                                                    ISP).
Death Benefits (in Forms N-3 and   Form N-3:  Eliminated........  Eliminated........  Revised (part also
 N-4, currently ``Death            N/A (currently                                              in ISP).
 Benefit,'' and in Form N-6,       Item 10).
 currently ``Death Benefits and    Form N-4:
 Contract Values'').               N/A (currently
                                   Item 9).
                                   Form N-6:
                                   Item 10
                                   (currently Item
                                   8).
In Forms N-3 and N-4: Benefits     Form N-3:  New Item (part      New Item (part      New Item (part
 Available Under the Contract.     Item 11.            also in ISP).       also in ISP).       also in ISP).
In Form N-6: Other Benefits        Form N-4:
 Available Under the Contract.     Item 10.
                                   Form N-6:
                                   Item 11.
Purchases and Contract Value....   Form N-3:  Revised (part also  Revised (part also  N/A.
                                   Item 12             in ISP).            in ISP).
                                   (currently Item
                                   11).
                                   Form N-4:
                                   Item 11
                                   (currently Item
                                   10).
                                   Form N-6:
                                   N/A.
Surrenders and Withdrawals (in     Form N-3:  Revised (part also  Revised (part also  Revised (part also
 Forms N-3 and N-4, currently      Item 13             in ISP).            in ISP).            in ISP).
 ``Redemptions,'' in Form N-6,     (currently Item
 currently ``Surrenders, Partial   12).
 Surrenders, and Partial           Form N-4:
 Withdrawals'').                   Item 12
                                   (currently Item
                                   11).
                                   Form N-6:
                                   Item 12
                                   (currently Item
                                   9).
Loans...........................   Form N-3:  New Item..........  New Item..........  Revised.
                                   Item 14.
                                   Form N-4:
                                   Item 13.
                                   Form N-6:
                                   Item 13
                                   (currently Items
                                   10 and 23).
Lapse and Reinstatement.........   Form N-6:  N/A...............  N/A...............  Revised (part also
                                   Item 14                                                     in ISP).
                                   (currently Item
                                   11).
Taxes...........................   Form N-3:  Revised...........  Revised...........  Unchanged.
                                   Item 15
                                   (currently Item
                                   13).
                                   Form N-4:
                                   Item 14
                                   (currently Item
                                   12).
                                   Form N-6:
                                   Item 15
                                   (currently Item
                                   12).

[[Page 26016]]

 
Legal Proceedings...............   Form N-3:  Revised...........  Revised...........  Unchanged.
                                   Item 16
                                   (currently Item
                                   14).
                                   Form N-4:
                                   Item 15
                                   (currently Item
                                   13).
                                   Form N-6:
                                   Item 16
                                   (currently Item
                                   13).
Table of Contents of the SAI....  N/A (currently,     Eliminated........  Eliminated........  N/A.
                                   Item 15 of Form N-
                                   3 and Item 14 of
                                   Form N-4) \619\.
Financial Statements............   Form N-3:  New Item..........  New Item..........  Unchanged.
                                   Item 17.
                                   Form N-4:
                                   Item 16.
                                   Form N-6:
                                   Item 17
                                   (currently Item
                                   14).
In Form N-3: Investment Options    Form N-3:  New Item (also in   New Item (also in   New Item (also in
 Available Under the Contract.     Item 18.            ISP, USP if         ISP, USP).          ISP, USP).
In Forms N-4 and N-6: Portfolio    Form N-4:   disclosures from
 Companies Available Under the     Item 17.            Item 19 are not
 Contract.                         Form N-6:   included).
                                   Item 18.
In Form N-3: Additional            Form N-3:  New Item (also in   New Item..........  New Item.
 Information About Investment      Item 19.            ISP, USP if
 Options Available Under the                           disclosures from
 Contract.                                             Item 18 are not
                                                       included).
----------------------------------------------------------------------------------------------------------------

a. Front and Back Cover Pages (Item 1 of Forms N-3, N-4, and N-6)
    We are adopting these amendments to the front and back cover pages 
of Forms N-3, N-4, and N-6 largely as proposed.
---------------------------------------------------------------------------

    \619\ As discussed below, we are eliminating 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.C.3.
---------------------------------------------------------------------------

    We are amending Item 1 of each registration form, largely as 
proposed,\620\ to reflect the requirements for the prospectus cover 
pages required by Item 1 of current Form N-6, with three additional 
disclosures that will be made on the front cover page. We received no 
comments regarding these proposed additional disclosures.
---------------------------------------------------------------------------

    \620\ We added the legends required by rule 498A(b)(2)(v)(E) and 
(F) as a new part of Item 1 and made other slight clarifications 
that were not in Item 1 as proposed. See supra notes 90 and 91 and 
accompanying text.
---------------------------------------------------------------------------

     First, 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; \621\
---------------------------------------------------------------------------

    \621\ Item 1(a)(5) of amended Form N-3; Item 1(a)(4) of amended 
Forms N-4 and N-6.
---------------------------------------------------------------------------

     Second, as with the initial summary prospectus and 
updating summary prospectus, a statement directing an investor to the 
Investor.gov website for additional information; \622\ and
---------------------------------------------------------------------------

    \622\ Item 1(a)(8) of amended Form N-3; Item 1(a)(7) of amended 
Forms N-4 and N-6; see also supra note 88 and accompanying text.
---------------------------------------------------------------------------

     Third, as with the initial summary prospectus, a legend 
informing investors about the free look period, if applicable.\623\
---------------------------------------------------------------------------

    \623\ Item 1(a)(10) of amended Form N-3; Item 1(a)(8) of amended 
Forms N-4 and N-6; see also supra text following note 86 and 
accompanying text.
    In addition, the forms include a legend informing investors 
about the optional internet availability of shareholder reports, if 
applicable, pursuant to the requirements of rule 30e-3. Item 
1(a)(11) of amended Form N-3; Item 1(a)(9) of amended Forms N-4 and 
N-6; see also rule 30-3; supra note 86 and accompanying and 
following text.
---------------------------------------------------------------------------

    To streamline the front cover page and because similar information 
would appear in tabular presentation in the prospectus, the Commission 
proposed 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. We 
received one comment letter which supported removal of the names of the 
available portfolio companies and did not object to removal of the name 
of the type of separate account, and we are adopting these changes as 
proposed.\624\
---------------------------------------------------------------------------

    \624\ See CAI Comment Letter (stating that such disclosures on 
the cover page would be unnecessarily duplicative of the new 
Appendix and further stating that, as the number of portfolio 
companies has proliferated, listing such options on the cover page 
has lengthened cover pages to the point that they have strayed far 
from the concise overview that the Commission originally intended).
---------------------------------------------------------------------------

    Additionally, as proposed, we are amending the prospectus back 
cover page to 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.\625\
---------------------------------------------------------------------------

    \625\ Item 1(b) of amended Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

b. Key Information (Item 2 of Forms N-3, N-4, and N-6)
    Largely as proposed, we are adding new Item 2 to the registration 
forms, which requires a statutory prospectus to include the Key 
Information Table providing a brief description of key facts about the 
variable contract.\626\ The Key Information Table also appears in the 
initial summary prospectus and the updating summary prospectus, except 
that it can vary depending on the scope of the initial summary 
prospectus (which can only describe a single contract that the 
registrant currently offers for sale), in contrast to the updating 
summary prospectus and statutory prospectus (which can describe 
multiple contracts under the conditions of the amended General 
Instructions to the registration forms). An updating summary prospectus 
that describes multiple contracts can 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.
---------------------------------------------------------------------------

    \626\ See supra Sections II.A.1.c.ii.(a) and II.A.2.c.ii. for a 
discussion of these requirements in more detail.
---------------------------------------------------------------------------

    We received several comments on the substance and location of this 
Item in the context of the initial summary prospectus and the updating 
summary prospectus. As discussed above in the context of the summary 
prospectus, we are largely adopting the disclosure

[[Page 26017]]

requirements of this Item as proposed, with certain modifications to 
address points raised by commenters, including shifting the location of 
this Item forward to be closer to the beginning of the summary 
prospectus. For similar reasons discussed with respect to the summary 
prospectus, we believe that those modifications should apply equally in 
the context of the statutory prospectus.
c. Overview of the Contract (Item 3 of Forms N-3, N-4, and N-6)
    As proposed, we are adding new Item 3 to the registration forms, 
which requires registrants to include certain basic and introductory 
information about the contract and its benefits.\627\ These disclosures 
are also required in initial summary prospectuses.\628\
---------------------------------------------------------------------------

    \627\ See supra Sections II.A.1.c.ii.(b) for a discussion of 
these requirements in more detail. Item 2(d) of amended Form N-6 
includes the requirements that appear in Item 2(a) of current Form 
N-6.
    \628\ Rule 498A(b)(5)(i).
---------------------------------------------------------------------------

    We received several comments on the substance of this Item in the 
context of the initial summary prospectus.\629\ As discussed above, 
however, we are adopting the disclosure requirements of this Item as 
proposed for the initial summary prospectus.\630\
---------------------------------------------------------------------------

    \629\ See supra Section II.A.1.c.ii.(b).
    \630\ Id.
---------------------------------------------------------------------------

d. Fee Table (Item 4 of Forms N-3, N-4, and N-6)
    Largely as proposed, we are amending Item 3 of the current 
registration forms (which we are re-designating as Item 4) to simplify 
and update current fee and expense disclosure obligations.\631\
---------------------------------------------------------------------------

    \631\ We are also changing 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.
---------------------------------------------------------------------------

i. General Comments (Forms N-3, N-4, and N-6)
    One commenter stated that many statutory prospectuses currently use 
terminology for fees and charges that differs from the terminology that 
appears in the proposed Fee Table, and suggested that the imposition of 
standardized terminology might obligate an insurer to re-file contract 
forms with state insurance departments.\632\ The commenter concluded 
that the Commission should permit insurers the flexibility to use 
existing and prior terminology in the Fee Table, as well as new 
terminology in the future.
---------------------------------------------------------------------------

    \632\ See CAI Comment Letter.
---------------------------------------------------------------------------

    As discussed above, we are revising the General Instructions of the 
registration forms to generally provide broad flexibility to use 
alternate terminology other than that specified in the applicable 
registration statement, so long as the alternate terminology clearly 
conveys the meaning of, or provides comparable information as, the 
terms used in the registration statement.\633\ In addition, as 
proposed, we are providing further flexibility by allowing registrants 
to modify a narrative explanation in the Fee Table if the explanation 
contains comparable information to that shown.\634\
---------------------------------------------------------------------------

    \633\ See supra note 598.
    \634\ See Instruction 1 to Item 4 of amended Forms N-3 and N-4 
and Instruction 1(b) to Item 4 of amended Form N-6.
---------------------------------------------------------------------------

    Another commenter asked generally for clarification whether 
disclosure is needed for fees that are zero (e.g., front-end load for a 
fund with no front-end load).\635\ Largely as proposed, we are adopting 
Instruction 3 to the Fee Table, which states that a registrant may omit 
captions if the registrant does not charge or reserve the right to 
charge the fees or expenses covered by the captions.\636\ Therefore, in 
response to the commenter, if a registrant that does not charge or 
reserve the right to charge a particular fee wishes to omit that 
information, it may.
---------------------------------------------------------------------------

    \635\ See Breacher Comment Letter.
    \636\ See Instruction 3 to Item 4 of amended Forms N-3 and N-4 
and Instruction 1(c) to Item 4 of amended Form N-6. In a change from 
the proposal, we are revising those instructions to clarify that a 
registrant that does not charge the fees or expenses covered by the 
captions but reserves the right to do so must include those captions 
in the Fee Table. We understand that this is consistent with 
insurers' current practices. In a conforming change, we are also 
removing language in those instructions permitting a registrant to 
modify or add captions under certain circumstances, because we 
believe that language is no longer necessary in light of the new 
flexibility permitted by the General Instructions to the 
registration statements and the instructions to the fee table. See 
supra notes 633-634.
---------------------------------------------------------------------------

    Other commenters suggested changes to the Fee Table that are beyond 
the scope of this current rulemaking, including interactive fee 
calculators and customized disclosures that would be accessed via links 
available only through password protected login-in screens.\637\ More 
generally, one commenter noted that Fee Tables can be long and complex, 
and suggested that the Commission consider ways to streamline 
presentation of information in Fee Tables.\638\
---------------------------------------------------------------------------

    \637\ See, e.g., VIP Working Group Comment Letter; AARP Comment 
Letter. We note that the Commission is looking at disclosures and 
technology tools as part of a broader modernization initiative. See 
supra Section I.
    \638\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    We recognize that variable insurance products can in some cases 
feature numerous optional benefits and investment options--each of 
which may be associated with a different fee and collectively may 
result in lengthy disclosures. However, we continue to believe that the 
full Fee Table should remain included in variable insurance contract 
prospectuses to provide investors with comprehensive fee and expense 
information regarding the optional benefits, investment options, and 
other charges associated with the contracts being offered. In order to 
provide investors with shorter, more tailored discussion, as discussed 
above, we are requiring the disclosure of certain summary information 
in the Key Information Table to convey the importance of the contract's 
fee and expense structure. This framework allows an investor to 
determine the level of fee information that best suits his or her 
informational needs (i.e., the summary fee information in the Key 
Information Table or the more detailed and comprehensive information in 
the Fee Table).
ii. Transaction Expenses (Forms N-3 and N-4)
    The Commission proposed to retitle the current ``Contractowner 
Transaction Expenses'' table in Forms N-3 and N-4 as ``Annual 
Transaction Expenses.'' Commenters pointed out that certain of the 
listed fees in the table are not deducted on an annual basis but 
instead are deducted only when the investor initiates certain 
transactions (e.g., sales loads, exchange fees, etc.).\639\ 
Accordingly, we are retitling this table as ``Transaction Expenses.''
---------------------------------------------------------------------------

    \639\ See Transamerica Comment Letter; CAI Comment Letter.
---------------------------------------------------------------------------

    As proposed, we are removing the current ``Surrender Fees'' line-
item in this table, on the grounds that the current ``Deferred Sales 
Load'' line-item in the table should already capture these fees.\640\ 
Correspondingly, we are revising 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.
---------------------------------------------------------------------------

    \640\ As a conforming change, we are removing Instruction 2(c) 
to Item 3 of current Form N-3 and Instruction 10 to Item 3 of 
current Form N-4 and revising Instruction 2(b) to Item 3 of current 
Form N-3 and Instruction 9 to Item 3 of current Form N-4 (which we 
are re-numbering as Instruction 9 in each form) to clarify that the 
term ``deferred sales load'' includes surrender charges.
---------------------------------------------------------------------------

    One commenter stated that surrender terms need to be clear and 
prominent, including penalties for early withdrawal or loans and tax 
consequences, as well as the date that is specific to that investor 
when he or she can access the

[[Page 26018]]

contract value without penalty.\641\ We note that the disclosures we 
are adopting in this document are not intended to provide information 
tailored to the particular circumstances of each investor. We further 
note, however, that under the form amendments we are adopting in this 
document, disclosure regarding surrender charges is required in the Fee 
Table as well as in the new Key Information Table, while additional 
disclosure requirements will govern the disclosure of surrenders and 
withdrawals, loans, and taxes elsewhere in the prospectus.\642\ 
Collectively, we believe these disclosure requirements are sufficient 
to address the concerns raised by the commenter.
---------------------------------------------------------------------------

    \641\ See AARP Comment Letter.
    \642\ See, e.g., Item 2 of amended Form N-3 (Key Information 
Table); Item 12 of amended Form N-4 Surrenders and Withdrawals); 
Item 13 of amended Form N-4 (Loans); Item 15 of amended Form N-6 
(Taxes).
---------------------------------------------------------------------------

iii. Annual Contract Expenses (Forms N-3 and N-4) and Periodic Charges 
Other Than Annual Portfolio Company Expenses (Form N-6)
    We are adopting, as proposed, several changes to the current 
``Annual Account Fee'' and ``Annual Expenses'' line-items in Form N-
3,\643\ and the current ``Annual Contract Fee and Separate Account 
Annual Expenses'' table in Form N-4. As proposed, each is 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.
---------------------------------------------------------------------------

    \643\ In current Form N-3, these items are each presented as 
line-items in the table that Item 3(a) requires.
---------------------------------------------------------------------------

    In addition, largely as proposed, we are modifying the captions for 
existing line-items, consolidating certain line-items, and adding a new 
line-item for optional benefits in this table in each form.\644\ Under 
the amendments, the ``Annual Contract Expenses'' table in Forms N-3 and 
N-4 is composed of the following line-items:
---------------------------------------------------------------------------

    \644\ Although these revisions generally apply to Forms N-3 and 
N-4, as discussed below, the new line-item for optional benefits is 
also added to the ``Periodic Charges Other Than Annual Portfolio 
Company Expenses'' table in amended Form N-6.
---------------------------------------------------------------------------

     Administrative Expenses. As proposed, the line-item 
``Annual Contract Fee'' in Form N-4 (``Annual Expenses'' in Form N-3) 
is replaced with the more plain-English ``Administrative Expenses.'' 
\645\ One commenter requested clarification about what expenses should 
be included in Administrative Expenses as opposed to Base Contract 
Expenses.\646\ In response to this comment, we are revising the 
instruction to the Administrative Expenses line-item to clarify that 
Administrative Expenses include any contract, account, or similar fee 
imposed on all investor accounts on a dollar basis (e.g., $50 per 
year).\647\ As discussed further below, Base Contract Expenses include 
similar charges that are imposed on a percentage basis.
---------------------------------------------------------------------------

    \645\ We also are making conforming changes to Instruction 3 to 
Item 3 of current Form N-3 and Instruction 7 to Item 3 of current 
Form N-4, which we are renumbering as new Instruction 12 in both 
forms.
    \646\ See CAI Comment Letter.
    \647\ Instruction 3 to Item 3 of current Form N-3 and 
Instruction 7 to Item 3 of current Form N-4. In a conforming change, 
we are also adding this definition to Form N-6. See Instruction 
3.(e) to Item 4 of amended Form N-6.
---------------------------------------------------------------------------

     Base Contract Expenses. Largely as proposed, we are 
consolidating the current line-item under ``Annual Expenses'' in Form 
N-3 (``Mortality and Expense Risk Fees''), 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,'' which discloses those fees in 
the aggregate as a percentage of average account value. 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.\648\ Any other recurring charge (other than charges 
associated with the portfolio companies) appears as an additional line-
item in the Annual Contract Expenses table in Form N-4, which discloses 
the maximum amount or basis on which the charge is deducted.\649\
---------------------------------------------------------------------------

    \648\ We also are making conforming changes to each form's 
instructions. We are removing Instruction 4(b) to Item 3 of current 
Form N-3 and Instruction 13 to Item 3 of current Form N-4, which 
permit ``Mortality and Expense Risk Fees'' to be listed separately 
on two lines in the table. We also are revising Instruction 14 to 
Item 3 of current Form N-4 (which we are renumbering as Instruction 
13), and adding a corresponding new Instruction 13 to Item 4 of 
amended Form N-3, to state that ``Base Contract Expenses'' includes 
mortality and expense risk fees, and account fees and expenses. We 
are also including a new Instruction 3(g) to Item 4 of amended Form 
N-6 permitting Registrants to consolidate any charges that are 
assessed on a similar basis (e.g., Administrative Fees and Mortality 
and Expense Risk Fees).
    \649\ We are revising and renumbering Instruction 15 to Item 3 
of current Form N-4 (which currently appears under the heading 
``Portfolio Company Annual Expenses'') as Instruction 15 to Item 4 
of amended Form N-4 (to appear under the heading ``Annual Contract 
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). In a conforming change, we are 
also revising an instruction in Form N-3 regarding when expense 
reimbursements or fee waiver arrangements that reduce operating 
expenses can be reflected to parallel a similar instruction in Form 
N-1A. Compare Instruction 15(e) to Item 4 of amended Form N-3 with 
Instruction 3(e) to Item 3 of Form N-1A.
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     Other Expenses. Similarly, and in a change from the 
proposal, ``Other Expenses'' remains a separate line-item in Form N-3 
and is not consolidated as part of ``Base Contract Expenses.'' 
Registrants on Form N-3 are management investment companies and are 
subject to certain expenses that do not apply to unit investment trust 
registrants on Form N-4 and N-6. Because such expenses can vary over 
time, we believe it may be helpful for investors to continue to see 
such expenses as part of a separate line-item rather than consolidated 
as part of Base Contract Expenses.
     Management Fees. Unlike Forms N-4 and N-6, which as 
discussed below require separate disclosures about annual portfolio 
company expenses, Form N-3 does 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 are requiring disclosure of the management fee for each investment 
option, as proposed.\650\
---------------------------------------------------------------------------

    \650\ See Instruction 7 to Item 4 of amended Form N-3.
---------------------------------------------------------------------------

     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 requires, as proposed, a new line-item that 
requires registrants to list any optional benefit available under the 
contract, along with its corresponding annual charge.\651\ In Form N-6, 
this same new line-item, as proposed, is added in the ``Periodic 
Charges Other Than Portfolio Company Operations Expenses'' table.\652\ 
One commenter suggested that insurers should be permitted, but not 
required, to include benefits available at no additional charge in the 
Fee Table.\653\ We believe that inclusion of these benefits could add 
complexity and length to the Fee Table and obscure significant fees 
that are more relevant to investors, and therefore benefits available 
at no additional charge are neither required nor permitted to be 
included in the Fee Table. As discussed further below, registrants that 
wish to itemize all these

[[Page 26019]]

benefits can do so in their disclosure of benefits available under the 
contract.\654\
---------------------------------------------------------------------------

    \651\ See Instruction 14 to Item 4 of amended Forms N-3 and N-4.
    \652\ See Instruction 3.(f) to Item 4 of amended Form N-6.
    \653\ See CAI Comment Letter.
    \654\ See infra text following note 742.
---------------------------------------------------------------------------

     Total Annual Contract Expenses. In Form N-3, we are 
adopting, as proposed, a new requirement to disclose total annual 
contract expenses, and a related instruction specifying that total 
annual contract expenses should be disclosed as a percentage of account 
value.\655\ 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 new instruction 
provides 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). However, we understand that most registrants on Form 
N-3 either do not offer optional benefits or else calculate optional 
benefit expenses on an account value basis. We therefore believe that 
requiring disclosure of total annual contract expenses is appropriate 
for Form N-3 registrants, because the disclosure will be practicable 
and could help investors understand the total expenses (not including 
portfolio company fees and expenses) that they will pay each year. The 
requirement to disclose total annual contract expenses in Form N-3 
differs from the approach to disclosing annual contract expenses in 
amended Form N-4, which requires separate line-items for administrative 
expenses, base contract expenses, and optional benefit expenses, but 
does not require the disclosure of a composite total of these line-
items.\656\ 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 infeasible to sum optional benefit 
expenses with other expenses that are presented as annual contract 
expense line-items.
---------------------------------------------------------------------------

    \655\ See Instruction 16 to Item 4 of amended Form N-3.
    \656\ See ``Annual Contract Expenses'' table in Item 4 of 
amended Form N-4.
---------------------------------------------------------------------------

iv. Annual Portfolio Company Expenses (Forms N-4 and N-6)
    Largely as proposed, we are amending the disclosures that 
registrants provide with respect to the ``Annual Portfolio Company 
Expenses'' table in Forms N-4 and N-6.\657\ As proposed, we are 
revising the legend that precedes the table to direct investors to the 
new Appendix relating to the portfolio companies available under the 
contract.\658\ As a conforming change, and as proposed, we are 
eliminating an instruction in each form stating that a registrant may 
include additional tables showing annual expenses separately for each 
portfolio company immediately following the required table, as this 
information will duplicate the fee information that appears in the new 
Appendix.\659\
---------------------------------------------------------------------------

    \657\ While the text of the Proposing Release only mentioned 
Form N-4 with regards to this item, both Forms N-4 and N-6 
themselves, as proposed, included the changes that we indicate ``as 
proposed.''
    \658\ See Item 17 to amended Form N-4; Item 18 to amended Form 
N-6.
    \659\ See Instruction 20 to Item 3 in Form N-4; Instruction 
4.(f) to Item 3 in Form N-6.
---------------------------------------------------------------------------

    In a change from the proposal, and in response to commenters, a new 
instruction in each form provides that if the registrant charges a 
platform charge to make any of the portfolio companies available as 
investment options under the contract, the registrant should include 
the maximum platform charge associated with each portfolio company when 
calculating minimum and maximum annual portfolio company expenses.\660\ 
In a conforming change, we are also revising the name of this table 
from ``Total Annual Portfolio Company Operating Expenses'' to ``Annual 
Portfolio Company Expenses'' to clarify that the expenses included 
within the table are not limited to total operating expenses. If 
platform charges are charged, registrants must also provide a brief 
statement regarding the inclusion of these platform charges.\661\
---------------------------------------------------------------------------

    \660\ See VIP Working Group Letter (asking how ``fund 
facilitation fees'' should be disclosed, and stating these fees are 
charged by the insurance company for offering a low cost fund that 
would not otherwise provide sufficient distribution fees or revenue 
sharing to the insurance company); Instruction 16 to Item 4 of 
amended Form N-4; Instruction 4.(a) to Item 4 of amended Form N-6.
    \661\ See Item 4 of amended Form N-4 (``[These amounts also 
include applicable Platform Charges if you choose to invest in 
certain Portfolio Companies.'']); Item 4 of amended Form N-6 (same).
---------------------------------------------------------------------------

    We are also simplifying other instructions to the table. As 
proposed, we are revising an instruction in each form 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 ``Annual Portfolio Company Expenses.'' \662\ The current 
instruction contains instructions for calculating Annual Portfolio 
Company 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 avoids the need to provide 
detailed instructions in the form regarding how to calculate this 
figure (as is the case with the current instruction).\663\
---------------------------------------------------------------------------

    \662\ See Instruction 17(a) to Item 3 of Form N-4 (which we are 
re-designating as Instruction 16 to Item 4 of amended Form N-4); 
Instruction 4.(b) to Item 3 of Form N-6 (which we are re-designating 
as Instruction 4.(a) to Item 4 of amended Form N-6).
    \663\ Because this simplification renders obsolete the rest of 
Instruction 17, as well as Instructions 16 and 18, to Item 3 of Form 
N-4, we are eliminating them. Similarly, this simplification renders 
obsolete the rest of Instruction 4.(b), as well as Instructions 
4.(c) through (d), to Item 3 of Form N-6, and therefore we are 
eliminating those instructions as well.
---------------------------------------------------------------------------

    Also, as proposed, we are revising an instruction in each form to 
modify the way that registrants could reflect operating expenses that 
include expense reimbursement or fee waiver arrangements.\664\ 
Currently, the instruction specifies that such expenses could appear in 
a footnote to the table. The revised instruction instead states 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 
provides a clearer presentation for investors than a footnote to the 
table.\665\ In a change from the proposal, and in response to 
commenters, this instruction also provides that if the registrant 
charges a platform charge to make any of the portfolio companies 
available as investment options under the contract, the registrant 
should include the current platform charge associated with each 
portfolio company when calculating minimum and maximum annual portfolio 
company expenses that include expense reimbursement or fee waiver 
arrangements.\666\
---------------------------------------------------------------------------

    \664\ See Instruction 19 to Item 3 of Form N-4 (which we are 
renumbering as Instruction 17 to Item 4 of amended Form N-4); 
Instruction 4.(e) to Item 3 of Form N-6 (which we are renumbering as 
Instruction 4.(b) to Item 4 of amended Form N-6).
    \665\ See 2002 Adopting Release, supra note 286, 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.'').
    \666\ See VIP Working Group Letter. See Instruction 17 to Item 4 
of amended Form N-4; Instruction 4.(b) to Item 4 of amended Form N-
6.
---------------------------------------------------------------------------

v. Example (Forms N-3 and N-4)
    We are updating the requirements for the Example that will appear 
in the Fee Table in Forms N-3 and N-4 in several respects. First, as 
proposed, we are revising the legend accompanying the

[[Page 26020]]

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.
    As proposed, we are increasing 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. Several 
commenters objected to this change but, as discussed above, we continue 
to believe that $100,000 more closely approximates the current average 
value of a variable annuity and is more likely to result in cost 
projections that align with actual investor expectations and 
experience.\667\
---------------------------------------------------------------------------

    \667\ See supra note 131 and accompanying and following text.
---------------------------------------------------------------------------

    As proposed, we are revising the instructions for the Example to 
clarify that registrants must provide an example for each contract 
class, consistent with current practice.\668\ Also, as proposed, we are 
revising Instruction 21(b) in current Form N-4 (which we are re-
numbering as Instruction 18(b)), and adding new Instruction 17(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 are permitted, but not required.
---------------------------------------------------------------------------

    \668\ The instruction for the Example in Item 3 of current Form 
N-3 (currently unnumbered) is new Instruction 17 to Item 4 of 
amended Form N-3. Instruction 21 to Item 3 of current Form N-4 is 
renumbered as Instruction 18 to Item 4 of amended Form N-4.
---------------------------------------------------------------------------

    In addition, as proposed, we are removing 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 
therefore not only reflects actual practice, but is also consistent 
with our goal of streamlining prospectus disclosure.
    As proposed, we are also making 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.\669\
---------------------------------------------------------------------------

    \669\ When 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. In a conforming change, we are also revising an 
instruction in Form N-3 regarding amortization of organizational 
expenses to parallel similar instructions in Form N-1A. Compare 
Instruction 17(a) to Item 4 of amended Form N-3 with Instruction 
4(a) to Item 3 of Form N-1A.
---------------------------------------------------------------------------

vi. 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. As proposed, we are requiring 
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, which affect the investment 
option's performance.\670\ These disclosure requirements largely 
restate existing requirements in caption 10 of Item 4(a) of current 
Form N-3, although they 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.\671\
---------------------------------------------------------------------------

    \670\ See Item 4 of amended Form N-3.
    \671\ See Item 3 of Form N-1A. The brief statement required by 
Form N-3 will not include the language from the parallel item in 
Form N-1A stating that a higher portfolio turnover rate may indicate 
higher taxes, because variable annuity products are tax-deferred and 
thus that language is inapplicable to registrants on Form N-3.
---------------------------------------------------------------------------

vii. 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 appear in response to the amended Item 4 
disclosure requirements, we are also updating 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 dollar and all 
percentages to the nearest hundredth of one percent.\672\ 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, as proposed, we 
are modifying this instruction to only require rounding percentages to 
the nearest hundredth of one percent.\673\
---------------------------------------------------------------------------

    \672\ See Instruction 1(a) to Item 3 of current Form N-6.
    \673\ See Instruction 1(a) to Item 4 of amended Form N-6.
---------------------------------------------------------------------------

    We are also, as proposed, revising Instruction 5 to the Fee Table 
in 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 revised instruction will help 
minimize confusion regarding how much an investor can expect to pay 
under the contract and will 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).\674\ Under the revised 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 it also discloses the maximum possible 
charge (e.g., 3%). We are also, as proposed, adding a parallel 
provision to Form N-3 as Instruction 5 to the Fee Table.
---------------------------------------------------------------------------

    \674\ Our 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.
---------------------------------------------------------------------------

    As part of our effort to update the Fee Table, we are, as proposed, 
modifying current Instruction 1.(f) to the Fee Table in Form N-3 and 
Instruction 6 to the Fee Table in Form N-4 to eliminate language that 
is redundant in light of new General Instruction C.3.(e) of both 
forms.\675\ We are also including new Instruction 7 to the Fee Table in 
Forms N-3 and N-4, which requires 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

[[Page 26021]]

registrants offering more than one investment option to provide a 
separate response for each investment option).\676\
---------------------------------------------------------------------------

    \675\ We are removing from Instruction 6 to Item 3 of current 
Form N-4 and Instruction 1.(f) to Item 3 of current 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,'' because amended General Instruction C.3.(e) of Forms N-
3 and N-4 will address the registration of multiple contracts.
    \676\ This harmonizes the 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.'').
---------------------------------------------------------------------------

viii. Instructions for New Variable Contract Registrants (Forms N-3, N-
4, and N-6)
    Finally, as proposed, we are eliminating certain instructions in 
Item 3 of current Forms N-3, N-4, and N-6 relating to new variable 
contract registrants. Specifically, we are eliminating 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 Annual Portfolio Company Expenses table on estimated 
amounts for the current fiscal year, but we understand that these 
operating expenses need not be estimated because they do 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) 
to Item 3 of 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 
15(e) in Item 4 of amended Form N-3, Instruction 17 in Item 4 of 
amended Form N-4, and Instruction 4(b) in Item 4 of amended Form N-6 
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 at the separate account 
level 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 are, as 
proposed, eliminating these current Instructions in their entirety from 
the forms.
e. Accumulation Unit Value Disclosure (Not Included in Amended Forms N-
3 and N-4)
    In a change from the proposal, we are eliminating the requirement 
in Forms N-3 and N-4 for 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'').\677\ 
For variable annuity contracts, the change in accumulation unit value 
provides a measure of performance of the registrant's sub-
accounts.\678\
---------------------------------------------------------------------------

    \677\ Item 4(a) of current Form N-3; Item 4(a) of current Form 
N-4. The Commission had proposed to relocate the disclosures 
required by these items from the prospectus to the SAI, with certain 
other modifications. See Proposing Release, supra note 6, at Section 
II.D.3.d.
    \678\ When 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 688, at 17.
---------------------------------------------------------------------------

    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.\679\ 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.\680\ Because only one combination of 
contract charges is relevant to any individual investor (depending on 
the contract features he or she selects), much of the required 
disclosure is of limited value to most investors.\681\
---------------------------------------------------------------------------

    \679\ See Forms N-3 and N-4 Adopting Release, supra note 29.
    \680\ As discussed in the Proposing Release, 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''). With the elimination of the AUV 
table requirement, the Nationwide 2001 Letter is rendered moot, and 
this letter will be withdrawn.
    \681\ 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.
---------------------------------------------------------------------------

    Several commenters generally stated that the AUV tables do not 
include all the fees paid by investors because many of the fees are 
assessed at the contract level, rather than the unit level, and 
concluded that the AUV tables are confusing to investors, burdensome 
for insurers, and should be entirely eliminated.\682\ In responding 
more specifically to the proposed amendments, one commenter stated that 
registrants would need to engage in massive system investments in order 
to provide investors with individualized subaccount performance for 
each subaccount held by that investor, and suggested the Commission 
should revise its proposed amendments to: (1) Reduce the information 
required to be included in AUV tables included in registration 
statements; (2) reduce the information required to be included in 
account statements for those registrants who wish to provide AUV 
information there instead of in registration statements; and (3) permit 
registrants to post AUV tables online rather than in registration 
statements.\683\
---------------------------------------------------------------------------

    \682\ See VIP Working Group Comment Letter; Transamerica Comment 
Letter; IRI Comment Letter II; CAI Comment Letter (stating that 
while the AUV tables are designed to reflect the performance of a 
sub-account after reflecting contract charges that are based on 
separate account value, many contract charges today are based on 
other values (such as benefit base), and thus instead of these 
charges reducing the value of a particular class of accumulation 
units, the assessment of these charges reduces the number of 
accumulation units in an investor's account).
    \683\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering the points raised by commenters and reevaluating 
the continued utility of these disclosures, we have decided to 
eliminate the AUV table requirement for variable annuities in its 
entirety. Although AUV tables served a helpful role at the time those 
requirements were initially adopted, the current proliferation of 
variations in optional benefits and contract charges has resulted in 
AUV tables which in some cases span hundreds of pages in order to 
encompass all such possible combinations, even though only one 
combination of optional benefits and contract charges would be 
applicable to a given investor. In addition, there are separate AUVs 
for each investment

[[Page 26022]]

option based on those individual combinations of optional benefits, 
further complicating efforts to understand the net performance of the 
overall account. Further, to the extent an investor seeks to understand 
the net performance of any individual option, the investor could much 
more easily get the summary information that is provided in the 
Appendix to the summary prospectus.\684\ Our decision to eliminate AUV 
tables is also consistent with our overarching goals of this rule 
adoption, which are to streamline the forms for variable contracts and 
to provide investors with pertinent information that is most likely to 
be used by, and useful to, them.
---------------------------------------------------------------------------

    \684\ Variable annuities issued through managed separate 
accounts have not offered optional benefits. Owners of these 
annuities, however, generally have several investment options to 
choose from, with the result that understanding the value of their 
investment in the annuity would require working with several 
accumulation unit values.
---------------------------------------------------------------------------

    When the registration form for variable life insurance contracts 
was adopted in 2002, the Commission determined not to require 
disclosure of AUV tables for variable life prospectuses, The Commission 
recognized that the individualized nature of variable life insurance 
charges (i.e., as part of the underwriting process, charges are 
assessed individually to each investor based on his or her particular 
characteristics) made it difficult to provide measures of performance 
that applied were meaningful across the full investor base.\685\ 
Similarly, because of the numerous permutations of variable annuity 
contract charges today (due to classes of contracts, availability of 
multiple optional benefits, etc.), it is difficult to provide a 
standard set of disclosures that are relevant to the investor base at 
large of a particular variable annuity contract.
---------------------------------------------------------------------------

    \685\ See Separate Accounts Offering Variable Life Release, 
supra note 29.
---------------------------------------------------------------------------

    In addition, while the AUV tables are designed to reflect the 
performance of a sub-account after reflecting contract charges that are 
based on separate account value, we recognize many contract charges 
today are based on other values (such as benefit base), which cannot be 
reflected in AUV values. Instead of these charges reducing the value of 
a particular class of accumulation units, the assessment of these 
charges reduces the number of accumulation units in an investor's 
account.
    Moreover, we understand that registrants currently provide 
investors with periodic disclosures about their investments in the 
contract that include sub-account related information, such as account 
statements that disclose the number of each class of accumulation units 
and the dollar value of each such class. Although such disclosures 
generally do not include the actual performance of each subaccount, we 
understand that such measures of performance would be difficult to 
generate and may not be necessary given the other disclosures provided 
to investors.
    After considering the limited utility of the AUV table disclosures 
to investors (as well as to Commission staff) and the substantial 
burdens necessary for registrants to prepare them, we have decided to 
eliminate the requirement for these disclosures in their entirety 
rather than move them to the SAI as proposed (or require them to be 
posted online as suggested by commenters). As discussed above, however, 
we are adopting the other amendments to this item (i.e., re-designating 
Item 4(c) of current Form N-3 and Item 4(b) of current Form N-4 as 
Items 17 and 16, respectively) as proposed.\686\
---------------------------------------------------------------------------

    \686\ See supra note 779; Item 17 of amended Form N-3 and Item 
16 of amended Form N-4; see also infra Section II.C.2.s.
---------------------------------------------------------------------------

f. Principal Risks of Investing in the Contract (Item 5 of Forms N-3, 
N-4, and N-6)
    As proposed, we are adding new Item 5 to Forms N-3 and N-4, which 
requires 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 are re-
designating as Item 5), with the exception of the risk of contract 
lapse.\687\ Although registrants currently include risk disclosures in 
their prospectuses without an explicit form requirement to do so, 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 provides more effective communication of risks to investors.
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    \687\ We are not including risk of contract lapse in Item 5 of 
amended Form N-3 or amended 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, generally require continuing 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.
---------------------------------------------------------------------------

    Although current Form N-6 requires risk disclosures to be presented 
in a summary section at the front of the statutory prospectus, we are 
requiring for each registration form that the risk section be provided 
after the Key Information Table and Fee Table. While the Key 
Information Table includes a condensed discussion of contract risks, 
new Item 5 gives 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 limiting the length of the summary 
of principal risks in response to new 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.\688\
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    \688\ See 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.'').
---------------------------------------------------------------------------

    One commenter asked whether the inclusion of a consolidated 
principal risk section meant that registrants were permitted, but not 
required, to repeat principal risks elsewhere throughout the 
prospectus.\689\ The commenter also asked whether non-principal risks 
needed to be included in the principal risk section.
---------------------------------------------------------------------------

    \689\ See CAI Comment Letter.
---------------------------------------------------------------------------

    The principal risks section is designed to provide a consolidated 
presentation of principal risks which can be cross-referenced by 
registrants to reduce repetition that might otherwise occur if the same 
principal risks are repeated in different sections of the prospectus. 
For example, in order to facilitate the ability of investors to 
understand principal risks in the context of other, related 
disclosures, a variable life insurance registrant disclosing other 
benefits available under the contract could briefly mention and cross-
reference the relevant principal risks discussion of limitations on 
death benefits due to war or active duty service in the military. At 
the same

[[Page 26023]]

time, we believe that the inclusion of non-principal risks (that are 
not otherwise required to be disclosed in the prospectus) could add 
complexity and length to the prospectus and obscure principal risks 
that are more relevant to investors, and therefore such non-principal 
risks are neither required nor permitted to be included in the 
prospectus.\690\
---------------------------------------------------------------------------

    \690\ See General Instruction C.3.(b) of Forms N-3, N-4, and N-
6; see also supra note 596.
---------------------------------------------------------------------------

    In drafting their principal risk disclosures, registrants generally 
should consider approaches that may improve these disclosures for 
investors. For example, we encourage registrants to:
     List their principal risks in order of importance rather 
than alphabetically;
     Tailor their risk disclosures to the particular contract 
offered, as opposed to providing generic, standardized risk disclosures 
or risks that generally are not inherent in an investment in the 
contract;
     Consider disclosing that the contract is not appropriate 
for certain investors given the particular characteristics of the 
contract; and
     Periodically review their risk disclosures, including the 
order of their risks, and consider whether the disclosures remain 
adequate in light of the contract's characteristics and market 
conditions.\691\
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    \691\ See also ADI 2019-08, SEC, Improving Principal Risks 
Disclosure (last modified Sept. 9, 2019), available at https://www.sec.gov/investment/accounting-and-disclosure-information/principal-risks/adi-2019-08-improving-principal-risks-disclosure 
(providing views of the Division of Investment Management regarding 
mutual fund principal risk disclosures).
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g. General Description of Registrant, Depositor, and Investment 
Options/Portfolio Companies (Item 6 of Forms N-3, N-4, and N-6)
    As proposed, we are amending Item 5 of current Forms N-3 and N-4, 
and Item 4 of current Form N-6, which we are re-designating 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 amending 
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.\692\ In addition, for 
consistency with Form N-6 and our newer registration forms,\693\ in 
Forms N-3 and N-4 we are relocating the requirement to identify and 
state the principal business address of any person who provides 
significant administrative or business affairs management services, and 
a description of those services, from the prospectus to the SAI.\694\
---------------------------------------------------------------------------

    \692\ Item 6(a) and (b) of amended Forms N-3 and N-4; Item 21(a) 
and (b) of amended Form N-3; Item 19 of amended Form N-4; see also 
Item 5(a) and 5(b) of current Forms N-3 and N-4.
    \693\ See, e.g., Item 17(c) of current Form N-6; Item 19(h) of 
Form N-1A.
    \694\ See Item 24(g) of amended Form N-3; Item 20(c) of amended 
Form N-4.
---------------------------------------------------------------------------

    One commenter noted that our proposed amendments would not affect 
current prospectus requirements to concisely describe investor rights 
to instruct the voting of portfolio company shares.\695\ The commenter 
asserted that this disclosure is largely boilerplate and is typically 
carried forward each year without change or modification, and 
recommended that this disclosure be moved to the SAI. We are retaining 
this disclosure in the prospectus as proposed. We believe that this 
disclosure provides important information to investors of their rights 
in this regard, and that the prospectus, rather than the SAI, is the 
more appropriate location for the disclosure.
---------------------------------------------------------------------------

    \695\ See CAI Comment Letter. Under an exemptive provision of 
the Investment Company Act that insurers serving as depositors of 
separate accounts organized as unit investment trusts rely on to 
operate the separate account, those insurers are restricted in how 
they vote shares of investment companies held on behalf of contract 
owners. Specifically, Section 12(d)(1)(E) of the Investment Company 
Act conditionally allows separate accounts organized as unit 
investment trusts to establish subaccounts each holding shares of an 
investment company, without violating the limitations in Section 
12(a)(1)(A) of the Investment Company Act on investment company 
ownership. Under one of the conditions, the separate account must 
either seek instructions from contract owners with regard to the 
voting of all proxies for the investment company shares held by the 
subaccount or vote the shares it holds of that investment company in 
the same proportion as the vote of all other shareholders of that 
investment company. See Section 12(d)(1)(E)(iii)(aa).
---------------------------------------------------------------------------

    As proposed, we are also amending the information required by the 
current item in Forms N-4 and N-6 regarding portfolio companies (and 
for Form N-3, investment options).\696\ As discussed below, and as 
proposed, we are moving the summary of certain information about the 
portfolio companies and investment options to an Appendix in the 
prospectus.\697\ Therefore, with respect to Forms N-4 and N-6, we are 
revising this item to replace the current requirement to briefly 
describe each portfolio company \698\ with a requirement to state that 
certain information about the portfolio companies is available in the 
Appendix and to cross-reference 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.\699\
---------------------------------------------------------------------------

    \696\ 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.
    \697\ See infra Section II.C.2.r (discussing Item 17 of amended 
Form N-3, Item 16 of amended Form N-4, and Item 18 of amended Form 
N-6).
    \698\ See Item 5(c) of current Form N-4; Item 4(c) of current 
Form N-6.
    \699\ Item 6(c) of amended Forms N-4 and N-6.
---------------------------------------------------------------------------

    As proposed, new Item 18 of Form N-3 similarly requires a 
comparable Appendix of investment options, but only if the Appendix is 
included in a summary prospectus.\700\ Registrants also must include 
more detailed disclosures about investment options as required by new 
Item 19, as proposed. New Item 19 generally includes 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.\701\ Similar to Forms N-4 and N-6, amended 
Item 6 requires a Form N-3 registrant to state that certain information 
about the investment options is available in the Appendix (pursuant to 
new Item 18) or elsewhere in the prospectus (pursuant to new Item 19), 
and provide cross-references as appropriate.
---------------------------------------------------------------------------

    \700\ Instruction 1(c) to new Item 18 of amended Form N-3; see 
also supra text accompanying notes 331 and 388. As discussed above, 
the summary prospectus disclosure requirements are designed to 
substantively track parallel disclosure requirements in the 
statutory prospectuses to ensure that the summary prospectus 
disclosures are subject to liability under Section 11 of the 
Securities Act. Requiring a registrant on Form N-3 that includes an 
Appendix in its summary prospectus to also include an Appendix in 
its statutory prospectus helps to further this goal. See generally 
Section II.A.8.(c) (discussing investor protection and liability 
under Section 11).
    \701\ See infra text following note 796 (discussing the 
disclosure requirements of new Item 19 of amended Form N-3).
---------------------------------------------------------------------------

h. Charges (Item 8 of Form N-3, Item 7 of Forms N-4 and N-6)
    Largely as proposed, we are amending Item 7 of current Form N-3 and 
Item 6 of current Form N-4 (which we are re-titling, and re-designating 
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.\702\
---------------------------------------------------------------------------

    \702\ See Item 5 of current Form N-6.
---------------------------------------------------------------------------

    As proposed, paragraph (a) expands the disclosure requirements of 
the

[[Page 26024]]

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 amended items 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, and as proposed, we 
are requiring that the registrant describe: (1) The frequency of 
deductions (e.g., daily, monthly or annually) for any recurring 
charges; and (2) the consideration provided for particular charges 
(e.g., use of sales load to pay distribution costs), to the extent it 
is possible to identify such consideration. 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, and as proposed, Instruction 1 to paragraph (a) of the 
amended item in Forms N-3 and N-4 requires a description of the factors 
affecting the computation of the amount of the sales load.\703\ For 
contracts with a deferred sales load, Instruction 1 requires 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, and as proposed, registrants must identify any events 
that will cause the deduction of a deferred sales load (e.g., surrender 
or withdrawal). The description of any deferred sales load must 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).
---------------------------------------------------------------------------

    \703\ This instruction is based on Instruction 1 to Item 5(a) of 
current Form N-6.
---------------------------------------------------------------------------

    As proposed, we are also adding new Instruction 4 to paragraph (a) 
of the amended item of Forms N-3 and N-4.\704\ If the contract's charge 
for premium taxes or other taxes varies according to jurisdiction, new 
Instruction 4 clarifies that identifying the range of current premium 
taxes or other taxes in this paragraph is sufficient.
---------------------------------------------------------------------------

    \704\ This instruction is based on Instruction 3 to Item 5(a) of 
current Form N-6.
---------------------------------------------------------------------------

    One commenter noted that our proposed amendments would not revise 
the current requirement in paragraph (b) to state the commissions paid 
to dealers as a percentage of purchase payments.\705\ The commenter 
suggested the Commission should revise this requirement to include 
upfront and trail commissions as well as other methods of compensation. 
We believe that registrants responding to this disclosure requirement 
currently already include all compensation provided to dealers because 
the wording of the current instruction does not limit or otherwise 
specify certain types of compensation and the disclosure, as adopted, 
mirrors that in Form N-1A, and do not believe that any further changes 
are needed to this disclosure requirement.\706\
---------------------------------------------------------------------------

    \705\ See Anonymous Comment Letter III.
    \706\ See Item 8(b) of amended Form N-3 (``State the commissions 
paid to dealers as a percentage of purchase payments.''); Item 7(b) 
of amended Forms N-4 and N-6 (same).
---------------------------------------------------------------------------

    As proposed, we are also amending the item related to charges in 
each form to clarify that the required disclosures should relate to 
``current'' charges.\707\ Disclosure of ``maximum'' charges would be 
redundant because those charges are encompassed in the Fee Table that 
would be included in the prospectus.\708\
---------------------------------------------------------------------------

    \707\ See Item 8(a) of amended Form N-3; Item 7(a) of amended 
Forms N-4 and N-6.
    \708\ See Item 4 of amended Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    In addition, and largely as proposed, we are amending the item of 
Form N-6 relating to charges in two respects. First, as proposed, we 
are relocating disclosures on commissions paid to dealers from the SAI 
\709\ to the prospectus.\710\ We believe that this disclosure, which is 
currently required in the prospectus under Forms N-3 and N-4,\711\ is 
more appropriate in the prospectus due to potential conflict of 
interest concerns.
---------------------------------------------------------------------------

    \709\ Item 20(d) of current Form N-6.
    \710\ Item 7(b) of amended Form N-6.
    \711\ See Item 7(d) of current Form N-3; Item 6(d) of current 
Form N-4.
---------------------------------------------------------------------------

    Second, the Commission also proposed to require a description of 
the type of operating expenses for which the registrant is 
responsible,\712\ which Forms N-3 and N-4 currently require in the 
prospectus.\713\ One commenter suggested that this requirement is 
generally not relevant to contracts registered on Forms N-4 and N-6, 
because those contracts typically have charges deducted at the 
subaccount level as opposed to the registrant level.\714\ In response 
to this comment we are modifying this disclosure requirement to cover 
``any'' (as opposed to ``the'') type of operating expense for which the 
registrant is liable. We believe this modification maintains 
comparability between the forms and also future-proofs the forms to the 
extent operating expenses may be deducted at the registrant level in 
the future. Operating expenses paid by the registrant can be 
significant, and we believe this is appropriate disclosure for an item 
discussing contract charges.
---------------------------------------------------------------------------

    \712\ Item 7(e) of proposed Form N-6. If organizational expenses 
of the registrant are to be paid out of its assets, this item also 
requires an explanation of how the expenses will be amortized and 
the period over which the amortization will occur.
    \713\ See Item 7(f) of current Form N-3; Item 6(f) of current 
Form N-4.
    \714\ See CAI Comment Letter.
---------------------------------------------------------------------------

i. General Description of the Contracts (Item 9 of Form N-3, Item 8 of 
Forms N-4 and N-6)
    As proposed, we are amending Item 8 of current Form N-3, Item 7 of 
current Form N-4, and Item 6 of current Form N-6 (which we are re-
designating 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 amendments to the forms. Except as described below, we do not 
intend these amendments to significantly alter current disclosure 
obligations.
    As proposed, we are amending 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 replacing it with a new instruction to subparagraph (a) in each of 
the forms \715\ 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.
---------------------------------------------------------------------------

    \715\ This new instruction is also being added to Form N-6.
---------------------------------------------------------------------------

    As proposed, we are also revising current subparagraph (b) of Forms 
N-3 and N-4 regarding contract provisions and limitation in two 
ways.\716\ First, we are requiring registrants to briefly describe any 
provisions and limitations

[[Page 26025]]

for minimum contract value and the consequences of falling below that 
amount, because those consequences in some cases can be 
significant.\717\ Second, we are modifying 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.\718\
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    \716\ In addition, subparagraph (b)(iii) of current Forms N-3 
and N-4 is re-designated as subparagraph (b)(5) and revised to 
replace ``exchanges'' with ``buyout offers'' of variable annuity 
contracts, including interests of participations therein.
    \717\ Item 9(b)(1) of amended Form N-3; Item 8(b)(1) of amended 
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.
    \718\ Item 9(b)(4) of amended Form N-3 and related proposed 
instruction; amended Item 8(b)(4) of Form N-4 and related proposed 
instruction; see also Item 8(b)(3) and related instruction of 
amended Form N-6; Item 6(b)(3) of current Form N-6.
---------------------------------------------------------------------------

    As proposed, we are also revising 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.\719\
---------------------------------------------------------------------------

    \719\ Item 9(b)(3) of amended Form N-3; Item 8(b)(3) of amended 
Form N-4; Item 8(b)(2) of amended Form N-6.
---------------------------------------------------------------------------

    As proposed, we are also newly requiring the prospectus to provide 
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 claims-paying ability and 
financial strength.\720\ While some of this information will appear in 
the Key Information Table,\721\ this item requires registrants to 
provide more detailed disclosure later in the prospectus.
---------------------------------------------------------------------------

    \720\ Item 9(c) of amended Form N-3; Item 8(c) of amended Form 
N-4; Item 8(c) of amended Form N-6.
    \721\ See Instruction 3(d) to new Item 2 of Forms N-3, N-4, and 
N-6.
---------------------------------------------------------------------------

    As proposed, we are also modifying the instruction to the current 
subparagraph in each form relating to contract or registrant changes to 
explicitly require disclosure of reservation of the right to substitute 
one portfolio company for another.\722\ We received two comment letters 
in favor of this change, on the grounds that this disclosure provides 
investors with important information about the possibility of future 
substitutions.\723\ This amendment is intended to formalize the 
Commission's long-standing position that investors should be put on 
notice of the possibility that an insurer may substitute one portfolio 
company for another portfolio company.\724\
---------------------------------------------------------------------------

    \722\ See Instruction to Item 9(d) of amended Form N-3; 
Instruction to Item 8(d) of amended Form N-4; Instruction to Item 
8(d) of amended Form N-6.
    \723\ See ICI Comment Letter; Capital Group Comment Letter. One 
commenter requested that the Commission amend rule 0-2 under the 
Investment Company Act to require notice to contract holders of the 
filing of a substitution application, and reconsider the broader 
process for review and approval of substitution requests under 
Section 26(c) of the Investment Company Act. See Capital Group 
Comment Letter. This request raises issues and considerations beyond 
the scope of the rule and form amendments we are adopting.
    \724\ See 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).
---------------------------------------------------------------------------

    As proposed, we are also eliminating the current subparagraph (d) 
in Forms N-3 and N-4, which requires a description of how investor 
inquiries may be made. This description duplicates information required 
to appear on the back cover page of the prospectus pursuant to Item 
1(b)(1) of the amended forms.
    Finally, with respect to Forms N-3 and N-4 and as proposed, we are 
relocating disclosures regarding limitations on classes of purchasers 
from the cover page of the prospectus \725\ to the item requiring the 
general description of contracts.\726\ This revision mirrors Item 6(e) 
of current Form N-6, helps streamline cover page disclosure, and 
permits registrants to describe this limitation more fully than if the 
disclosures had to appear on the cover page (which would necessarily 
entail space constraints).\727\
---------------------------------------------------------------------------

    \725\ Item 1(a)(iv) of current Forms N-3 and N-4.
    \726\ Item 9(e) of amended Form N-3; Item 8(e) of amended Form 
N-4.
    \727\ See 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.
---------------------------------------------------------------------------

j. Annuity Period (Item 10 of Form N-3, Item 9 of Form N-4)
    As proposed, we are amending Item 9 of current Form N-3 and Item 8 
of current Form N-4 (which we are re-designating 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.\728\ While the new 
``Overview'' section of the prospectus contains similar 
information,\729\ the amended annuity period item requirement provides 
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.
---------------------------------------------------------------------------

    \728\ Item 10(g) of amended Form N-3; Item 9(g) of amended Form 
N-4.
    \728\ Item 2(c)(2) of amended Forms N-3 and N-4.
---------------------------------------------------------------------------

k. Standard Death Benefits (Item 10 of Form N-6)
    The Commission proposed 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 are re-
designating 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.\730\ As proposed, 
registrants would include prospectus disclosure about optional death 
benefits (as well as standard and optional living benefits) pursuant to 
proposed Item 12 to Form N-3, and proposed Item 11 to Forms N-4 and N-
6.
---------------------------------------------------------------------------

    \730\ Proposed Item 11 of Form N-3; proposed Item 10 of Forms N-
4 and N-6.
---------------------------------------------------------------------------

    As discussed above, and in response to issues raised by commenters, 
we are not requiring this item as a separate disclosure item for 
variable annuity contracts but are retaining it as a separate 
disclosure item for variable life insurance contracts.\731\ In 
addition, as discussed above, and in response to issues raised by 
commenters, we are largely adopting the substantive disclosure 
requirements of this item as proposed but are consolidating the 
disclosure requirements for the initial summary prospectus into 
paragraph (a) of this item.\732\
---------------------------------------------------------------------------

    \731\ See supra note 220 and accompanying and following text.
    \732\ See supra note 222 and accompanying and following text. 
See Item 10(a) of amended Form N-6.
---------------------------------------------------------------------------

l. Benefits Available Under the Contract (Item 11 of Form N-3, Item 10 
of Form N-4), (Other Benefits Available Under the Contract) Item 11 of 
Form N-6)
    Largely as proposed, we are adding a new item to each registration 
form that requires a registrant to discuss benefits available under the 
contract (e.g., accumulation benefit, withdrawal benefit, long-term 
care benefit, etc.).\733\ The Commission proposed that this disclosure 
item would include optional death benefits but not standard death 
benefits. As discussed above, we are revising this item to encompass 
all death benefits for variable annuity

[[Page 26026]]

contracts but only non-standard death benefits for variable life 
insurance contracts (i.e., optional or supplemental death benefits that 
are available for a separate charge), since standard death benefits for 
variable life insurance contracts will be disclosed pursuant to a 
standalone disclosure item titled ``Standard Death Benefits.''\734\ 
Accordingly, we are revising the title of this item to read ``Benefits 
Available Under the Contract'' for Forms N-3 and N-4, although it 
remains ``Other Benefits Available Under the Contract'' for Form N-6.
---------------------------------------------------------------------------

    \733\ New Item 11 of amended Form N-3; new Item 10 of amended 
Form N-4; new Item 11 of amended Form N-6.
    \734\ See supra text accompanying and following note 223; see 
also Item 10 of amended Form N-6.
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    Largely as proposed, subparagraph (a) of the new item requires a 
tabular summary overview of each benefit available under the contract 
(other than death benefits for variable life insurance contracts).\735\ 
This tabular summary is also required in any initial summary 
prospectus.\736\ If the contract offers multiple benefits of the same 
type (e.g., death benefit, accumulation benefit, etc.), the registrant 
may include multiple tables, if doing so might better permit 
comparisons of different benefits of the same type.\737\ Registrants 
should include appropriate titles, headings, or any other information 
to promote clarity and facilitate understanding of the table(s).\738\ 
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.
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    \735\ The summary table will 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).
    \736\ See rule 498A(b)(5)(iv); see also supra Section 
II.A.1.c.ii(d).
    \737\ See Instruction 1.(b) to Item 11 of amended Form N-3, Item 
10 of amended Form N-4, and Item 11 of amended Form N-6. Registrants 
that choose to use a single table should consider whether grouping 
together multiple benefits of the same type, with appropriate 
headings, might similarly permit better comparisons of those 
benefits.
    \738\ See Instruction 1.(c) to Item 11 of amended Form N-3, Item 
10 of amended Form N-4, and Item 11 of amended Form N-6.
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    As discussed above, and in response to issues raised by commenters, 
we are revising the instructions to this table in Forms N-3 and N-4 to 
clarify that registrants must disclose the maximum limit to which each 
benefit fee may be raised.\739\ The instructions to this table in Forms 
N-3 and N-4 also permit registrants to disclose the current charge in a 
separate column, if the disclosure of the current charge is no more 
prominent than, and does not obscure or impede understanding of, the 
disclosure of the maximum charge.\740\ For variable life products 
registered on Form N-6, where fees are based in part on the personal 
characteristics of the insured, this item in Form N-6 does not require 
disclosure of maximum fees, but instead requires a statement explaining 
that the Fee Table contains information about the fees for each 
benefit.\741\
---------------------------------------------------------------------------

    \739\ See Instruction 5 to Item 11 of Form N-3; Instruction 5 to 
Item 10 of Form N-4.
    \740\ See Instruction 6 to Item 11 of Form N-3; Instruction 6 to 
Item 10 of Form N-4.
    \741\ As discussed above, the Fee Table includes the minimum 
fee, maximum fee, and fee for a representative investor for each 
benefit. See supra note 652 and accompanying text. This information 
should help provide better context for investors to understand the 
fees for the other benefits available under the contract. See also 
supra note 235 and accompanying text.
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    Another commenter suggested that the Benefits Table should not 
include actual fees, but instead should refer readers to consult the 
Fee Table which appears elsewhere in the document.\742\ We believe the 
fee charged for each benefit is an important piece of information that 
should be included in the tabular summary required by this item to 
assist investors wishing to compare benefits available under the 
contract. To further assist investors in making this comparison, we 
also would not object if registrants included benefits available 
without charge in this tabular summary of benefits.\743\
---------------------------------------------------------------------------

    \742\ See CAI Comment Letter.
    \743\ We understand that many registrants offer benefits that 
are available without charge, such as dollar-cost averaging 
programs, automatic transfer programs, etc.
---------------------------------------------------------------------------

    Several commenters stated that the tabular summary contemplated by 
proposed paragraph (a) does not provide sufficient information for 
investors to fully understand the differences between the benefits and 
the choices available to investors under each benefit.\744\ As 
proposed, paragraphs (b) and (c) of the new item require the statutory 
prospectus to include narrative disclosures that provide more detailed 
information regarding each of the benefits presented in the tabular 
summary and we believe that this, coupled with the table in paragraph 
(a), will provide sufficient detail regarding the contract benefits 
without being overly complicated. As proposed, a registrant is required 
to include a brief description of each benefit (other than the standard 
death benefit in the case of variable life insurance registrants) 
offered under the contract,\745\ and a brief description of any 
limitations, restrictions and risks associated with each benefit.\746\
---------------------------------------------------------------------------

    \744\ See, e.g., VIP Working Group Comment Letter (``Some 
insurance company [sic] offers 3 withdrawal benefits at the same 
time on a single contract that would be indistinguishable using the 
table. . . . Also, consider whether a one[hyphen]page description of 
each rider may be more appropriate.''); Anonymous Comment Letter 
III; Nedar Comment Letter (``Investors should be told more about 
each benefit, like that you can withdraw 6% per year for the rest of 
your life.'').
    \745\ This brief description is 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 Item 
11(b) of amended Form N-3; Item 10(b) of amended Form N-4; Item 
11(b) of amended Form N-6.
    \746\ For example, this could include restrictions on which 
portfolio companies may be selected, risk of reduction or 
termination of benefit or of additional costs resulting from excess 
withdrawals, etc. See Item 11(c) of amended Form N-3; Item 10(c) of 
amended Form N-4; Item 11(c) of amended Form N-6.
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    Some benefits offered by a contract may have complicated terms that 
do not readily lend themselves to being fully described in a tabular 
summary. The 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 will 
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.
    As proposed, we are including an instruction directing registrants 
in responding to paragraphs (b) and (c) to provide one or more examples 
illustrating the operation of each benefit in a clear, concise, and 
understandable manner.\747\ This instruction is intended to further 
assist investors in understanding the other benefits offered under the 
contract.
---------------------------------------------------------------------------

    \747\ See Instruction to new Item 11 of amended Form N-3; 
Instruction to new Item 10 of amended Form N-4; Instruction to new 
Item 11 of amended Form N-6.
---------------------------------------------------------------------------

m. Purchases and Contract Value (Item 12 of Form N-3, Item 11 of Form 
N-4) and Premiums (Item 9 of Form N-6)
    Largely as proposed, we are amending Item 11 of Form N-3 and Item 
10 of current Form N-4 (which we are re-designating as Items 12 and 11, 
respectively) to re-structure the disclosure item and make other minor 
revisions that do not substantively

[[Page 26027]]

change current disclosure requirements.\748\ As discussed above, 
variable annuity initial summary prospectuses will include the 
disclosures required by subparagraph (a), which requires registrants to 
briefly describe the procedures for purchasing a contract.\749\
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    \748\ Item 12 of amended Form N-3; Item 11 of amended Form N-4.
    \749\ See supra note 245.
---------------------------------------------------------------------------

    As discussed above, and in response to issues raised by commenters, 
we are consolidating the premiums disclosure requirements for the 
variable life insurance initial summary prospectus into paragraphs (a) 
through (c) of this item.\750\ These revisions are not intended to 
substantively alter the disclosures regarding premiums in variable life 
insurance statutory prospectuses, but instead are simply intended to 
implement the final disclosure requirements for the initial summary 
prospectus.
---------------------------------------------------------------------------

    \750\ See supra note 248 and accompanying and following text. 
See also Item 14(a) through (c) of amended Form N-6.
---------------------------------------------------------------------------

    In a change from the proposal, and to parallel other similar 
changes,\751\ we are also restating certain disclosure requirements to 
clarify that registrants should provide the required disclosures with 
regards to investment options (which include any fixed account 
investment option) as opposed to sub-accounts (which do not include any 
fixed account investment option).\752\ We understand that this is 
broadly consistent with current disclosure practices, and we do not 
believe that these changes should alter existing disclosure 
requirements.
---------------------------------------------------------------------------

    \751\ See infra notes 757 and 768 and accompanying text.
    \752\ See Item 12(b)(D) of amended Form N-3; Item 11(b)(D) of 
amended Form N-4; Item 9(e)(4) of amended Form N-6. These provisions 
require disclosure of how accumulation unit value or premiums are 
allocated to the investment options, including how such allocation 
takes place in the absence of instructions from the investor.
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n. Surrenders and Withdrawals (Item 13 of Form N-3, Item 12 of Form N-
4, Item 12 of Form N-6)
    We are amending Item 12 of current Form N-3 and Item 11 of current 
Form N-4 (which we are re-titling and re-designating as Items 13 and 
12, respectively) to generally reflect the more up-to-date requirements 
of the parallel item of Form N-6 and standardize these disclosure 
requirements across variable product registration forms.\753\
---------------------------------------------------------------------------

    \753\ See Item 9 of current Form N-6.
---------------------------------------------------------------------------

    Largely as proposed, paragraph (a) of the amended item consolidates 
the current disclosure requirements regarding surrenders and delays in 
effecting requests for surrender and provides a high-level overview of 
how an investor can surrender and make withdrawals from a contract, 
including any limits on the ability to surrender, how the proceeds are 
calculated, and when they are payable.\754\ As discussed above, the 
initial summary prospectus also includes the amended paragraph (a) 
disclosures to provide summary information to investors regarding 
surrenders and withdrawals.\755\
---------------------------------------------------------------------------

    \754\ Item 13(a) of amended Form N-3; Item 12(a) of amended Form 
N-4.
     As proposed, we are eliminating 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 
surrenders and withdrawals.
    \755\ See rule 498A(b)(5)(vii); see also supra Section 
II.A.1.c.ii(g). To clarify the scope of paragraph (a), and to 
simplify this item in general, we are also removing references to 
``partial surrender'' and ``partial withdrawal.'' See supra note 
257.
---------------------------------------------------------------------------

    As discussed above, several commenters stated that investors 
viewing initial summary prospectuses would also benefit from 
disclosures regarding the negative effects of partial withdrawals on 
benefits, as well as withdrawals made to pay adviser fees.\756\ We 
agree with those comments, and accordingly we are revising paragraph 
(a) to include those disclosures and to require disclosure of this 
information in initial summary prospectuses.
---------------------------------------------------------------------------

    \756\ See CAI Comment Letter; Transamerica Comment Letter; AARP 
Comment Letter. See supra notes 255 and 256 and accompanying text.
---------------------------------------------------------------------------

    Largely as proposed, paragraphs (b) through (d) require additional 
information related to the operation of 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 withdrawals will be allocated among the investment 
options.\757\ In a change from the proposal, and to parallel other 
similar changes,\758\ we are also restating certain disclosure 
requirements to clarify that registrants should provide the required 
disclosures with regards to investment options as opposed to sub-
accounts.\759\
---------------------------------------------------------------------------

    \757\ Item 13(b) through (d) of amended Form N-3; Item 12(b) 
through (d) of amended Form N-4. These disclosure requirements will 
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.
    \758\ See supra note 752 and infra note 768 and accompanying 
text.
    \759\ See Item 13(d) of amended Form N-3; Item 12(d) of amended 
Form N-4; Item 12(d) of amended Form N-6. These provisions require 
registrants to describe allocation of surrenders and withdrawals 
with respect to the investment options, including how such 
allocation takes place in the absence of instructions from the 
investor.
---------------------------------------------------------------------------

    As proposed, paragraph (e) requires registrants to describe any 
provision for involuntary redemptions and the reasons for such 
provision.\760\ 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 eliminating the requirement to discuss 
lapse provisions because contract lapse is more relevant in the context 
of variable life products.\761\
---------------------------------------------------------------------------

    \760\ Item 13(e) of amended Form N-3; Item 12(e) of amended Form 
N-4.
    \761\ See supra note 687 and accompanying text.
---------------------------------------------------------------------------

    As proposed, paragraph (f), like Item 12(e) of current Form N-3 and 
Item 11(e) of current Form N-4, requires the disclosure of any 
revocation rights. However, to provide additional information relating 
to an investor's revocation rights, paragraph (f) also requires: (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.\762\ 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.\763\
---------------------------------------------------------------------------

    \762\ These disclosure requirements conform to those that appear 
in the parallel provisions of current Form N-6. See Item 9(e) of 
current Form N-6.
    \763\ See supra paragraphs accompanying note 47.
---------------------------------------------------------------------------

o. Loans (Item 14 of Form N-3, Item 13 of Form N-4, Item 13 of Form N-
6)
    Largely as proposed, we are amending Form N-6 to consolidate 
required prospectus and SAI disclosures relating to contract loans 
\764\ into a single item in the prospectus.\765\ Given that investors 
will receive summary information relating to loan provisions in the 
Overview section of the statutory prospectus (and initial summary 
prospectus), we believe that investors will benefit from having more 
complete information on contract loans in a single location.
---------------------------------------------------------------------------

    \764\ See Items 10 and 23 of current Form N-6.
    \765\ New Item 13 of amended Form N-6.
---------------------------------------------------------------------------

    Specifically, a registrant must briefly describe: (1) The 
availability of loans;

[[Page 26028]]

(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 adding new Item 14 to 
Form N-3 and new Item 13 to Form N-4, which require similar prospectus 
disclosure about the availability and terms of loans under the 
contract.\766\
---------------------------------------------------------------------------

    \766\ New Item 14 of amended Form N-3; new Item 13 of amended 
Form N-4.
---------------------------------------------------------------------------

    In a change from the proposal, and to parallel other similar 
changes,\767\ we are also restating certain disclosure requirements to 
clarify that registrants should provide the required disclosures with 
regards to investment options as opposed to sub-accounts.\768\
---------------------------------------------------------------------------

    \767\ See supra notes 752 and 757 and accompanying text.
    \768\ See Item 14(c) through (d) of amended Form N-3; Item 13(c) 
through (d) of amended Form N-4; Item 13(c) through (d) of amended 
Form N-6. These provisions require registrants to describe how loans 
and loan repayments, and interest on loans, will be allocated to the 
investment options, including, if applicable, how such allocation 
takes place in the absence of instructions from the investor.
---------------------------------------------------------------------------

p. Lapse and Reinstatement (Item 14 of Form N-6)
    The Commission proposed no changes to Item 11 of current Form N-6 
(other than re-designation as Item 14). We also proposed that the 
disclosures required by this item would be included in variable life 
initial summary prospectuses to provide investors with information 
about lapse and reinstatement.\769\
---------------------------------------------------------------------------

    \769\ See proposed rule 498A(b)(5)(vi).
---------------------------------------------------------------------------

    As discussed above, and in response to issues raised by commenters, 
we are consolidating the lapse and reinstatement disclosure 
requirements for the initial summary prospectus into paragraphs (a) 
through (c) of this item.\770\ These revisions are not intended to 
substantively alter the disclosures regarding lapse and reinstatement 
in variable life insurance statutory prospectuses, but instead are 
simply intended to implement disclosure requirements for the initial 
summary prospectus.
---------------------------------------------------------------------------

    \770\ See supra note 253 and accompanying and following text. 
See also Item 14(a) through (c) of amended Form N-6.
---------------------------------------------------------------------------

q. Taxes (Item 15 of Form N-3, Item 14 of Form N-4, Item 15 of Form N-
6)
    As proposed, we are amending Item 13 of current Form N-3 and Item 
12 of current Form N-4 (which we are re-designating as Items 15 and 14, 
respectively) to reflect the more up-to-date presentation and 
disclosure requirements of the parallel provisions of Form N-6.\771\ As 
amended, this item continues to require registrants 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 sub-account values.\772\
---------------------------------------------------------------------------

    \771\ See Item 12 of current Form N-6.
    \772\ Item 15 of amended Form N-3; Item 14 of amended Form N-4.
---------------------------------------------------------------------------

    However, the amendments 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 eliminating this instruction in light of the 
amended language limiting disclosures to ``material'' consequences.
    We do not expect any of the amendments to this item to 
significantly alter current disclosure obligations.
r. Legal Proceedings (Item 16 of Form N-3, Item 15 of Form N-4, Item 16 
of Form N-6)
    As proposed, we are amending Item 14 of current Form N-3 and Item 
13 of current Form N-4 (which we are re-designating as Items 16 and 15, 
respectively) to reflect the more up-to-date presentation and 
disclosure requirements of the parallel provisions of Form N-6.\773\
---------------------------------------------------------------------------

    \773\ See Item 13 of current Form N-6.
---------------------------------------------------------------------------

    As currently required by Form N-6, the amendments require 
registrants on Forms N-3 and N-4 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.\774\ The amendments also eliminate the requirement to 
discuss pending legal proceedings against any subsidiary of the 
registrant to mirror the parallel provision in Form N-6 (and Form N-1A) 
and provide consistency across forms. We believe this is appropriate in 
the context of separate account registrants, which are unlikely to have 
subsidiaries.\775\
---------------------------------------------------------------------------

    \774\ Item 16 of amended Form N-3; Item 15 of amended Form N-4.
    \775\ Id.; see also Item 13 of current Form N-6; Item 10(a)(3) 
of Form N-1A.
---------------------------------------------------------------------------

    These amendments are not expected to significantly alter current 
disclosure obligations.
s. Financial Statements (Item 17 of Form N-3, Item 16 of Form N-4; Item 
17 of Form N-6)
    As proposed, we are adding new Item 17 to Form N-3 and new Item 16 
to Form N-4, which 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.\776\ 
As proposed, the registrant also must briefly explain how investors may 
obtain any financial statements not provided in the SAI.\777\ These 
disclosure requirements conform to a similar requirement included in 
Item 14 of current Form N-6.
---------------------------------------------------------------------------

    \776\ New Item 17 of amended Form N-3; new Item 16 of amended 
Form N-4.
    \777\ Id.
---------------------------------------------------------------------------

    As proposed, the forms' amended General Instructions 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.\778\ The 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.\779\
---------------------------------------------------------------------------

    \778\ See General Instruction C.3.(b) to amended Forms N-3, N-4, 
and N-6.
    \779\ A similar requirement to this new item appears in 
paragraph (c) of Item 4 of current Form N-3 and paragraph (b) of 
Item 4 of current Form N-4.
---------------------------------------------------------------------------

t. Appendix: Portfolio Companies/Investment Options Available Under the 
Contract (Item 18 of Form N-3, Item 17 of Form N-4, and Item 18 of Form 
N-6)
    Largely as proposed, we are adding a new disclosure item to each 
registration form (new Item 18 of Form N-3, new Item 17 of Form N-4, 
and new Item 18 of Form N-6), which requires registrants to include as 
an Appendix to the prospectus a table that will streamline and replace 
current prospectus disclosures about the portfolio companies and 
investment options

[[Page 26029]]

available under the contract.\780\ This table will appear under the 
heading ``Portfolio Companies/Investment Options Available Under the 
Contract'' and will consolidate certain summary information about each 
portfolio company into a concise, easy-to-read tabular 
presentation.\781\
---------------------------------------------------------------------------

    \780\ See, e.g., Item 1(a)(viii) of current Form N-4 (requiring 
the outside cover page of the prospectus to include the names of 
portfolio companies); 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 sub-adviser).
    \781\ See supra discussion at note 265 and accompanying and 
following text.
---------------------------------------------------------------------------

    As discussed above, in response to commenters' suggestions 
regarding the summary prospectuses, we are making several changes to 
the content requirements for the Appendix.\782\ In particular, and in 
response to commenters, we are broadening the scope of the Appendix to 
encompass all portfolio companies/investment options available as 
investment options under the contract, as opposed to all portfolio 
companies/investment options currently offered under the contract, as 
proposed.\783\ This change is intended to improve disclosures about 
portfolio companies/investment options that are restricted to investors 
because of a ``soft'' or ``hard'' close, and consequently those 
portfolio companies/investment options will also be required to be 
identified as such.\784\
---------------------------------------------------------------------------

    \782\ Id. (revising the proposed Appendix requirements to, among 
other things, revise the introductory legend, require presentation 
of current expense ratios (either net or gross), require disclosure 
of platform charges, require disclosure only of those portfolio 
company sub-advisers that manage a significant portion of the 
portfolio).
    \783\ See CAI Comment Letter (seeking clarification regarding 
whether the ``currently offered'' standard includes portfolio 
company options in which current, but not new, investors are 
permitted to invest (``soft closed'' fund options)); see also 
Instruction 1(a) to Item 18 of amended Form N-13, Item 17 of amended 
Form N-4, and Item 18 of amended Form N-6.
    \784\ See Instruction 1(a) to Item 18 of amended Form N-13, Item 
17 of amended Form N-4, and Item 18 of amended Form N-6.
---------------------------------------------------------------------------

    As proposed, if the availability of one or more portfolio companies 
varies by benefit offered under the contract, registrants are required 
to include a separate table or any other presentation that might 
promote clarity and facilitate understanding of which portfolio 
companies were available under each of those benefits.\785\ These same 
disclosures will also appear in the initial summary prospectuses and 
updating summary prospectus,\786\ except for variations due to the more 
limited scope of the initial summary prospectus (which can only 
describe one contract) in contrast to the updating summary prospectus 
and statutory prospectus (which could describe more than one 
contract).\787\
---------------------------------------------------------------------------

    \785\ See supra note 313 and accompanying and following text.
    \786\ See rule 498A(b)(5)(ix); rule 498A(c)(6)(iv); see also 
supra Sections II.A.1.c.ii(i), II.A.2.c.ii(c).
    \787\ As discussed above, an initial summary prospectus may only 
describe a single contract that the registrant currently offers for 
sale, whereas the updating summary prospectus and statutory 
prospectus may describe multiple contracts under the conditions of 
the General Instructions to Forms N-3, N-4, and N-6. See supra 
Sections II.A.1.b, II.A.2.b.
---------------------------------------------------------------------------

    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 Appendix could have limited 
utility for certain Form N-3 registrants and their investors. For this 
reason, and as proposed, registrants on Form N-3 can omit the Appendix 
and instead provide the more detailed disclosures about the investment 
options offered under the contract required by new Item 19 of Form N-
3.\788\ For Form N-3 registrants, the Appendix is required to appear in 
a statutory prospectus only if the Appendix is included in a summary 
prospectus.\789\
---------------------------------------------------------------------------

    \788\ See Instruction 1(a) to new Item 18 of amended Form N-3; 
see also rule 498A(b)(5)(ix), (c)(6)(iv) (the Appendix also can be 
omitted from the summary prospectus); infra paragraphs following 
note 796 (discussing new Item 19 of amended Form N-3).
    \789\ See Instruction 1(a) to new Item 18 of amended Form N-3; 
see also supra notes 331, 388, and 700.
---------------------------------------------------------------------------

    Largely as proposed, the same legends that precede the Appendix in 
the summary prospectus will generally also precede the Appendix in the 
statutory prospectus.\790\ As discussed above, in response to 
commenters' suggestions, we are revising these legends to add 
additional disclosures about the availability of updated performance 
information, to clarify that performance information does not include 
platform charges, to state that certain investment options may not be 
available depending on the optional benefits selected, and to generally 
streamline the overall presentation.\791\
---------------------------------------------------------------------------

    \790\ See 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 new Item 18. In this case, the 
portion of the legend in the summary prospectus explaining how more 
information about the investment options may be obtained will not be 
required to be included in the statutory prospectus. See note 792 
and accompanying text.
    \791\ See supra note 313 and accompanying and following text.
---------------------------------------------------------------------------

    Under amended Form N-3, the legend preceding the Appendix must 
state, in part, as follows: ``The current expenses and performance 
information below reflects contract fees and expenses that are paid by 
each investor'' (in contrast, the parallel legend for Forms N-4 and N-6 
will state that current expenses and performance do 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 expenses and performance of investment 
options for contracts registered on Form N-3, since those investment 
options are offered as part of the variable contract. The expenses and 
performance of portfolio companies offered under contracts registered 
on Forms N-4 and N-6 do 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 utilize the new portfolio company prospectus delivery 
option are 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.\792\
---------------------------------------------------------------------------

    \792\ See Instruction 1(b) to new Item 17 of amended Form N-4 
and new Item 18 of amended Form 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 new Item 18 of amended Form N-3 
will be required to include in that Appendix an introductory legend 
explaining how more information about the investment options may be 
obtained. See rule 498A(b)(5)(ix) and supra notes 323-326 
(discussing legend in initial summary prospectus); rule 498A 
(c)(6)(iv) and note 387 (discussing legend in updating summary 
prospectus). However, that legend will not be required to be 
included in the statutory prospectus, because the statutory 
prospectus will already include those disclosures pursuant to new 
Item 19 (which requires more detailed disclosure regarding each of 
the investment options available under the contract). See 
Instruction 1(a) to new Item 18 of amended Form N-3; new Item 19 of 
amended Form N-3.
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u. Additional Amendments to Form N-3
    As proposed, we are adopting 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.
v. Management (Item 7 of Form N-3)
    As proposed, we are revising Item 6 of current Form N-3 (which we 
are re-designating as Item 7) to increase

[[Page 26030]]

consistency among forms used to register management investment 
companies.\793\ Except as described below, we do not intend these 
amendments to significantly alter current disclosure obligations.
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    \793\ See, e.g., Items 5 and 10 of Form N-1A.
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    Among other things, the amendments require disclosure of the 
compensation paid to each investment adviser of the registrant.\794\ 
Form N-3 currently includes three fiscal years of such disclosures in 
the SAI, where they will remain under our amendments, but our 
amendments 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.\795\ As 
proposed, the amendments 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.\796\ 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.
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    \794\ Registrants will 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 Item 7(a)(1)(i) and (ii) of amended Form N-3.
    \795\ Compare current 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 Item 24(a)(3) of 
amended Form N-3 (same); see also Item 10 of Form N-1A.
    \796\ These disclosure requirements will be moved, respectively, 
to the following items of amended Form N-3: Item 23(b)(1) 
(``Management of the Registrant''); Item 24(g) (``Investment 
Advisory and Other Services''); and Item 26 (``Brokerage Allocation 
and Other Practices'').
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w. Additional Information About Investment Options Available Under the 
Contract (Item 19 of Form N-3)
    As proposed, we are requiring a new item that will provide more 
detailed information about each of the investment options available 
under the contract.
    As proposed, new paragraphs (a) and (b) 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 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, these amendments 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.
    As proposed, these amendments also 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 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.\797\
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    \797\ See, e.g., Item 9 of current Form N-1A.
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    As proposed, new paragraph (c) requires 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 broad-
based 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) requires 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 \798\ 
by providing investors and potential investors with more information 
about the performance of the investment options offered under the 
contract.\799\ In particular, the bar chart will 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 will help investors evaluate an investment option's 
risks and returns relative to the market.
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    \798\ See infra Section II.C.3.d.
    \799\ See, 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).
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3. Part B (Information Required in a Statement of Additional 
Information)
    Table 5 shows how our amendments will revise the item requirements 
of Part B of our variable contract registration forms. Except as 
described below, our amendments to Part B of Forms N-3 and N-4 
generally conform to the language of the related Part B disclosure 
items in current Form N-6. Although commenters did not raise broad 
objections to our proposed amendments, commenters raised concerns with 
and/or requested clarification on various items, as discussed in more 
detail below. To the extent we received no comments on certain items, 
we are adopting them as proposed, as discussed further below.

[[Page 26031]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.001


[[Page 26032]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.002

a. Amendments Conforming Part B Items of Forms N-3 and N-4 to 
Presentation in Form N-6
    As proposed, we are amending 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 re-designating their numbering as shown in Table 
5 above. To the extent that these amended items incorporate only minor 
wording changes,\800\ they are indicated as

[[Page 26033]]

``unchanged items'' in Table 5. Otherwise, each of these amended items 
is discussed in more detail below.
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    \800\ For 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).
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Cover Page (Item 20 of Form N-3, Item 18 of Form N-4; Item 19 of Form 
N-6)
    As proposed, we are amending the outside front cover page 
requirements for each registration form to include the name of the 
contract and classes to which the contract relates.\801\ As proposed, 
we are also amending Forms N-3 and N-4 to: (1) Require a statement 
whether and from where information is incorporated by reference; \802\ 
(2) remove the current required statement that the SAI should be read 
with the prospectus; \803\ and (3) consolidate the current item 
requiring a table of contents into the item specifying cover page 
disclosures.\804\
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    \801\ Item 20(a)(3) of amended Form N-3; Item 18(a)(3) of 
amended Form N-4; Item 19(a)(3) of amended Form N-6.
    \802\ Item 20(a)(4)(iii) of amended Form N-3; Item 18(a)(4)(iii) 
of amended Form N-4.
    \803\ Item 16(a)(iii)(B) of current Form N-3; Item 15(a)(iii)(B) 
of current Form N-4.
    \804\ Item 20(b) of amended Form N-3; Item 18(b) of amended Form 
N-4.
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General Information and History (Item 21 of Form N-3, Item 19 of Form 
N-4, Item 20 of Form N-6)
    As proposed, we are amending Item 18 of current Form N-3 and Item 
17 of current Form N-4 (which we are re-designating as Items 21 and 19, 
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.\805\
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    \805\ Item 21 of amended Form N-3; Item 19 of amended Form N-4.
---------------------------------------------------------------------------

Services (Item 24 of Form N-3,\806\ Item 20 of Form N-4, Item 21 of 
Form N-6)
---------------------------------------------------------------------------

    \806\ In Form N-3, the title of this disclosure item is 
``Investment Advisory and Other Services.'' In addition to the 
amendments we are adopting to conform this disclosure item to the 
parallel item in Form N-6, we also are making additional amendments 
to this disclosure item, as discussed below, that will reflect the 
presentation of Item 19 in Form N-1A. See infra Section II.C.3.e.
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    As proposed, we are amending Item 21 of current Form N-3 and Item 
18 of current Form N-4 (which we are re-designating as Items 24 and 20, 
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.\807\
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    \807\ Item 24(g) of amended Form N-3; Item 20(c) of amended Form 
N-4.
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Financial Statements (Item 31 of Form N-3, Item 26 of Form N-4, Item 28 
of Form N-6)
    As proposed, we are amending Item 28 of current Form N-3 and Item 
23 of current Form N-4 (which we are re-designating as Items 31 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; \808\ (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; \809\ and (3) clarify how current the 
depositor's financial statements must be when the anticipated effective 
date of the registration statement falls within 90 days after the 
depositor's fiscal year-end.\810\
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    \808\ Instruction 1 to Item 31(b) of amended Form N-3; 
Instruction 1 to Item 26(b) of amended Form N-4. This instruction 
will 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 29, at 
n.58 and accompanying and following text.
    \809\ Instruction 2 to amended Item 31(b) of Form N-3; 
Instruction 2 to amended Item 26(b) of Form N-4.
    \810\ Instruction 3 to amended Item 31(b) of Form N-3; 
Instruction 3 to amended Item 26(b) of Form N-4.
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    Several commenters requested that the Commission allow insurers to 
use financial statements prepared according to statutory accounting 
principles (``SAP'') instead of generally accepted accounting 
principles.\811\ Forms N-4 and Form N-6 currently permit a separate 
account depositor to file financial statements prepared using SAP in 
registration statements for contracts issued through the separate 
account if it would not have to prepare GAAP financial statements for 
use in its own registration statements or periodic reports or those of 
its parent company.\812\ As noted in the release adopting Form N-6 
(``Form N-6 Adopting Release''), the Commission believes allowing the 
use of SAP financials statements permitted by these forms appropriately 
recognizes the cost burdens that would be imposed if we required GAAP 
financial statements in these circumstances.\813\ To promote uniformity 
and consistency in financial reporting, however, we do not believe it 
is appropriate to broaden the use of SAP financial statements by 
separate account depositors beyond these limited circumstances. The 
Commission generally requires that all financial statements be 
presented on a GAAP basis. However, the Commission has permitted the 
use of SAP financial statements--which insurers use to comply with 
state insurance regulation--in these limited instances because 
preparing GAAP financial statements would be overly burdensome.
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    \811\ See VIP Working Group Comment Letter; CAI Comment Letter.
    \812\ See Instruction 1 to Item 23(b) of Form N-3; Instruction 1 
to Item 24(b) of Form N-6.
    \813\ See Registration Form for Insurance Company Separate 
Accounts Registered as Unit Investment Trusts that Offer Variable 
Life Insurance Policies, Securities Act Release No. 8088, Investment 
Company Act Release No. 25552 (Apr. 11, 2002) (``Form N-6 Adopting 
Release''), text preceding n.56.
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    In addition, one commenter stated that financial statements are 
difficult to comprehend, and suggested the Commission should remove the 
requirement to include separate account financial statements in 
registration statements or instead create a risk metric to show the 
financial strength of the depositor.\814\ We decline to adopt the 
suggestion to remove the requirement to include the separate account 
depositor's financial statements in these filings. As noted in the Form 
N-6 Adopting Release, the financial condition of the depositor is 
relevant to its ability to pay the insurance benefits offered under 
variable life insurance policies, and therefore investors may find 
financial information about the depositor useful.\815\
---------------------------------------------------------------------------

    \814\ See VIP Working Group Comment Letter.
    \815\ See Form N-6 Adopting Release, supra note 813, text 
following n.58.
---------------------------------------------------------------------------

    We also note that the Commission has recently amended certain rules 
applicable to and registration forms used by certain investment 
companies,\816\ in compliance with the Congressional mandate in the 
Dodd Frank Act to remove references to credit quality ratings in these 
rules and forms to avoid any potential overreliance by

[[Page 26034]]

investors of those ratings that might result from a perceived 
government endorsement of those ratings.\817\ In adopting these 
amendments, the Commission noted the absence of ``reliable and 
objective shorthand measure[s] of credit risk.'' \818\ As discussed 
above, however, the Commission is currently engaged in an overall 
review of the retail fund investor experience, and will continue to 
consider ways to improve and simplify disclosure relating to separate 
account depositors.\819\
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    \816\ See Removal of Certain References to Credit Ratings Under 
the Investment Company Act, Securities Act No. 9506, Investment 
Company Act No. 30847 (Sept. 27, 2013) (``Removal of Certain 
References to Credit Ratings Release'').
    \817\ See Section 939A of the Dodd-Frank Act.
    \818\ See Removal of Certain References to Credit Ratings 
Release, supra note 816, text accompanying n.44.
    \819\ See Request for Comment on Fund Retail Investor 
Experience, supra note 548.
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    Amended Form N-3 will also retain certain requirements regarding 
the preparation of shareholder reports and disclosure of proxy voting 
information currently required by the form. These requirements were 
inadvertently omitted from the proposed Form N-3 at the time of our 
proposed amendments to that form and will be carried forward without 
change to the amended form.\820\ In a conforming change, we are also 
eliminating the current Form N-3 requirement to include accumulation 
unit value tables in shareholder reports to parallel our elimination of 
those tables from variable contract prospectuses.\821\
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    \820\ See Instructions 2-6 to Item 31(a) of amended Form N-3.
    \821\ See Instruction 5(ii) to Item 28 of Form N-3 (requiring 
the inclusion of AUV tables in shareholder reports); see also infra 
Section C.3.d (discussing elimination of the requirement to include 
AUV tables in variable contract prospectuses).
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b. Non-Principal Risks of Investing in the Contract (Item 20 of Form N-
4, Item 21 of Form N-6)
    In a change from the proposal and in response to commenters 
requesting clarification on where non-principal risk disclosures should 
be located,\822\ we are adding a new item to Forms N-4 and N-6 
regarding the non-principal risks of investing in the contract, to the 
extent not otherwise required to be disclosed in the prospectus.\823\ 
Although registrants on Forms N-4 and N-6 currently include non-
principal risks of investing in their registration statements, the 
forms lack an explicit disclosure requirement to do so. We believe the 
approach taken in Form N-3 of including an explicit requirement in the 
SAI of the non-principal risks associated with the contract is 
appropriate to clarify the scope of registrants' disclosure 
obligations.\824\ Having a separate disclosure requirement for non-
principal risks in the SAI also helps to provide a clear delineation 
between disclosure of principal risks (in the prospectus) and non-
principal risks (in the SAI). For these reasons, we are adopting this 
new item, which should also provide greater consistency among the 
registration forms for variable contracts and allow investors to more 
easily compare risks between different variable contracts.
---------------------------------------------------------------------------

    \822\ See, e.g., CAI Comment Letter.
    \823\ As discussed above, we believe that the inclusion of non-
principal risks could add complexity and length to the prospectus's 
principal risks section and obscure principal risks that are more 
relevant to investors, and therefore non-principal risks (that are 
not otherwise required to be disclosed in the prospectus) are 
neither required nor permitted to be included in the prospectus. See 
supra note 690; General Instruction C.3.(b) to Forms N-3, N-4, and 
N-6.
    \824\ See Item 22 of amended Form N-3.
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c. Underwriters (Item 28 of Form N-3, Item 23 of Form N-4, Item 25 of 
Form N-6)
    As proposed, we are amending Item 25 of current Form N-3 and Item 
20 of current Form N-4 (which we are re-designating as Items 28 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.\825\
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    \825\ Item 28(a) of amended Form N-3; Item 23(a) of amended 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.
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    As proposed, we are also adding 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 will parallel 
similar instructions in Part C of these same forms regarding 
disclosures for principal underwriters.\826\
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    \826\ See infra text accompanying and preceding note 878. 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.
---------------------------------------------------------------------------

    Also as proposed, because we are amending 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 are removing this 
disclosure from current Item 20 (which we are re-designating as Item 
25).\827\
---------------------------------------------------------------------------

    \827\ See supra note 710 and accompanying text.
---------------------------------------------------------------------------

d. Calculation of Performance Data (Item 29 of Form N-3, Item 24 of 
Form N-4)
    Largely as proposed, we are amending Item 26 of current Form N-3 
and Item 21 of current Form N-4 (which we are re-designating as Items 
29 and 24, respectively), to remove the instruction specifically 
permitting the registrant to furnish separate yield quotations for 
individual and group contracts.\828\ Because the amended General 
Instructions 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.\829\
---------------------------------------------------------------------------

    \828\ Item 29 of amended Form N-3; Item 24 of amended Form N-4.
    \829\ See General Instruction C.3.e.(i) to amended Forms N-3, N-
4, and N-6.
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    One commenter asked whether this item is still relevant or needs to 
be adjusted to reflect features such as optional benefits, which were 
not commonly used when these disclosure requirements were drafted.\830\ 
Accordingly, we are adding instructions to require registrants to 
disclose, if applicable, that the performance information may not 
reflect all contract charges, and that performance would be lower if 
these charges were included.\831\
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    \830\ See VIP Working Group Comment Letter.
    \831\ See Instruction 4 to Item 29(a), Instruction 7 to Item 
29(b)(1), and Instruction 9 to Item 29(b)(2) of amended Form N-3; 
Instruction 4 to Item 24(a), Instruction 7 to Item 24(b)(1), and 
Instruction 5 to Item 24(b)(2) of amended Form N-4.
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e. Adjustment to Disclosure Thresholds (Items 28 and 31 of Form N-3, 
Items 23 and 26 of Form N-4, Items 25 and 28 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.\832\ 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

[[Page 26035]]

of the sponsor show a combined capital and surplus (if a stock company) 
or an unassigned surplus (if a mutual company), of less than 
$1,000,000.\833\ As part of our efforts to update the registration 
forms, and as proposed, we are increasing these thresholds to $15,000 
\834\ and $2,500,000,\835\ respectively, to account for the effects of 
inflation since 1985, the year of inception for Forms N-3 and N-4.\836\
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    \832\ See 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.
    \833\ See 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.
    \834\ See Instruction 3 to Item 28 of amended Form N-3; 
Instruction 2 to Item 23 of amended Form N-4; Instruction 2 to Item 
25 of amended Form N-6.
    \835\ See Instructions 3(b) and (c) to Item 31(b) of amended 
Form N-3; Instructions 3(b) and (c) to Item 26 of amended Form N-4; 
Instructions 3(b) and (c) to Item 28 of amended Form N-6.
    \836\ Indexing the $5,000 thresholds for inflation results in 
revised thresholds of $11,950, and indexing the $1,000,000 
thresholds for inflation results 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.
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f. Additional Amendments to Form N-3
    As proposed, we are adopting 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 harmonize the disclosure 
requirements across registration statements for different products.
Investment Objectives and Risks (Item 22 of Form N-3)
    As proposed, we are making certain amendments to Item 19 of Form N-
3, which we are re-designating as Item 22.\837\ Amended Item 22 
contains 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 amended Item 22 
requires the registrant to describe any investment strategies that are 
not principal strategies, as well as the risks of those strategies. 
These disclosures complement the prospectus disclosures of principal 
investment strategies that will be required by amended Item 19.
---------------------------------------------------------------------------

    \837\ See Item 22 of amended Form N-3. The amendments to this 
item will reflect the presentation of Item 16 of Form N-1A.
---------------------------------------------------------------------------

    As proposed, paragraph (b) of amended Item 22 requires 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 amended disclosure requirements 
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.\838\
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    \838\ Section 8 of the Investment Company Act requires a fund to 
disclose in its registration statement, among other things, 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 799. This amended Form N-
1A requirement forms the basis for the amendments to paragraph (b) 
of amended Item 22 of Form N-3 described herein.
---------------------------------------------------------------------------

    As proposed, paragraph (c) of amended Item 22 requires 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 (e) of amended Form N-3 reflects amendments adopted by 
the Commission in 2017 that will become effective on May 1, 2020.\839\ 
These amendments remove references to Form N-Q and replace them with 
references to Form N-PORT.\840\
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    \839\ See Investment Company Reporting Modernization, Investment 
Company Act Release No. 32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 
2017)] (delaying the rescission of Form N-Q and the filing of Form 
N-PORT).
    \840\ See paragraph (e) of Item 22 of amended Form N-3 
(requiring the registrant to describe any ongoing arrangements to 
make available information about the registrant's portfolio 
securities to any person, except if certain conditions are met 
including certain disclosures about those portfolio securities being 
made available and remaining available until no earlier than the 
registrant's filing on Form N-PORT). Other items of amended Form N-3 
reflect similar amendments. See Instruction 4.b to Item 31(a) of 
amended Form N-3 (requiring the SAI to state that the registrant's 
portfolio holdings are filed on Form N-PORT and to explain how those 
reports on Form N-PORT may be obtained).
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    As proposed, paragraph (f) of amended Item 22 requires 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.\841\ 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.\842\ 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.\843\ The

[[Page 26036]]

remaining paragraphs of amended Item 22 restate existing disclosure 
requirements to reflect the updated presentation and disclosure 
requirements of the parallel item in Form N-1A.\844\
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    \841\ See Item 22(e) of amended 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).
    \842\ See 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.
    \843\ See 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.
    \844\ Amended paragraphs (b), (d), and (e) will require 
disclosure regarding certain investment policies, portfolio 
turnover, and disclosure of portfolio holdings, respectively.
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Management of the Registrant (Item 23 of Form N-3)
    As proposed, we are making certain amendments to Item 20 of Form N-
3, which we are re-designating as Item 23, to restate existing 
disclosure requirements to reflect the updated presentation and 
disclosure requirements of the parallel item in Form N-1A.\845\ Except 
as discussed below, these changes are not intended to significantly 
alter current disclosure obligations.
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    \845\ See Item 23 of amended Form N-3. The amendments to this 
item reflect the presentation of Item 17 of Form N-1A.
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    The amendments: (1) 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; \846\ 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.\847\
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    \846\ See paragraphs (b)(1) and (d) of Item 23 of amended Form 
N-3.
    \847\ See paragraph (e) of Item 23 of amended Form N-3. These 
codes of ethics will continue to be filed as exhibits to Part C of 
the registrant's registration statement. See Item 32(q) of amended 
Form N-3.
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Investment Advisory and Other Services (Item 24 of Form N-3)
    As proposed, in addition to the amendments to Item 21 of Form N-3 
(which we are re-designating as Item 24) that we discuss above, which 
conforms certain aspects of this item to the disclosure requirements of 
Form N-6,\848\ we are also making amendments to restate existing 
disclosure requirements to reflect the updated presentation and 
disclosure requirements of the parallel item in Form N-1A.\849\ Except 
as discussed below, these changes are not intended to significantly 
alter current disclosure obligations.
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    \848\ See supra note 807 and accompanying text.
    \849\ See Item 24 of amended Form N-3. The amendments to this 
item will reflect the presentation of Item 19 of Form N-1A.
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    As proposed, we are amending 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.'' \850\ As 
proposed, we are also requiring a registrant to disclose any front-end 
sales load reallowed to dealers as a percentage of the registrant's 
units.\851\ Finally, and as proposed, we are requiring additional 
disclosures regarding plans adopted under rule 12b-1 under the 
Investment Company Act.\852\ 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.
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    \850\ See paragraph (a)(3)(i) of Item 24 of amended Form N-3.
    \851\ See paragraph (e) of Item 24 of amended Form N-3.
    \852\ Amended Form N-3 requires a registrant to disclose the 
relationship between amounts paid to the distributor and the 
expenses that the registrant incurs; the amount of any unreimbursed 
expenses incurred under the 12b-1 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 Item 24 of amended Form N-3.
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Portfolio Managers (Item 25 of Form N-3)
    As proposed, we are making certain amendments to Item 22 of Form N-
3, which we are re-designating as Item 25.\853\ We are amending 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.\854\ Otherwise, these changes rephrase certain disclosure 
requirements to conform to current presentation requirements in Form N-
1A but are not intended to significantly alter current disclosure 
obligations.
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    \853\ See Item 25 of amended Form N-3. The amendments to this 
item will reflect the presentation of Item 20 of Form N-1A.
    \854\ See Instruction 2 to Item 25(b) of amended Form N-3 
(discussing relocation expenses).
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Brokerage Allocation and Other Practices (Item 26 of Form N-3)
    As proposed, we are making certain amendments to Item 23 of Form N-
3, which we are re-designating as Item 26.\855\ As proposed, the 
amendments will 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.\856\ This will mirror the parallel requirement of Form N-1A 
\857\ and will 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. 
As proposed, the amendments 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.\858\ Otherwise, these changes rephrase certain disclosure 
requirements to conform to current presentation requirements in Form N-
1A but are not intended to significantly alter current disclosure 
obligations.
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    \855\ See Item 26 of amended Form N-3. The amendments to this 
item will reflect the presentation of Item 21 of Form N-1A.
    \856\ See Item 26(a) of amended Form N-3.
    \857\ See Item 21(a) of Form N-1A.
    \858\ See Instruction to Item 26(e) of amended 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.
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g. Additional Amendments to Form N-6
    Together with the cover page amendments described above,\859\ we 
are making two additional amendments to Part B of Form N-6. First, as 
discussed above, and as proposed, we are relocating the disclosure on 
commissions paid to dealers from the SAI to the prospectus.\860\ 
Second, as discussed above, and as proposed, we are eliminating current 
Item 23 (Loans) and consolidating required disclosures

[[Page 26037]]

relating to contract loans into the prospectus.\861\
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    \859\ See supra note 801 and accompanying text.
    \860\ See supra note 710 and accompanying text; see also Item 20 
of current Form N-6; Item 7 of amended Form N-6.
    \861\ The disclosures required by current Item 23 will be 
consolidated with current Item 10 into a single amended Item 13. See 
supra paragraphs accompanying and immediately following note 765.
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4. Part C (Other Information)
    Table 6 shows how our amendments will 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. As 
proposed, we are eliminating certain disclosure items in light of 
recent regulatory developments and our goal of reducing duplicative 
disclosure requirements. Although commenters did not raise broad 
objections to our proposed amendments, commenters raised concerns with 
and/or requested clarification on various items, as discussed in more 
detail below. To the extent we received no comments on certain items, 
we are adopting them as proposed, as discussed further below.

[[Page 26038]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.003


[[Page 26039]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.004

a. Amendments Conforming Part C Items of Form N-3 and N-4 to 
Presentation in Form N-6
    As proposed, we are amending certain items of Part C of Form N-4 to 
reflect the more up-to-date presentation of corresponding items in Form 
N-6, and re-designating their numbering as shown in Table 6 above. To 
the extent that these amended items incorporate only minor wording 
changes,\862\ they are indicated as ``unchanged items'' in Table 6. 
Otherwise, each of these amended items is discussed in more detail 
below.
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    \862\ See supra note 800.
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Exhibits (Item 32 of Form N-3, Item 27 of Form N-4, Item 30 of Form N-
6) \863\
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    \863\ In 2019, the Commission adopted 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 FAST Act Adopting Release, supra note 
501.
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    As proposed, we are amending 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; \864\ (2) for Form N-4, to 
require the filing of participation agreements; \865\ and (3) for Forms 
N-3 and N-4, to require the filing of administrative contracts.\866\
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    \864\ See Item 29(a) of current Form N-3; Item 24(a) of current 
Form N-4.
    \865\ Item 27(h) of amended Form N-4.
    \866\ Item 32(k) of amended Form N-3; Item 27(i) of amended Form 
N-4.
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    Pursuant to amendments adopted by the Commission in 2019,\867\ this 
Item also includes instructions regarding redaction or omission of 
schedules or information, as well as linking to exhibits filed with the 
registration statement or incorporated by reference.\868\
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    \867\ See FAST Act Adopting Release, supra note 501 (among other 
things, revising instructions regarding exhibits to registration 
statements). These rules became effective April 2 and May 2, 2019.
    \868\ See Instructions 1-4 to Item 32(r) of amended Form N-3, 
Item 27(o) of amended Form N-4, and Item 30(r) of amended Form N-6.
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    One commenter suggested that many of the exhibits are not 
particularly useful, but did not identify specific exhibits or provide 
further explanation.\869\ Although the lack of specificity makes it 
difficult for us to consider this comment further, we continue to 
believe that the list of required exhibits should include the material 
documents relating to the creation, administration, and offering of the 
contracts.
---------------------------------------------------------------------------

    \869\ See VIP Working Group Comment Letter.
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Persons Controlled by or Under Common Control With the Depositor or 
Registrant (Item 34 of Form N-3, Item 29 of Form N-4, Item 32 of Form 
N-6)
    As proposed, we are amending 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.\870\ 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).
---------------------------------------------------------------------------

    \870\ See Item 31 of current Form N-3; Item 26 of current Form 
N-4.
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Indemnification (Item 35 of Form N-3, Item 30 of Form N-4, Item 33 of 
Form N-6)
    For Forms N-3 and N-4, as proposed, we are amending 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 rules 461 and 484, and Section 
17 of the Investment Company Act.\871\ We do not believe that 
specifically noting these legal requirements is necessary to remind 
registrants of the existence of separate legal requirements, since the 
forms are not intended to be a comprehensive source of all disclosure 
obligations relevant to registrants. Eliminating this item will also 
conform this aspect of Forms N-3 and N-4 to other registration 
statement forms and reflect the more streamlined presentation used in 
Form N-6.
---------------------------------------------------------------------------

    \871\ See Item 33 of current Form N-3; Item 28 of current Form 
N-4.
---------------------------------------------------------------------------

Fee Representation (Item 40 of Form N-3, Item 34 of Form N-4)
    As proposed, we are adding new Item 40 to Form N-3 and new Item 34 
to Form N-4, which 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 mirrors Item 33 of current Form N-6 (which we are re-designating 
as Item 37). Because Section

[[Page 26040]]

26(f) of the Investment Company Act requires that the representation be 
made in the registration statement,\872\ this new item merely requests 
the representation required by Section 26(f) and does not impose any 
new obligations on a Form N-3 or Form N-4 registrant.
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    \872\ Section 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.
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b. Amendments Requiring Filing of Preliminary Form of Summary 
Prospectus
    For each form, and as proposed, we are amending the ``Exhibits'' 
disclosure item to require a registrant to file a preliminary ``form 
of'' any initial summary prospectus that the registrant intends to use 
on or after the effective date of the registration statement as an 
exhibit.\873\ As discussed above, and as proposed, registrants will 
only be required to file the form of initial summary prospectus in any 
initial registration statement filing, or in any pre-effective 
amendment or post-effective amendment filed in accordance with 
paragraph (a) of rule 485.\874\ In a change from the proposal, we are 
not requiring the filing of the updating summary prospectus because its 
contents should either be derivative of information provided in the 
statutory prospectus (e.g., the Key Information Table and the Appendix: 
Portfolio Companies/Investment Options Available Under the Contract) or 
readily discernible from comparison with the prior filing (e.g., by 
examining redline tags in the updating summary prospectus filing).
---------------------------------------------------------------------------

    \873\ Item 32(r) of amended Form N-3; Item 27(o) of amended Form 
N-4; Item 30(r) of amended Form N-6. To avoid confusion on the part 
of investors who might accidentally discover the form of a summary 
prospectus and mistake it for an effective prospectus, registrants 
must add a legend clearly identifying the document as a form of 
summary prospectus that the registrant intends to use on or after 
the effective date of the registration statement. See Instruction 5 
to Item 32(r) of amended Form N-3; Item 27(o) of amended Form N-4; 
Item 30(r) of amended Form N-6.
    \874\ See generally supra Section II.A.8.a.
---------------------------------------------------------------------------

    This requirement is intended 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. These amendments to the ``Exhibits'' item of each form 
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.\875\ Several commenters requested that the Commission 
permit registrants to file as an exhibit a ``form of'' summary 
prospectus that could be filed for multiple contracts that are 
substantially similar to or meaningfully representative of each 
other.\876\ As discussed above, we will permit this practice under 
certain circumstances.\877\
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    \875\ See supra notes 864-866 and accompanying text.
    \876\ See, e.g., Lincoln Comment Letter; Brighthouse Comment 
Letter; Transamerica Comment Letter.
    \877\ See supra Section II.A.8.a.
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c. Principal Underwriters (Item 37 of Form N-3, Item 31 of Form N-4, 
Item 34 of Form N-6)
    For Form N-3, as proposed, we are adding 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, as proposed, we are adding 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 
underwriting costs, as opposed to costs for legal or auditing services 
or other ancillary matters, and parallel similar instructions in Part B 
of these same forms regarding disclosures for underwriters.\878\
---------------------------------------------------------------------------

    \878\ See supra Section II.C.3.c.
---------------------------------------------------------------------------

    Also, for Form N-3, as proposed, we are amending 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.\879\ The 
category of ``other compensation'' is intended to encompass 
compensation that is not otherwise enumerated in one of the other 
categories. We believe deletion of this instruction will 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.
---------------------------------------------------------------------------

    \879\ Instruction 1 to Item 35(c) of current Form N-3.
---------------------------------------------------------------------------

d. Adjustment to Disclosure Thresholds (Items 37 and 39 of Form N-3, 
Items 31 and 33 of Form N-4, Items 34 and 36 of Form N-6)
    As proposed, in addition to amending certain updated disclosure 
thresholds in the SAI, we are similarly increasing 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.\880\ 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.\881\ As part of our efforts to update the 
registration forms, and as proposed, we are increasing these thresholds 
to $15,000 \882\ to reflect the effects of inflation since 1985.\883\
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    \880\ See 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.
    \881\ See 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.
    \882\ See Instruction 3 to amended Item 37 and Instruction 2 to 
amended Item 39 of Form N-3; Instruction 3 to amended Item 31 and 
Instruction 2 to amended Item 33 of Form N-4; Instruction 3 to 
amended Item 34 and Instruction 2 to amended Item 36 of Form N-6.
    \883\ For a discussion of the calculation methodology, see supra 
note 836.
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e. Amendments Eliminating Current Part C Disclosure Requirements
    As proposed, to reduce overlapping regulatory requirements, we are 
eliminating Item 32 of current Form N-3 and Item 27 of current Form N-4 
(``Number of Contractowners''), because registrants are separately 
required to disclose the number of contractowners in the registrant's 
filings on Form N-CEN.\884\ 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. 
As proposed, we are also eliminating Item 38 of current Form N-3 and 
Item 32 of Form N-4

[[Page 26041]]

(``Undertakings''). These requirements are outdated \885\ or redundant 
with similar requirements under the amendments to Forms N-3 and N-
4.\886\
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    \884\ See 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).
    \885\ 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.
    \886\ Because 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 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 
688, 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 Item 1(b) of amended 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 Item 17 of amended 
Form N-3 and Item 16 of amended Form N-4 (requiring registrants to 
explain how financial statements may be found or obtained).
---------------------------------------------------------------------------

f. Additional Amendments to Form N-6
    As proposed, we are amending the third column of the table required 
by Item 30 of current Form N-6 (``Principal Underwriters,'' which we 
are re-designating as Item 34) 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.\887\ Because compensation may be 
paid upon redemptions not defined as deferred sales loads, we believe 
this change will clarify for investors the amount of redemption 
compensation received from the registrant.
---------------------------------------------------------------------------

    \887\ Item 34(c) of amended Form N-6. This change conforms Form 
N-6 with the comparable item of Form N-4. See Item 29(c) of current 
Form N-4.
---------------------------------------------------------------------------

5. 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.\888\ 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.
---------------------------------------------------------------------------

    \888\ See Forms N-3 and N-4 Adopting Release, supra note 29, at 
text following n.51 (stating that publication of the Guidelines was 
not intended to elevate their status beyond that of staff guidance).
---------------------------------------------------------------------------

    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. As discussed in the 
Proposing Release, the Guidelines have become outdated and less useful, 
and have generally been superseded by other resources that are more 
frequently updated and accessible to the public.\889\
---------------------------------------------------------------------------

    \889\ See Proposing Release, supra note 6, at Section II.D.5.
---------------------------------------------------------------------------

    As with other registration forms that have more recently been 
amended to eliminate the guidelines for those forms,\890\ the 
Commission proposed to rescind the Guidelines to Forms N-3 and N-4 but 
requested comment on whether all or parts of the Guidelines should be 
retained (either as form items or instructions, or addressed as 
Commission guidance). We received no comments on our proposed 
elimination of the Guidelines, and are rescinding them as proposed.
---------------------------------------------------------------------------

    \890\ See Form N-1A Adopting Release, supra note 799 
(eliminating similar guidelines from Form N-1A).
---------------------------------------------------------------------------

D. Inline XBRL

    We are adopting, generally as proposed, the requirement to use the 
Inline XBRL format for the submission of certain required disclosures 
in the variable contract statutory prospectus.\891\ 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 human-readable document. Information structured using the Inline 
XBRL format is both human-readable and machine-readable for purposes of 
validation, aggregation, and analysis. This is the same format required 
for operating companies, mutual funds, and ETFs.\892\
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    \891\ General Instruction 3.C.(h) of amended Forms N-3, N-4, and 
N-6; amendments to rules 485 and 497 under the Securities Act; 
amendments to rules 11 and 405 of Regulation S-T.
    \892\ See Inline XBRL Filing of Tagged Data, Investment Company 
Act Release No. 33139 (June 29, 2018) [83 FR 40846 (Aug. 16, 2018)] 
(``Inline XBRL Adopting Release''). We believe the public's access 
to the specified disclosures will be facilitated by making the data 
available in a format with which many market participants will 
already be familiar as a result of reviewing and analyzing other 
disclosures in Inline XBRL.
---------------------------------------------------------------------------

    The amendments harness Inline XBRL technology to enhance the 
ability of an investor to analyze and compare variable contracts 
(directly and through his or her investment professional). That 
technology also assists the investor by facilitating the analysis of 
variable contracts by Commission staff, as well as data aggregators, 
financial analysts, and other data users who often provide information 
to an investor. This aspect of the amendments 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.
    For filers, Inline XBRL can enhance the efficiency of review, yield 
savings in time and cost of preparing machine-readable data, and 
potentially enhance the quality of the data over other machine-readable 
standards as 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 machine-readable 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.\893\ Given the complexity of variable contracts, tagging 
certain sections within the statutory prospectus in Inline XBRL format 
could provide greater transparency regarding the products' features and 
risks.
---------------------------------------------------------------------------

    \893\ See Inline XBRL Adopting Release, supra note 892 
(discussing the Commission's Inline XBRL Viewer).
---------------------------------------------------------------------------

    Variable contract registrants will be required to embed a part of 
the Interactive Data File \894\ 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 contains 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

[[Page 26042]]

technical requirements in the EDGAR Filer Manual.
---------------------------------------------------------------------------

    \894\ Regulation 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. See rule 11 of Regulation S-
T; rule 405 of Regulation S-T. The EDGAR Filer Manual sets forth the 
technical formatting requirements for the presentation and 
submission of electronic filings through the EDGAR system.
---------------------------------------------------------------------------

    Comments regarding our proposal to require variable contract 
filings to be tagged using Inline XBRL were mixed. Some commenters 
supported the proposed Inline XBRL requirements.\895\ One commenter 
stated that making information about variable annuities available in a 
structured, machine-readable format would benefit investors by making 
the information more transparent and comparable.\896\ Several 
commenters believed the proposed requirement would enable data 
aggregators, financial analysts, and other data users to offer services 
that would empower variable contract investors to make comparisons and 
better investment decisions.\897\ Two commenters stated that the Inline 
XBRL requirement would encourage competition in the variable contract 
marketplace, serving to protect investors and promote efficiency and, 
potentially, innovation.\898\ Another commenter stated that ``requiring 
disclosures to be made in Inline XBRL has the potential to do more than 
the most innovative disclosure design changes to assist the many 
investors who lack the time and expertise to pore through disclosure 
documents to select the variable annuity and contract features that 
best meet their needs.'' \899\
---------------------------------------------------------------------------

    \895\ See Comment Letter of XBRL US (Mar. 13, 2019) (``XBRL US 
Comment Letter''); Better Markets Comment Letter; CFA Comment 
Letter; and Chemas Comment Letter.
    \896\ See XBRL US Comment Letter; see also CAI Comment Letter 
(supporting the use of Inline XBRL for contracts currently offered 
for sale, noting that structured disclosures ``would allow investors 
and their investment professionals (as well as data aggregators, 
financial analysts, and other data users) to efficiently analyze and 
compare available information about available contracts.'').
    \897\ See Better Markets Comment Letter; CFA Comment Letter; 
Chemas Comment Letter.
    \898\ See CFA Comment Letter; Chemas Comment Letter.
    \899\ See CFA Comment Letter.
---------------------------------------------------------------------------

    By contrast, three commenters opposed requiring a variable contract 
registrant to tag its disclosures.\900\ These commenters questioned the 
utility of tagged variable contract data, stating that XBRL data filed 
by funds has been minimally used by investors, Commission staff, or 
data aggregators.\901\ One commenter concluded that because variable 
annuities are even more complicated and less standardized than mutual 
funds, Inline XBRL tagging of variable contract prospectuses ``is 
simply not worth the cost.'' \902\
---------------------------------------------------------------------------

    \900\ See VIP Working Group Comment Letter; Ameritas Comment 
Letter; Anonymous Comment Letter III.
    \901\ See VIP Working Group Comment Letter; Anonymous Comment 
Letter III; Ameritas Comment Letter.
    \902\ See VIP Working Group Comment Letter (also suggesting that 
tagging may not be necessary ``as a data mining tool should be able 
to pull the data without tagging.'').
---------------------------------------------------------------------------

    One commenter supported requiring structured data for current 
offerings, stating that Inline XBRL is primarily designed to help 
investors and other market participants compare investments for 
purposes of an initial investment decision, but opposed applying the 
requirements to insurance contracts no longer being sold as to do so 
would ``impose unnecessary costs and burdens on insurers without 
providing any benefit to investors.'' \903\
---------------------------------------------------------------------------

    \903\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We are adopting the Inline XBRL requirements for variable contracts 
as proposed, but in response to commenters, these requirements will 
only apply to contracts being sold to new investors. We believe that 
investors and other data users will benefit from information provided 
using the Inline XBRL format. In contrast to statements by some 
commenters that mutual fund XBRL disclosures are minimally used, staff 
have observed that the risk/return XBRL data are accessed on a regular 
basis by the public. Moreover, based on our experience with operating 
company and mutual fund XBRL data use, we expect that data aggregators 
likely will begin using structured data, once it is available, to 
provide information to variable contract investors, Commission staff, 
financial analysts, and other data users. Requiring the use of the 
Inline XBRL format makes it easier and less costly for such entities to 
efficiently access and analyze variable contract data, because those 
entities will not have to spend time rekeying the filings to structure 
the data and correcting for data quality. And because variable 
contracts are primarily held by retail investors who often look to 
third-party information sites when evaluating their investment options, 
this data should help investors compare variable contracts, including 
their features, costs, and portfolio company options.
    We agree with commenters' assertions that Inline XBRL will be 
primarily of use in connection with the initial investment decision, 
when investors can use tagged data to more readily compare key features 
of multiple variable contracts to find the variable contract that best 
meets their investment needs. We expect that Inline XBRL will be of 
more limited use to existing investors because variable contracts are 
intended to be long-term investments and variable contracts are priced 
and sold accordingly. For example, under some variable contracts, if an 
investor were to make a withdrawal in contract year 15 from his or her 
variable contract that has a 10-year surrender period (measured by each 
purchase payment), that withdrawal still could be assessed a surrender 
charge. In that case, the surrender charge would apply to any purchase 
payment made during the last ten years, even if the investor had 
submitted his or her initial purchase payment for the variable contract 
more than ten years ago. For these reasons, variable contract investors 
likely will have limited incentives to seek out alternative variable 
contracts following their initial investment. Existing investors may be 
offered a buyout of their contract by their issuing insurance company 
or offered to exchange their contract into a new contract that may have 
different fees, benefits, or other terms. However, in those cases, the 
investor is typically presented with a specific alternative that the 
investor can more easily compare to his or her existing contract--as 
opposed to the initial investment decision process when the investor 
potentially is selecting from among a number of variable contracts and 
could benefit from the ability to use tagged data.
    Accordingly, the requirement to structure the disclosure using the 
Inline XBRL format will apply to all contracts for which an insurance 
company is maintaining a current registration statement and that are 
being sold to new investors.\904\ Thus, for registration statements 
with multiple contracts, tagging will be required for contracts that 
are still being sold to new investors, but will not be required for 
contracts that are not being sold to new investors even if those 
contracts are still accepting purchase payments or premiums from 
existing investors. We believe that this balances the benefits of these 
amendments to investors with the costs and burdens that would be 
associated with tagging contracts that are no longer being sold to new 
investors.
---------------------------------------------------------------------------

    \904\ Discontinued contracts that are ``Eligible Contracts'' as 
defined below in Section II.E.3 are not subject to the Inline XBRL 
requirement. See infra Section II.E.
---------------------------------------------------------------------------

    While we believe the use of Inline XBRL will ultimately benefit 
investors and other data users, we recognize that many insurers will 
face burdens in transitioning to the Inline XBRL format and as a 
result, are adopting a delayed compliance date for this new 
requirement, as discussed below in Section II.G of this release.
    Filings to be tagged. Like mutual funds and ETFs, registrants will 
be

[[Page 26043]]

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. We 
received no comments on this aspect of the proposal.
    Information to be tagged. We are requiring, largely as proposed, 
that registrants tag the following statutory prospectus disclosure 
items using Inline XBRL: The Key Information Table; Fee Table; 
Principal Risks of Investing in the Contract; for Form N-6 registrants, 
Standard Death Benefits; [Other] Benefits Available Under the Contract; 
Portfolio Companies [Investment Options] Available Under the Contract; 
and for Form N-3 registrants, Additional Information About Investment 
Options Available Under the Contract.\905\ We believe that these 
items--which provide important information about a variable contract's 
key features, costs, and risks-- are most suited to being tagged in a 
structured format and will be of greatest utility for investors and 
other data users that seek structured data to analyze and compare 
variable contracts. We received no comments regarding the substantive 
disclosure items proposed to be tagged.
---------------------------------------------------------------------------

    \905\ See General Instruction C.3.(h) to Forms N-3, N-4, and N-
6; see also Items 2, 4, 5, 11, 18, 19 of amended Form N-3; Items 2, 
4, 5, 10, and 17 of amended Form N-4; Items 2, 4, 5, 10, 11, and 18 
of amended 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).
---------------------------------------------------------------------------

    As proposed, we are requiring 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 requiring that registrants tag 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. Registrants will also be required to tag the Principal 
Risks disclosures so investors and their investment professionals can 
analyze a contract's risks alongside the contract's features and 
benefits.
    As proposed, we are requiring registrants to tag [Other] Benefits 
Available Under the Contract because these product features may be 
easier to analyze and compare if information pertaining to those 
features is available in a structured data format. While the Commission 
did not propose to require registrants to tag standard death benefit 
information, as discussed above, the Benefits Available Under the 
Contract disclosure item for Form N-3 and N-4 registrants will now 
include standard, as well as optional, death benefits.\906\ As a 
result, Form N-3 and N-4 registrants will also be required to tag 
standard death benefit information.
---------------------------------------------------------------------------

    \906\ See supra note 734 and accompanying text.
---------------------------------------------------------------------------

    As proposed, standard death benefits for variable life insurance 
contracts will be described in response to a separate Form N-6 item 
limited to for Standard Death Benefits.\907\ To parallel the (standard 
and optional) death benefits tagging requirements for variable 
annuities, we are requiring variable life insurance registrants to tag 
the item for Standard Death Benefits.\908\ Because investors 
principally, if not exclusively, buy variable life insurance contracts 
for their death benefits, which often include a choice among two or 
three death benefit options, tagging this information will make it 
easier to compare the key features of these products.
---------------------------------------------------------------------------

    \907\ See supra note 694 and accompanying text.
    \908\ See General Instruction C.3.(h)(i) of amended Form N-6 
(referencing Item 10 (Death Benefits)).
---------------------------------------------------------------------------

    Finally, as proposed, we are requiring 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.
    While we received no comments regarding the substantive disclosure 
items to be tagged, several commenters inquired about a taxonomy for 
variable contracts.\909\ One commenter expressed concern that ``there 
is no taxonomy in existence [for variable contracts] and it would be 
exceptionally difficult to develop a taxonomy for these products with 
their bespoke features.'' \910\ Another commenter stated that to help 
illustrate how such standards can be built and used to improve the 
usability of variable annuity data, it had developed a prototype 
Annuity Taxonomy, to which it provided a link in its comment 
letter.\911\ This commenter suggested that to facilitate product 
comparisons and aid investors in their investment decisions, we should 
consider requiring insurers to tag additional elements beyond those 
likely to fall within the scope of the disclosure items proposed to be 
tagged.\912\ A third commenter asked for guidance regarding whether a 
new XBRL taxonomy would be developed and circulated for comment, and if 
it the prototype Annuity Taxonomy developed by the other commenter 
might be an indicator of the actual taxonomy.\913\ One commenter, 
though not supporting an Inline XBRL requirement, observed that if 
tagging is mandated, we should require certain identifying information 
for the portfolio companies to be tagged to facilitate the cross-
referencing of such information.\914\
---------------------------------------------------------------------------

    \909\ See VIP Working Group Comment Letter; XBRL U.S. Comment 
Letter; IRI Comment Letter I.
    \910\ See VIP Working Group Comment Letter.
    \911\ See XBRL US Comment Letter. (``[W]e developed a prototype 
Annuity Taxonomy (https://xbrl.us/xbrl-taxonomy/2019-var/) which . . 
. is available for the Commission or any other interested parties to 
download.'').
    \912\ Id. (identifying 57 additional terms to be tagged in XBRL 
format).
    \913\ See IRI Comment Letter I.
    \914\ See VIP Working Group Comment Letter (stating that ``if 
you do tag, you should make sure you capture the class ID/tickers 
for the underlying funds so mutual fund information can easily be 
cross-referenced.'').
---------------------------------------------------------------------------

    As with other Commission XBRL taxonomies, staff will post a draft 
variable contracts XBRL taxonomy for public review and feedback.\915\ 
When available, filers will be required to use the most recent version 
of the variable contracts XBRL taxonomy as specified by the EDGAR Filer 
Manual.\916\ As discussed below, we are extending the proposed 
compliance period for the new Inline XBRL requirements, which will 
allow sufficient time for us to consider public comments on the draft 
taxonomy and subsequently adopt and publish a final taxonomy before 
variable contract registrants must comply with the new structured data 
reporting regime.\917\
---------------------------------------------------------------------------

    \915\ Taxonomies are available at https://www.sec.gov/structureddata/dera_taxonomies.
    \916\ See rule 405(c)(1) of Regulation S-T.
    \917\ See infra Section II.G.
---------------------------------------------------------------------------

    Submission of Interactive Data File. As proposed, in a framework 
similar to that for mutual funds and ETFs under the recently adopted 
Inline XBRL regime,\918\ we are requiring variable contract registrants 
to submit Interactive Data Files as follows:
---------------------------------------------------------------------------

    \918\ See Inline XBRL Adopting Release, supra note 892.
---------------------------------------------------------------------------

     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,

[[Page 26044]]

paragraph (b)(1)(vi) of rule 485,\919\ 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; \920\
---------------------------------------------------------------------------

    \919\ To help facilitate efficiencies in the variable contract 
post-effective amendment filing process, we will permit variable 
contracts to submit Interactive Data Files concurrently with these 
post-effective amendments because post-effective amendments filed 
pursuant to these paragraphs of rule 485 generally are not subject 
to further revision.
    \920\ 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.
---------------------------------------------------------------------------

     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 in a subsequent amendment on or before the date the registration 
statement or post-effective amendment that contains the related 
information becomes effective; \921\ and
---------------------------------------------------------------------------

    \921\ 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.
---------------------------------------------------------------------------

     For any form of prospectus filed pursuant to rule 497(c) 
or (e), Interactive Data Files must be submitted concurrently with the 
filing.\922\
---------------------------------------------------------------------------

    \922\ 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.
---------------------------------------------------------------------------

    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 using the Inline 
XBRL format concurrent with filing or before the date of effectiveness 
will allow them to quickly process and share the data and related 
analysis with investors. We received no comments regarding this 
proposed approach.
    Identification of Classes. As proposed, the Interactive Data File 
will be required to be submitted in such a manner that will 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.\923\ We received no comments regarding 
this aspect of the proposal.
---------------------------------------------------------------------------

    \923\ General Instruction C.3.(h)(iii) to Forms N-3, N-4, and N-
6.
---------------------------------------------------------------------------

    Consequence of failure to submit required Interactive Data File. 
Similar to the framework for mutual funds and ETFs, we are adopting, as 
proposed, amendments to 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.\924\ We received no comments on this aspect of the proposal.
---------------------------------------------------------------------------

    \924\ Rule 485(c)(3).
---------------------------------------------------------------------------

    Availability of hardship exemptions. The Commission proposed that 
under the final rules registrants may request temporary and continuing 
hardship exemptions for the inability to timely file electronically the 
Interactive Data File.\925\ One commenter expressed support for this 
aspect of the proposal,\926\ and we are adopting this provision as 
proposed.
---------------------------------------------------------------------------

    \925\ See 17 CFR 232.201 (rule 201 of Regulation S-T) (temporary 
hardship exemption) and 17 CFR 232.202 (rule 202 of Regulation S-T) 
(continuing hardship exemption).
    \926\ See Chemas Comment Letter.
---------------------------------------------------------------------------

E. Discontinued Variable Contracts

    Today, many variable contracts no longer offered to the public 
operate in a manner consistent with certain staff no-action letters and 
provide alternative disclosures to investors in lieu of filing post-
effective amendments to update a registration statement and providing 
updated prospectuses to existing investors (these discontinued 
contracts are referred to as ``Alternative Disclosure Contracts''). The 
staff letters will be withdrawn. In addition, the Commission is taking 
the position that, if an issuer of an Alternative Disclosure Contract 
that is discontinued as of July 1, 2020 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 are provided with the 
alternative disclosures or modernized alternative disclosures described 
below. We are not adopting any form of going-forward relief for 
discontinued contracts at this time, although we will continue to 
consider whether any form of going-forward relief for discontinued 
contracts might be appropriate. We welcome input as described below in 
Section II.E.4.
1. Background
    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, or reallocation of contract value from one 
sub-account to another, 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 post-effective amendments to the 
registration statements and, as necessary, supplementing or 
``stickering'' the contract prospectus or SAI.\927\
---------------------------------------------------------------------------

    \927\ See Forms N-3 and N-4 Adopting Release, supra note 29, at 
n.14 and accompanying text.
---------------------------------------------------------------------------

    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 or merge with 
another investment company when assets are reduced to such a level that 
continuing the investment company 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.
a. 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 distributing alternative disclosures to investors (each, 
a ``Staff Letter,'' and collectively, the ``Staff Letters'').\928\ The 
last Staff Letter was issued in 1995.\929\
---------------------------------------------------------------------------

    \928\ See, 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 No-Action 
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).
    \929\ See Metropolitan Life Insurance Co., SEC Staff No-Action 
Letter (pub. avail. Apr. 26, 1995) (``Metropolitan Letter'').

---------------------------------------------------------------------------

[[Page 26045]]

    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).\930\ 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: \931\
---------------------------------------------------------------------------

    \930\ 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.'' There are four Staff Letters 
concerning contracts where the number of contract owners exceeded 
5,000. See Metropolitan Letter (42,910 contract owners); Monarch 
Life Insurance Co., SEC Staff No-Action Letter (pub. avail. June 9, 
1992) (``Monarch Letter'') (5,900 contract owners); New York Life 
Insurance and Annuity Corp., SEC Staff No-Action Letter (pub. avail. 
Nov. 15, 1989) (13,713 contract owners); Security Benefit Life 
Insurance Company, SEC Staff No-Action Letter (pub. avail. July 2, 
1987) (28,019 contract owners).
    \931\ Some 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.
---------------------------------------------------------------------------

     There are no material changes made to the contract;
     New contracts are not offered to the public, and the 
registrant does not contemplate such an offering in the future; \932\
---------------------------------------------------------------------------

    \932\ The Staff Letters do not address existing investors making 
additional purchase payments.
---------------------------------------------------------------------------

     Investors are provided the following disclosures:
    [cir] 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;
    [cir] Confirmations of transactions in accordance with 17 CFR 
240.10b-10 (rule 10b-10 under the Exchange Act);
    [cir] 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; \933\ and
---------------------------------------------------------------------------

    \933\ With respect to variable annuities, the depositor's 
updated audited financial statements would be available upon 
request. See, e.g., Metropolitan Letter; Monarch Letter.
---------------------------------------------------------------------------

    [cir] At least once a year, a statement of the number of units and 
values in each investor's account (collectively, the ``Alternative 
Disclosures'').
     The registrant files periodic reports with the Commission 
pursuant to Section 30 of the Investment Company Act (i.e., reports on 
Form N-CEN).\934\
---------------------------------------------------------------------------

    \934\ The 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.
---------------------------------------------------------------------------

b. Liability
    As of August 2019, we estimate that the Alternative Disclosures 
that the Staff Letters describe are being provided for more than half 
of variable contract Securities Act registration statements: \935\
---------------------------------------------------------------------------

    \935\ Our understanding is based on staff review of filings with 
the Commission and discussions with industry participants.
[GRAPHIC] [TIFF OMITTED] TR01MY20.005

    Providing the Alternative Disclosures, in lieu of updates to an 
issuer's registration statement, may have the effect of potentially 
limiting issuers' liability under certain provisions of Sections 11 and 
12(a)(2) of the Securities Act, which require a registration statement 
or prospectus to contain whatever information may be necessary or 
appropriate to avoid material misstatements or omissions.\936\ 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.\937\ 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.\938\
---------------------------------------------------------------------------

    \936\ See supra discussion at notes 505 (discussing Section 
12(a)(2) liability) and 524 (discussing Section 11 liability).
    \937\ See Bellikoff v. Eaton Vance Corp., 481 F.3d 110 (2d Cir. 
2007).
    \938\ See, e.g., Section 17(a) of the Securities Act; Section 
10(b) and 17 CFR 240.10b-5 (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.
---------------------------------------------------------------------------

c. Approaches to Framework for Discontinued Contracts
    In proposing the new variable contract summary prospectus 
disclosure

[[Page 26046]]

framework, the Commission acknowledged the industry practice of 
providing Alternative Disclosures (which are significantly different 
from the requirements of both the current prospectus and the new 
summary prospectus regimes) under specific circumstances that the Staff 
Letters identify. The Commission proposed to take the position that if 
certain issuers currently operating under the Staff Letters do not file 
post-effective amendments to update a variable contract registration 
statement and do not provide updated prospectuses to existing 
investors, under certain circumstances, this would not provide a basis 
for Commission enforcement action so long as investors continue to 
receive the Alternative Disclosures.
    The Commission proposed to apply this position only to Alternative 
Disclosure Contracts operating in the manner that the Staff Letters 
describe as of the effective date of any final summary prospectus 
rules. The Commission proposed that all other 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. Additionally, the Commission requested 
comment on two alternative approaches for discontinued contracts, 
including two methods of implementation that would apply these 
approaches to either contracts discontinued after the effective date of 
any final summary prospectus rules or all discontinued contracts 
(including Alternative Disclosure Contracts).\939\
---------------------------------------------------------------------------

    \939\ The Commission stated that it was considering two 
alternative approaches for discontinued contracts, ``Approach 1,'' 
which would codify existing practices under the Staff Letters with 
certain modifications, as well as ``Approach 2,'' which would permit 
registration statements to be updated using forward incorporation by 
reference. The Commission also stated that each of these approaches 
could be implemented using either ``Method One,'' which would apply 
only on a going-forward basis, or ``Method Two,'' which would apply 
to all discontinued contracts. See Proposing Release, Section II.C.
---------------------------------------------------------------------------

2. Comments Received on Proposal
    While one commenter stated that all investors should receive the 
same disclosures through a summary prospectus regardless of whether or 
not the variable contract is discontinued,\940\ other commenters 
supported the general framework for discontinued contracts under the 
Staff Letters,\941\ with a number citing the many decades that insurers 
have structured their operations consistent with the Staff 
Letters.\942\ These commenters stated that the framework allowed 
insurers to reduce the disproportionate costs associated with updating 
the registration statement and delivering updated prospectuses for 
discontinued contracts over a diminishing asset base.\943\ Some of 
these commenters also stated that the framework has enabled insurers to 
continually innovate and introduce new products for investors.\944\ In 
addition, some of these commenters stated that the framework has helped 
to moderate fees and charges for variable contracts.\945\
---------------------------------------------------------------------------

    \940\ See Better Markets Comment Letter.
    \941\ See CAI Comment Letter; Brighthouse Comment Letter; 
Transamerica Comment Letter; ACLI Comment Letter; Lincoln Comment 
Letter; Ameritas Comment Letter; IRI Comment Letter I.
    \942\ See CAI Comment Letter; Brighthouse Comment Letter; ACLI 
Comment Letter.
    \943\ See CAI Comment Letter; Brighthouse Comment Letter; 
Transamerica Comment Letter; ACLI Comment Letter; Lincoln Comment 
Letter; Ameritas Comment Letter; IRI Comment Letter I.
    \944\ See CAI Comment Letter; Brighthouse Comment Letter; 
Transamerica. One commenter indicated that in the absence of this 
relief, ``insurers generally will be more hesitant to innovate and 
offer new products,'' which may ``dampen competition in the variable 
contract market, limit investor choice, and stall innovation in the 
retirement income market where innovation is sorely needed.'' See 
CAI Comment Letter.
    \945\ See CAI Comment Letter; Brighthouse Comment Letter.
---------------------------------------------------------------------------

    Commenters stressed the importance of grandfathering Alternative 
Disclosure Contracts, as proposed.\946\ These commenters urged, at a 
minimum, that we provide some form of grandfathering for registrants 
currently operating in a manner consistent with the Staff Letters due 
to the difficulties involved in updating those registration statements. 
One commenter urged that any grandfathering be codified by rule rather 
than through a Commission position to provide more assurance to these 
registrants.\947\
---------------------------------------------------------------------------

    \946\ See, e.g., Transamerica Comment Letter (``failing to 
permit grandfathering . . . would cause significant disruption to 
our variable product business''); Brighthouse Comment Letter (``un-
Great-Westing'' contracts ``would present a tremendous initial 
resource strain . . . to `revive' registration statements, many of 
which have not been sold or updated in decades''); ACLI Comment 
Letter (the costs of eliminating relief ``would greatly outweigh the 
very marginal benefits of such an action'').
    \947\ See IRI Comment Letter II.
---------------------------------------------------------------------------

    Commenters emphasized that some of these contract prospectuses have 
not been updated for many years, and in some cases several decades, and 
that preparing new registration statements and prospectuses would 
involve significant costs and burdens.\948\ One commenter stated that 
the maintenance costs of discontinued contracts would be high, and that 
the cost for obtaining auditor opinions alone would be 
significant.\949\ Other commenters stated it may be impossible to 
prepare new disclosure documents for Alternative Disclosure Contracts 
that have operated in a manner consistent with the Staff Letters for 
many years. For example, one commenter stated that certain Alternative 
Disclosure Contracts have operated in a manner consistent with the 
Staff Letters for several decades and have never filed on EDGAR.\950\
---------------------------------------------------------------------------

    \948\ See, e.g., CAI Comment Letter; Brighthouse Comment Letter.
    \949\ See Ameritas Comment Letter.
    \950\ See CAI Comment Letter.
---------------------------------------------------------------------------

    We also received a number of comments on the importance of some 
form of going-forward relief for contracts that are discontinued after 
the date that the Staff Letters are withdrawn.\951\ These commenters 
generally noted the benefits experienced by insurers operating in a 
manner consistent with the Staff Letters discussed above (i.e., 
reduction in costs experienced over a diminishing asset base, increased 
product innovation, and moderation in product costs). Commenters also 
submitted views on the two alternative approaches for discontinued 
contracts, including the two possible methods of implementation. We 
discuss these comments below in Section II.E.4.
---------------------------------------------------------------------------

    \951\ See CAI Comment Letter; ACLI Comment Letter; Transamerica 
Comment Letter; IRI Comment Letter I; IRI Comment Letter II.
---------------------------------------------------------------------------

3. Commission Position on Existing Contracts Whose Issuers Provide 
Alternative Disclosures to Investors
a. Commission Position
    We are taking the position that if an issuer of an Alternative 
Disclosure Contract that is discontinued as of July 1, 2020 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 are 
provided with the Alternative Disclosures, or certain modernized 
alternative disclosures, under the Commission position described below. 
For the reasons discussed below, we have determined to not codify this 
approach. Rather, we are providing notice of the Commission's position 
with respect to the circumstances under which certain actions will not 
provide a basis for enforcement action.
    We generally believe that all variable contract issuers should 
provide investors the same information and be

[[Page 26047]]

subject to the same liability standards. We are only taking this 
Commission position to recognize the unique circumstances facing 
certain variable contracts currently operating in a manner consistent 
with the Staff Letters. The Commission's position is an exercise of its 
discretion and is designed primarily to assist the phase-out of these 
discontinued contracts. We believe that the need for this position will 
likely be temporary since the number of these contracts will diminish 
gradually over time. Accordingly, under the Commission position these 
issuers may continue to operate much as they do today, while also 
providing them the flexibility to provide more modern disclosure to 
investors.
    Eligible contracts. We are taking the position that if an issuer of 
an existing discontinued contract that is discontinued as of July 1, 
2020 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 (each, an 
``Eligible Contract''), this would not provide a basis for enforcement 
action if:
     Registration statement. It has a Securities Act 
registration statement with fewer than 5,000 investors, as of July 1, 
2020.
     No material changes. There are no material changes made to 
the contract.
     No new contracts offered to the public. New contracts are 
not offered to the public, and the registrant does not contemplate such 
an offering in the future.
     Alternative disclosures. Investors are provided each of 
the following disclosures:
    [cir] Portfolio company disclosures. 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.
    [cir] Financial statements. 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. In the case of variable annuity 
contracts, the depositor's updated audited financial statements are 
available upon request.\952\
---------------------------------------------------------------------------

    \952\ See, e.g., Metropolitan Letter; Monarch Letter.
---------------------------------------------------------------------------

    [cir] Transaction confirmations. Confirmations of transactions in 
accordance with rule 10b-10 under the Exchange Act.
    [cir] Statement of units and values. At least once a year, a 
statement of the number of units and values in each investor's account.
     Option to provide modernized alternative disclosures. In 
lieu of providing the portfolio company prospectuses (or summary 
prospectuses) and any updates thereto and financial statements 
described in the first two sub-bullets in the list of alternative 
disclosures immediately above, a registrant may instead provide 
investors with the following:
    [cir] Notice document. The issuer annually provides investors with, 
and files with the Commission, a notice document containing the same 
information as that required in an updating summary prospectus 
(``Notice Document'').\953\
---------------------------------------------------------------------------

    \953\ The Notice Document must contain the same information as 
required in the updating summary prospectus under rule 498A and be 
filed with the Commission each year. Registrants are not required to 
use the Inline XBRL format for the submission of the Notice 
Document.
---------------------------------------------------------------------------

    [cir] Portfolio company prospectuses. An issuer may elect to post a 
portfolio company's current summary prospectus, statutory prospectus, 
SAI, and most recent shareholder reports online in lieu of mailing the 
portfolio company's prospectuses (or summary prospectuses) and any 
updates thereto to investors, provided that:
    [cir] A summary prospectus is used for the portfolio company (if 
the portfolio company is registered on Form N-1A); and
    [cir] The materials for the portfolio company are publicly 
accessible, free of charge, at the website address specified on the 
cover page or beginning of the Notice Document, and delivered (in paper 
or electronic format) upon request.
    [cir] Financial statements. The financial statements that would be 
delivered to investors as part of the alternative disclosures described 
above are instead made publicly accessible, free of charge, at the 
website address specified on the cover page or beginning of the Notice 
Document, and delivered (in paper or electronic format) upon request.
     Filings. The registrant makes the following filings with 
the Commission:
    [cir] Reports on Form N-CEN. The registrant files periodic reports 
with the Commission pursuant to Section 30 of the Investment Company 
Act (i.e., reports on Form N-CEN).
    [cir] Financial statements. Within 120 days after the close of the 
registrant's fiscal year, the registrant files with the Commission its 
updated audited financial statements, and in the case of variable life 
insurance contracts, the depositor's updated audited financial 
statements.\954\
---------------------------------------------------------------------------

    \954\ The filing of financial statements with the Commission has 
not been a condition of the Staff Letters. Most of the Staff Letters 
predate EDGAR's adoption in 1993. EDGAR will be modified to create a 
new submission type under which registrants may file the required 
financial statements. Notice of EDGAR system readiness to accept 
filings pursuant to the new submission type will be provided in a 
manner similar to notices of EDGAR Filer Manual updates.
---------------------------------------------------------------------------

    [cir] Notice Document. A copy of any Notice Document sent to 
investors.\955\
---------------------------------------------------------------------------

    \955\ EDGAR will be modified to create a new submission type 
under which registrants may file Notice Documents. Notice of EDGAR 
system readiness to accept filings pursuant to the new submission 
type will be provided in a manner similar to notices of EDGAR Filer 
Manual updates.
---------------------------------------------------------------------------

    In addition, if an issuer's Securities Act registration statement 
includes multiple contracts, the Commission position applies only if 
all of the contracts covered by the registration statement are 
consistent with the above. For purposes of the 5,000 investor 
threshold, the number includes investors in all contracts covered by 
the registration statement in the aggregate. This is consistent with 
the scope of the Staff Letters.
    Table 7 below summarizes the disclosures that may be provided to 
investors in Alternative Disclosure Contracts, as compared with those 
of the new summary prospectus framework under 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.

[[Page 26048]]



   Table 7--Documents Available to Alternative Disclosure Contract Investors Compared With Summary Prospectus
                                                    Framework
----------------------------------------------------------------------------------------------------------------
                                                                                            Summary prospectus
                                       Alternative disclosures   Modernized alternative    framework under rule
                                                                      disclosures                  498A
----------------------------------------------------------------------------------------------------------------
Contract Statutory Prospectus........                        N/A *                       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.
----------------------------------------------------------------------------------------------------------------
Updating Summary Prospectus or         N/A....................  Delivered to all existing investors.
 Comparable Notice Document.
Financial Statements * *.............  Delivered to all         Required to be available online and delivered
                                        investors, and also      (in paper or electronic format) upon request,
                                        available on EDGAR.      and also available on EDGAR * * *
Portfolio Company Prospectuses.......  Delivered to all         Delivered to investors, or, if the new option
                                        investors.               under rule 498A(j) to satisfy portfolio company
                                                                 prospectus delivery is relied[dash]upon,
                                                                 required to be available online and delivered
                                                                 (in paper or electronic format) upon request.
Portfolio Company Shareholder Reports  Delivered to all         Delivered to all investors, and, if the new
 * * * *.                               investors.               option under rule 498A(j) to satisfy portfolio
                                                                 company prospectus delivery is
                                                                 relied[dash]upon, required to be available
                                                                 online and delivered (in paper or electronic
                                                                 format) upon request.
----------------------------------------------------------------------------------------------------------------
Portfolio Company Proxy Materials....                         Delivered to all investors.
Transaction Confirmations............                         Delivered to all investors.
Statement of Units and Values........                         Delivered to all investors.
----------------------------------------------------------------------------------------------------------------
* While 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 Commission position these documents need not be updated
  annually, and registrants would not need to make these documents available to investors either online or in
  paper format.
** These 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 933 and accompanying
  text.
*** The financial statements are part of the contract SAI, and rule 498A requires a registrant relying on the
  rule to make the SAI available online. See rule 498A(h)(1); Item 25 of Form N-4; Item 27 of Form N-6. Issuers
  providing modernized alternative disclosures under the Commission position will file financial statements
  separately on EDGAR.
**** Delivery of portfolio company shareholder reports may be made pursuant to rule 30e-3, which provides an
  optional method to transmit shareholder reports by making such reports and other materials accessible at a
  website address specified in a notice to investors.

b. Notice Document
    As we stated above with regards to the updating summary 
prospectus,\956\ we believe that investors would benefit from a brief 
summary of the changes to their contracts along with certain 
information that we consider most relevant to investors when 
considering additional investment decisions. Thus, the Notice Document 
will include all the same information as an updating summary prospectus 
under rule 498A, and will therefore include, among other things, a 
brief description of certain changes to the contract that occurred 
during the previous year, as well as a Key Information Table and 
Appendix of portfolio companies or investment options.\957\ We believe 
these disclosures will provide more useful information to investors in 
Alternative Disclosure Contracts than the financial statements they 
currently receive. Investors could continue to receive financial 
statements upon request or access them on EDGAR.
---------------------------------------------------------------------------

    \956\ See supra Section II.A.2.
    \957\ The Notice Document would not be deemed a prospectus under 
Section 2(a)(10) of the Securities Act, and therefore it would be 
not subject to liability under Section 12(a)(2) of the Securities 
Act. See Section 12(a)(2) of the Securities Act; see also discussion 
supra note 505. The Notice Document would, however, be subject to 
the general antifraud provisions of the federal securities laws. 
See, e.g., Section 17(a) of the Securities Act; Section 10(b) of the 
Exchange Act; Section 34(b) of the Investment Company Act.
---------------------------------------------------------------------------

c. Option To Provide Modernized Alternative Disclosures
    Some commenters suggested that we grandfather Alternative 
Disclosure Contracts while also facilitating registrants providing 
enhanced disclosures to investors. For example, one commenter suggested 
that we permit registrants operating in a manner consistent with the 
Staff Letters to deliver audited financial statements only upon 
request, and to permit them to rely on the new method of delivering 
portfolio company prospectuses by providing investors the information 
required in the Appendix and posting the portfolio company prospectuses 
and other materials online.\958\
---------------------------------------------------------------------------

    \958\ See, e.g., CAI Comment Letter.
---------------------------------------------------------------------------

    We believe that investors will benefit from these modernized 
alternative disclosures for the same reasons that investors in active 
contracts will benefit when issuers utilize the summary prospectus 
regime available under rule 498A. For example, we believe that 
delivering a Notice Document similar to an updating summary prospectus 
will provide more usable and relevant information to investors than the 
financial statements of the registrant and/or depositor. In particular, 
we believe that providing key information relating to the contract's 
terms, benefits, and risks in a concise and reader-friendly 
presentation, will improve investor understanding of variable 
contracts.
    Additionally, because issuers could experience cost savings by 
providing the modernized alternative disclosures, we expect many 
registrants may adopt this approach. However, we are also

[[Page 26049]]

cognizant that many variable contracts have registration statements 
that have not been updated in many years, or decades, and it may be 
significantly burdensome for these issuers to provide a notice document 
with the same information as the updating summary prospectus. For this 
reason, we are providing issuers the flexibility to provide either set 
of alternative disclosures.
d. Other Considerations for Alternative Disclosure Contracts
    Loss of Status as Eligible Contract. The Commission position will 
not be relevant to any discontinued contract if at any point in the 
future, the discontinued contract does not meet the criteria for being 
an Eligible Contract described above. Therefore, a contract that, for 
example, is subject to material changes, offered to new investors, or 
contemplated to be offered to new investors in the future, would no 
longer be considered an Eligible Contract for purposes of the 
Commission position.
    A number of commenters suggested that we take the position that 
Alternative Disclosure Contracts will not lose their status in the 
event of a material change to the contract.\959\ One commenter asserted 
that not providing this relief would disadvantage insurers that make 
material changes, including those beneficial to investors, and may 
inhibit common corporate transactions involving such contracts.\960\ 
Another commenter suggested we provide a narrow range of conditions 
that would allow those contracts that lost their status to regain 
it.\961\
---------------------------------------------------------------------------

    \959\ See CAI Comment Letter; Lincoln Comment Letter; and 
Brighthouse Comment Letter.
    \960\ See CAI Comment Letter.
    \961\ See Transamerica Comment Letter.
---------------------------------------------------------------------------

    As discussed above, we generally believe that all variable contract 
issuers should provide investors the same information and be subject to 
the same liability standards. Considering a contract to continue to be 
an Eligible Contract in instances where the contract does not meet the 
criteria for being an Eligible Contract would not be consistent with 
these objectives. However, certain corporate transactions (such as 
insurance company or separate account merger) where a contract was an 
Eligible Contract prior to the transaction and there are no other 
material changes to the contract will be considered on a case-by-case 
basis.
    Transition Date for Eligible Contracts under Commission Position. 
The Commission proposed that the position with respect to Alternative 
Disclosure Contracts and/or any final rules associated with 
discontinued contracts would start as of the effective date of rule 
498A. We requested comment on whether the Commission should adopt a 
transition period after that time for its position with respect to 
Alternative Disclosure Contracts if a summary prospectus framework is 
adopted.
    Several commenters urged that we grandfather not as of the 
effective date of the final rule, as proposed, but as of the May 1 
following the effective date, or if the effective date was less than 6 
months prior to that May 1, then as of the subsequent May 1.\962\ One 
commenter asserted that using May 1 as a cut-off date would avoid 
ambiguity over whether a contract that could operate in a manner 
consistent with the Staff Letters has actually operated as such, since 
May 1 coincides with the annual update of the registration 
statement.\963\ The same commenter also believed that a transition 
would provide insurers with meaningful time to react to any Commission 
action and develop business plans accordingly.\964\
---------------------------------------------------------------------------

    \962\ See CAI Comment Letter. See also Transamerica Comment 
Letter (proposing a cut-off date of May 1 following the 
effectiveness of the rule) and Lincoln Comment Letter (proposing the 
same unless the effective date falls between January 1 and April 30, 
in which case the cut-off should occur the following May 1).
    \963\ See CAI Comment Letter.
    \964\ Id. See also Lincoln Comment Letter.
---------------------------------------------------------------------------

    We decline to provide a transition period for Alternative 
Disclosure Contracts beyond July 1, 2020. As discussed below, the 
effective date of the rule and form amendments is also July 1, 
2020.\965\ We believe that having the same date for the end of the 
transition period for Alternative Disclosure Contracts and the start of 
the summary prospectus framework will provide more regulatory 
consistency and certainty than a regime where dates differ. In 
addition, we believe that the July 1, 2020 date addresses concerns as 
to ambiguity and sufficient time for insurers to develop business plans 
in response to the adoption of the Commission position. Insurers by 
that date will have already made a determination whether a contract 
could operate in a manner consistent with the Staff Letters as part of 
their 2020 annual update of their registration statements. As to all 
other contracts, insurers will have a period of time to modify their 
business plans to reflect the new framework prior to their 2021 annual 
registration statement updates.
---------------------------------------------------------------------------

    \965\ See infra Section II.G.
---------------------------------------------------------------------------

4. Commission Declines To Adopt Going-Forward Relief
    We are declining to adopt any form of going-forward relief for 
discontinued contracts at this time. A number of commenters urged the 
Commission to provide some form of going-forward relief for these 
contracts in the event the Staff Letters are withdrawn.\966\
---------------------------------------------------------------------------

    \966\ See, e.g., CAI Comment Letter; Lincoln Comment Letter; 
Ameritas Comment Letter; Transamerica Comment Letter; Brighthouse 
Comment Letter; ACLI Comment Letter.
---------------------------------------------------------------------------

    We received considerable support from commenters for Approach 
1,\967\ which would adopt final rules reflecting practices under the 
Staff Letters with certain modifications.\968\ For example, one 
commenter noted that Approach 1 would facilitate the disclosure of 
useful information to investors,\969\ while another noted its 
substantial similarity to the approach available under the Staff 
Letters meant it would be less disruptive to its variable contract 
business than other alternatives.\970\
---------------------------------------------------------------------------

    \967\ See note 939 supra for a description of the alternative 
approaches.
    \968\ See, e.g., CAI Comment Letter; Transamerica Comment 
Letter; ACLI Comment Letter; IRI Comment Letter I.
    \969\ See ACLI Comment Letter.
    \970\ See Transamerica Comment Letter.
---------------------------------------------------------------------------

    While we considered these comments, we note that Approach 1 would 
not require registrants to maintain a current registration statement 
and therefore the liability provisions available under the federal 
securities laws would not apply to Approach 1 to the same extent as 
under the current variable contract prospectus delivery regime and 
under the summary prospectus regime for registrants that choose to rely 
on rule 498A. We believe it is important for investors to retain these 
liability protections and decline to adopt a form of going-forward 
relief at this time.
    We received one comment supporting Approach 2,\971\ which would 
permit registration statements for discontinued contracts to be updated 
by forward incorporation by reference. Another commenter stated it 
could support Approach 2 as preferable to having no form of going-
forward relief at all, but had concerns regarding the costs to maintain 
an updated registration statement and post updated statutory 
prospectuses and SAIs online.\972\ This commenter also believed the 
incremental increases in investor protection may not justify the 
additional burdens on issuers. Another commenter cited increased 
regulatory and

[[Page 26050]]

administrative burdens on issuers under Approach 2.
---------------------------------------------------------------------------

    \971\ See VIP Working Group Comment Letter.
    \972\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we are also declining to adopt 
going-forward relief under Approach 2. We believe that the Commission 
and its staff would benefit from further study and data regarding the 
potential cost savings and other burden reductions under this approach. 
We welcome input from the public as we undertake this further study. In 
particular, the Commission and its staff would benefit from input on 
topics including (1) the internal and external costs and other burdens 
associated with maintaining a registration statement under the summary 
prospectus framework versus those associated with providing the 
Alternative Disclosures or the modernized alternative disclosures under 
the Commission position (particularly any specific items that parties 
believe create inordinate burdens), and, if interested parties would 
recommend any alternative approach that may reduce those burdens 
relative to the adopted summary prospectus framework, (2) 
recommendations as to the set of proposed rules and general framework 
that implement the recommendation and an analysis of how the 
recommendation would retain investor protections. We encourage 
interested parties to share their views by contacting staff in the 
Division of Investment Management.

F. Technical and Conforming Amendments to Other Aspects of the 
Regulatory Framework for Variable Contracts

Conforming Amendments To Reflect Rule 498A, the Commission Position and 
Amended Registration Forms
    We are adopting, as proposed, conforming amendments to various 
cross-references in our rules to reflect rule 498A, and the amendments 
to Forms N-3, N-4, and N-6. These cross-references are reflected in our 
amendments to: Rules 159A, 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 are also adopting an amendment to rule 496 
under the Securities Act acknowledging the Commission position 
regarding certain discontinued contracts, as discussed in Section II.E.
Rescission of Form N-1
    We are rescinding, as proposed, Form N-1 under the Securities Act 
and the Investment Company Act. We received no comments on this aspect 
of the proposal. 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.\973\ 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.\974\ As a result, only an open-end management investment 
company that is a separate account of an insurance company offering 
variable life insurance contracts would use Form N-1.\975\ 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 and we are 
therefore rescinding the form.\976\
---------------------------------------------------------------------------

    \973\ Form N-1 Amendments, Investment Company Act Release No. 
14084 (Aug. 7, 1984) [49 FR 32058 (Aug. 10, 1984)].
    \974\ Forms N-3 and N-4 Adopting Release, supra note 29, at text 
accompanying n.51.
    \975\ When 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 29, at text accompanying 
n.51. The Commission is not aware of any such variable annuity 
registrants that continue to use Form N-1.
    \976\ Based on a review of EDGAR filings, it appears that Form 
N-1 has not been used in more than 20 years. See Proposing Release, 
supra note 6, at n.629.
---------------------------------------------------------------------------

Technical Amendments to, and Rescission of, Certain Rules and Forms 
Governing Variable Life Insurance Contracts and Variable Annuity 
Contracts
    We are adopting, generally as proposed, certain technical 
amendments to rules relating to variable life insurance contracts. As 
noted in the Proposing Release, the detailed regulation of sales loads 
and other fees and charges required by Sections 26 and 27 of the 
Investment Company Act no longer applies to variable insurance 
contracts as a consequence of the amendments to those sections enacted 
by the National Securities Market Improvement Act of 1996 
(``NSMIA'').\977\ In lieu of these detailed provisions, NSMIA 
instituted a requirement that all charges on variable insurance 
contracts, including sales charges, be reasonable ``in the aggregate.'' 
\978\
---------------------------------------------------------------------------

    \977\ See Proposing Release, supra note 6, at Section II.F; see 
also National Securities Market Improvement Act of 1996 (Pub. L. 
104-290, 110 Stat. 3416 (1996).
    \978\ See Section 26(f)(2) of the Act (requiring that all such 
fees and charges ``in the aggregate [be] reasonable in relation to 
the services rendered, the expenses expected to be incurred and the 
risks assumed by the insurance company . . .'').
---------------------------------------------------------------------------

    The amendments we adopt in this document remove the rate regulatory 
provisions in rules 6e-2 and 6e-3 (former rule 6e-3(T)) under the 
Investment Company Act relating to variable life insurance contracts, 
and make conforming changes to other related rules and forms.\979\ In 
addition, these amendments remove certain minimum capital requirements 
from Commission rules that insurers must satisfy for those insurers' 
separate accounts to qualify for exemptions from the capital 
requirements of Section 14(a) of the Investment Company Act.\980\ The 
minimum capital requirements in those rules (i.e., that an insurer have 
a minimum combined capital and surplus, if a stock company, or an 
unassigned surplus, if a mutual company, of not less than $1,000,000) 
are no longer necessary because NSMIA amended Section 26 of the 
Investment Company Act to require that any insurer serving as a 
variable life or variable annuity separate account depositor have at 
least that level of combined capital and surplus or unassigned surplus, 
as applicable.\981\
---------------------------------------------------------------------------

    \979\ These rules include rules 0-1, 6c-7, 6c-8, 26a-1, and 27i-
1 (former rule 27c-1) under the Investment Company Act. As part of 
these technical amendments, we are also rescinding rules 26a-2, 27a-
1, 27a-2, 27a-3, 27d-2, 27g-1, and 27h-1 under the Investment 
Company Act, and Forms N-27I-1 and N-27I-2 under the Investment 
Company Act. Former rule 27c-1, relating to the redeemability of 
variable contracts, has been 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. 
Additionally, the proposal inadvertently omitted the elimination of 
the provision in rule 11a-2 under the Investment Company Act that 
specifies a numerical limit on the aggregate of deferred sales loads 
applicable to the exchanged and acquired contracts involved in an 
exchange. Therefore, for consistency with the other conforming 
amendments that were proposed, we are also rescinding paragraph 
(d)(2) of rule 11a-2. Finally, we are also amending rule 0-1 to 
correct an outdated reference to 17 CFR 270.22d-3 (rule 22d-3), 
which has since been renamed as 17 CFR 270.22d-2 (rule 22d-2).
    \980\ The provisions affected are (1) renumbered paragraphs 
(b)(5) and (b)(14)(v) of rule 6e-2; (2) renumbered paragraphs (b)(6) 
and (b)(15)(iv) of renamed rule 6e-3; and (3) rule 14a-2(a).
    \981\ See Section 26(f)(2)(B) of the Investment Company Act.
---------------------------------------------------------------------------

    We received three comments on these proposals \982\ and, with one 
exception, the commenters supported the proposed amendments. One 
commenter objected to removing numerical load limits that are currently 
in place in two related rules, rules 6c-8 and 11a-2 under the 
Investment Company Act.\983\ Rule 6c-8, among other things, provides an

[[Page 26051]]

exemption from the redeemability requirements for sales charges 
deducted upon redemption or annuitization of all or a part of a 
variable annuity owner's interest in a registered separate account, by 
imposing a numerical limit on those charges.\984\ Rule 11a-2 allows a 
separate account depositor to offer an exchange of variable annuity 
contracts to an investor owning a variable annuity issued by an account 
of the depositor without prior Commission review otherwise required by 
Section 11 of the Investment Company Act, but imposes sales load limits 
on both the acquired and exchanged contracts.\985\
---------------------------------------------------------------------------

    \982\ See VIP Working Group Comment Letter; CAI Comment Letter; 
and IRI Comment Letter I.
    \983\ See VIP Working Group Comment Letter.
    \984\ See rule 6c-8(b)(1) (limiting the amount of sales load 
deducted upon redemption, when added to any sales load previously 
paid to nine percent of the purchase payments made to date).
    \985\ See rule 11a-2(c)(2) (limiting the amount of front-end 
sales charges imposed on the exchanged and acquired contracts 
together to no more than nine percent), and rule 11a-2(d)(2) 
(limiting the sales charges imposed on the exchanged and acquired 
contracts together that are deducted upon redemption to no more than 
nine percent).
---------------------------------------------------------------------------

    This commenter asserted that NSMIA did not expressly touch on these 
provisions and that the limits in these rules are necessary to prevent 
excessive sales loads being imposed on the contracts.\986\ On this 
point, we agree that the requirement in Section 27 that these 
securities be redeemable was not removed by NSMIA, and rule 6c-8 
includes the redeemability requirement of Section 27 as one of the 
provisions from which the rule provides an exemption if the conditions 
specified in the rule, including sales charge limitations, are 
satisfied.
---------------------------------------------------------------------------

    \986\ See VIP Working Group Comment Letter.
---------------------------------------------------------------------------

    However, we decline to adopt the commenter's suggestion to retain 
the numerical sales load limits in rules 6c-8 and 11a-2. In the 
proposing releases for both rule 6c-8 and rule 11a-2, the Commission 
made clear that each of the rule limitations on sales charges is 
imposed as an ``analogue'' to the detailed rate regulation provisions 
in Sections 26 and 27 of the Investment Company Act--provisions that 
NSMIA subsequently made inapplicable to these contracts.\987\ 
Therefore, with the enactment of the ``reasonableness in the 
aggregate'' standard for sales charges (considered together with all 
other contract fees and charges),\988\ the numerical sales load limits 
in rules 6c-8 and 11a-2 were rendered moot and we are removing such 
limits as proposed.
---------------------------------------------------------------------------

    \987\ See Exemptive Relief For Separate Accounts to Impose A 
Deferred Sales Load On Variable Annuity Contracts Participating in 
Such Accounts and to Deduct from Such Contracts in Certain Instances 
an Annual Fee for Administrative Services That is Not Prorated, 
Investment Company Act Release No. 13048 (Feb. 28, 1983) [48 FR 
9532, 9534 (Mar. 7, 1983)] (noting that the limitation on variable 
annuity deferred sales loads in rule 6c-8 being proposed in the 
release was ``analogous to the [numerical load limitation] 
requirement in Section 27(a)(1)'' of the Investment Company Act). 
See also Exchange Offers By Certain Registered Separate Accounts Or 
Others The Terms of Which Do Not Require Prior Commission Approval, 
Investment Company Act Release No. 12675 (Sept. 20, 1982) [47 FR 
42374 (Sept. 27, 1982)] (noting that the front-end load limit in 
paragraph (c)(2) of rule 11a-2 being proposed in the release was 
``analogous to the [numerical load limitation] requirement in 
Section 27(a)(1)'' of the Investment Company Act, and that the 
numerical load limitation requirement on deferred sales loads in 
paragraph (d)(2) of the rule was ``similar in theory to paragraph 
(c)(2)'').
    \988\ Each registration statement for a variable contract must 
contain the representation that the fees and charges deducted under 
the contract satisfy this standard. See Section 26(f)(2)(A) of the 
Investment Company Act. Form N-6 was adopted after NSMIA was enacted 
and incorporates this requirement. See Form N-6, Item 36. Although 
Forms N-3 and N-4 were adopted before NSMIA was enacted, registrants 
have been providing the required fee representation, pursuant to a 
staff statement published in 1996, together with the undertakings 
required by Part C of each form. See Letter to Registrants from 
Susan Nash, Assistant Director, Division of Investment Management, 
SEC (Nov. 7, 1996). These forms are being amended to explicitly 
incorporate the fee representation requirement. See supra note 872 
and accompanying text.
---------------------------------------------------------------------------

    We are mindful of the regulatory concerns behind each of these 
rules, which have remained following the enactment of NSMIA, but we do 
not believe that it is necessary to retain specific numerical limits to 
address those concerns. With respect to rule 6c-8, we acknowledge the 
possibility that sales charges imposed upon redemption of variable 
contracts could raise an issue as to whether such charges present an 
undue burden on the contract's redeemability. In this regard, we affirm 
the position taken by the Commission in adopting rule 6c-8 that the 
rule provides no relief ``where the facts and circumstances indicate 
the deduction [for a deferred sales load] is not intended to compensate 
the issuer for [distribution] expenses.'' \989\ With respect to rule 
11a-2, we note that the other protections contained in the rule against 
the potential for abuse in variable annuity exchanges remain in place. 
For example, the amended rule retains the provision that a separate 
account depositor offering an exchange of variable annuity contracts 
must give credit for any deferred sales loads paid on the original 
variable annuity contract when calculating a deferred sales load on the 
newly purchased variable annuity contract.\990\
---------------------------------------------------------------------------

    \989\ See Exemptive Relief for Separate Accounts To Impose A 
Deferred Sales Load And To Deduct in Certain Instances a Non-
Prorated Annual Fee for Administrative Services, Investment Company 
Act Release No. 13406 (July 28, 1983) [48 FR 36097, 36098 (Aug. 9, 
1983)], at 2. In addition, as noted above, these charges must 
satisfy the ``reasonableness in the aggregate'' standard imposed on 
all charges under a variable insurance contract by Section 
26(f)(2)(A) of the Investment Company Act. Staff will continue 
monitoring charges to guard against each of these concerns.
     Separately, one commenter requested that the redeemability 
relief provided in rule 6c-8(d) for certain administrative charges 
imposed on variable annuity contracts on withdrawal or surrender be 
expanded to include relief for other charges, citing optional 
benefits as an example of those charges. See CAI Comment Letter. 
Because this request raises issues and considerations beyond the 
scope of the technical amendments proposed in light of NSMIA, we 
decline to adopt the requested amendments at this time.
    \990\ See amended rule 11a-2(d).
---------------------------------------------------------------------------

Rescission of Rules 27e-1 and 27f-1 and Related Forms
    We are also rescinding, as proposed, rules 27e-1 and 27f-1 under 
the Investment Company Act and related Forms N-27E-1 and N-27F-1. We 
received no comments on this aspect of the proposal. 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 rescinding these rules and forms because since 2006, 
Section 27(j) of the Investment Company Act has barred new certificate 
issuances,\991\ and notice rights of holders of certificates issued 
before then have expired.
---------------------------------------------------------------------------

    \991\ Section 27(j) was enacted into law by the Military 
Personnel Financial Services Protection Act (Pub. L. 109-290, 120 
Stat. 127) (2006).
---------------------------------------------------------------------------

Technical Amendments to Rule 8b-1
    We are also revising rule 8b-1 under the Investment Company Act to 
remove references to 17 CFR 270.8b-32 (rule 8b-32 under the Investment 
Company Act).\992\ Rule 8b-32 was recently rescinded in a separate 
rulemaking pursuant to the Commission's implementation of the FAST 
Act.\993\
---------------------------------------------------------------------------

    \992\ See amended rule 8b-1.
    \993\ See FAST Act Adopting Release, supra note 501.
---------------------------------------------------------------------------

G. Compliance Dates

    To provide a transition period after the effective date of the 
amendments to give registrants sufficient time to update their 
prospectuses and to prepare new registration statements under the 
amendments, the Commission is adopting the following compliance and 
other dates:

[[Page 26052]]



July 1, 2020......................  A registrant can rely on rule 498A
                                     to satisfy its obligations to
                                     deliver a variable contract's
                                     statutory prospectus by delivering
                                     a summary prospectus if the
                                     registrant is also in compliance
                                     with the amendments to Forms
                                     N[dash]3, N[dash]4, or N[dash]6 (as
                                     applicable).
                                    The Staff Letters will be withdrawn
                                     and the Commission position for
                                     eligible discontinued contracts
                                     will take effect.
January 1, 2022...................  All initial registration statements
                                     on Forms N[dash]3, N[dash]4, and
                                     N[dash]6, and all
                                     post[dash]effective amendments that
                                     are annual updates to effective
                                     registration statements on these
                                     forms, must comply with the rule
                                     and form amendments.
January 1, 2023...................  Registrants must submit to the
                                     Commission certain specified
                                     disclosures in Inline XBRL.
 

Use of Summary Prospectus
    As proposed, a registrant could rely on rule 498A to satisfy its 
obligations to deliver a variable contract's statutory prospectus 
beginning on the effective date of the rule and form amendments (July 
1, 2020) provided that the registrant is also in compliance with the 
amendments to Forms N-3, N-4, or N-6 (as applicable). We believe that 
this date will allow registrants to begin using summary prospectuses in 
advance of the compliance date discussed below, and will provide the 
Commission staff with sufficient time to prepare to review filings 
under the new summary prospectus framework.
    One commenter recommended that like the optional shareholder report 
delivery framework under rule 30e-3, there should be a two-year 
transition period during which investors would be (1) notified of the 
transition from delivery of statutory prospectuses to summary 
prospectuses, and (2) able to choose whether they preferred to receive 
summary prospectuses or statutory prospectuses.\994\ Another commenter 
recommended that advance notice was unnecessary, given that the 
updating summary prospectus would serve as effective notice that the 
type of disclosure document that an investor expects to receive has 
changed.\995\ The commenter further stated that the updating summary 
prospectus would provide information about how the previously provided 
documents may be obtained, and ``a level of information about the 
variable contract that may itself be sufficient for most investors.''
---------------------------------------------------------------------------

    \994\ See Donnelley Financial Comment Letter I.
    \995\ See CAI Comment Letter (noting that under rule 30e-3, ``if 
a notice was not required, an investor would have no indication that 
the method of delivery of the documents he or she expects to receive 
is changing.'').
---------------------------------------------------------------------------

    We decline to build these requirements into the final rule as we 
believe that given the documents at issue (i.e., the prospectus as 
opposed to the shareholder report) and the contents of the documents 
permitted to be transmitted (i.e., a summary prospectus under rule 498A 
versus a notice under rule 30e-3), the more appropriate analogous 
framework is that of the mutual fund summary prospectus. Under that 
framework as well as the variable product summary prospectus framework 
we are adopting in this document, investors receive a summary 
prospectus and can request a print or electronic copy of the current 
statutory prospectus, but investors cannot elect to receive statutory 
prospectuses instead of summary prospectuses.
Compliance With New Form Requirements
    All initial registration statements on Forms N-3, N-4, and N-6, and 
all post-effective amendments that are annual updates to effective 
registration statements on these forms, filed on or after January 1, 
2022 are required to comply with the final rule and form 
amendments.\996\ We believe that this period will give registrants 
sufficient time to update their prospectuses and to prepare new 
registration statements under the amendments.
---------------------------------------------------------------------------

    \996\ As part of the proposal, the Commission proposed an 18-
month compliance period. See Proposing Release, supra note 6, at 
Section II.G. One commenter supported this compliance period. See 
CAI Comment Letter (``the 18-month compliance period for updating 
variable product registration statements is necessary and 
appropriate''). Another commenter, in recommending that the 
Commission mandate use of the summary prospectus, recommended that 
there be a rolling effective date based on the size of the company 
starting 24 months after publication. See AARP Comment Letter.
---------------------------------------------------------------------------

    Although post-effective amendments to existing registration 
statements filed to comply with the amendments to Forms N-3, N-4, and 
N-6 should be filed under Securities Act rule 485(a),\997\ in 
appropriate circumstances, we will consider requests by registrants 
with respect to existing variable contracts to file these post-
effective amendments pursuant to Securities Act rule 
485(b)(1)(vii).\998\ Appropriate circumstances may include, for 
example, situations where a registrant has previously filed under rule 
485(a) post-effective amendments for a number of variable contracts 
that implement the new requirements, and the staff determines not to 
review additional such filings by the registrant in light of the 
staff's experience with the previously filed amendments.
---------------------------------------------------------------------------

    \997\ A post-effective amendment filed under rule 485(a) [17 CFR 
230.485(a)] generally becomes effective either 60 days or 75 days 
after filing, unless the effective date is accelerated by the 
Commission. A post-effective amendment filed under rule 485(b) may 
become effective immediately upon filing. A post-effective amendment 
may be filed under rule 485(b) if it is filed for one or more 
specified purposes, including to make nonmaterial changes to the 
registration statement. A post-effective amendment filed for any 
purpose not specified in rule 485(b) generally must be filed 
pursuant to rule 485(a).
    \998\ Under rule 485(b)(1)(vii), the Commission may approve the 
filing of a post-effective amendment to a registration statement 
under rule 485(b) for a purpose other than those specifically 
enumerated in the rule. The Commission's staff has been delegated 
the authority to approve registrants' requests under rule 
485(b)(1)(vii). 17 CFR 200.30-5(b-3)(1).
---------------------------------------------------------------------------

Inline XBRL
    In a change from the proposal, we are requiring that registrants 
must submit to the Commission certain specified disclosures in Inline 
XBRL in specified filings made on or after January 1, 2023. This will 
provide registrants an additional year after the January 1, 2022 
compliance date when all initial registration statements and post-
effective amendments must comply with the final rule and form 
amendments.
    The Commission proposed to require variable contract registrants to 
submit to the Commission certain specified disclosures using the Inline 
XBRL format within the same 18-month compliance period proposed for 
compliance with the new form requirements. While one commenter urged us 
to move forward expeditiously with the Inline XBRL requirement to 
support informed investment decision-making,\999\ other commenters 
requested that the Inline XBRL compliance date be extended beyond the 
proposed 18-month compliance period to provide sufficient time to adapt 
to the new Inline XBRL requirements.\1000\
---------------------------------------------------------------------------

    \999\ See CFA Comment Letter.
    \1000\ See IRI Comment Letters I and II; XBRL US Comment Letter; 
CAI Comment Letter.
---------------------------------------------------------------------------

    One commenter recommended allowing at least another 12 months after 
the 18-month compliance date for the new form requirements (or 30 
months total) to give filers sufficient time to adapt to the new Inline 
XBRL requirements and to enable the development of vendor systems and 
client self-service tools that can generate Inline XBRL tagged 
documents from the

[[Page 26053]]

document content.\1001\ Another commenter recommended extending the 
Inline XBRL compliance period to 24 months.\1002\ This commenter stated 
that insurers will face greater challenges in making the transition 
than mutual funds because variable contract registrants have never 
filed in XBRL and will need extra time to identify an XBRL preparation 
solution and learn how to accurately tag their reported data. This 
commenter also noted that, unlike mutual funds, some large insurers 
currently use modules under EDGARLink to help prepare registration 
statement filings on EDGAR,\1003\ and stated that because Type 1 and 
type 2 modules are currently only supported by HTML format, while 
filings using Inline XBRL require XHTML format, any future availability 
of modules would require upgrades to EDGAR.\1004\
---------------------------------------------------------------------------

    \1001\ See IRI Comment Letter I (noting that the phased-in 
compliance period for tagging the mutual fund risk/return summary in 
Inline XBRL allowed two years after the effective date of the 
amendments for large fund groups, and three years for small fund 
groups).
    \1002\ See XBRL US Comment Letter.
    \1003\ EDGARLink is an application that is used by electronic 
filers to facilitate the preparation, validation, and transmission 
of electronic format documents to EDGAR. EDGARLink works 
interactively with EDGAR and is accessible on the Commission's 
website. Modules are partial or complete documents that are intended 
to be included in an electronic submission. Insurers commonly use 
type 1 modules for the inclusion of a set of financial statements 
that will be included as part of multiple registration statement 
filings.
    \1004\ On June 10, 2019, EDGAR was upgraded to allow filers to 
reference modules and segments constructed in either ASCII or HTML 
format in their HTML submission documents, including Types 1 and 2. 
See Chapter 5 (Constructing Attached Documents and Document Types), 
Chapter 6 (Interactive Data), and Appendix A (Messages Reported by 
EDGAR) of the EDGAR Filer Manual, Volume II: ``EDGAR Filing.''
---------------------------------------------------------------------------

    A third commenter advocated for a 36-month compliance period, 
consistent with the amount of time small fund groups were given to 
comply with the 2018 Inline XBRL requirements.\1005\ The commenter 
asserted that insurers are similarly situated to, but less prepared 
than, small funds with respect the transition to Inline XBRL. Unlike 
mutual funds and ETFs, insurers have not been required to tag variable 
product registration statements using XBRL, and the greater complexity 
of variable product disclosures could make such documents more 
difficult to tag than fund disclosures.\1006\
---------------------------------------------------------------------------

    \1005\ See CAI Comment Letter; see also Inline XBRL Adopting 
Release, supra note 892.
    \1006\ See CAI Comment Letter.
---------------------------------------------------------------------------

    After considering commenters' suggestions, we are extending the 
proposed compliance period by an additional year. Registrants must 
comply with the Inline XBRL tagging requirements in all required 
filings made on or after January 1, 2023. We believe that this 
compliance date will provide sufficient time for filers, filing agents, 
and software vendors to transition to Inline XBRL.\1007\ We decline to 
extend the compliance period to a 36-month period, as on commenter 
suggested, because due to registrants updating their registration 
statements by May 1 of each year, this would effectively delay the 
compliance period by an additional year until 2024. The extended 
compliance period will also provide time to adopt a new taxonomy, and 
to implement and pilot iXBRL, make any necessary taxonomy or EDGAR 
changes resulting from the pilot, and ensure compatibility of modules 
and iXBRL.
---------------------------------------------------------------------------

    \1007\ Because operating companies and mutual funds must 
transition to Inline XBRL no later than June 2021, we expect that 
many filing agents and software vendors will have already developed 
the Inline XBRL-related expertise necessary to assist variable 
contract registrants with meeting Inline XBRL requirements under the 
final rules.
---------------------------------------------------------------------------

    Similar to our transition approach with requiring Inline XBRL for 
operating companies, mutual funds, and ETFs, variable contract 
registrants will be permitted to file using Inline XBRL prior to the 
compliance date. Filers will be able to file in Inline XBRL once EDGAR 
has been modified to accept submissions in Inline XBRL for all forms 
subject to the amendments. Notice of EDGAR system readiness to accept 
filings in Inline XBRL will be provided in a manner similar to notices 
of taxonomy updates and EDGAR Filer Manual updates. We believe that 
offering filers the option to file using Inline XBRL before the 
compliance date will enable filers that are ready to transition to 
Inline XBRL to begin realizing the benefits of Inline XBRL sooner. It 
will also enable vendors and filing agents used by early Inline XBRL 
adopters to gain valuable expertise that may help facilitate the 
transition to Inline XBRL for variable contract registrants that 
transition to Inline XBRL at a later time.
Commission Position With Respect to Alternative Disclosure Contracts
    Consistent with the proposal, the Staff Letters will be withdrawn 
as of July 1, 2020. Additionally, the Commission is taking a position 
that if an issuer of a contract that is discontinued as of July 1, 2020 
that provides alternative disclosures does not file post-effective 
amendments and does not provide updated prospectuses to existing 
investors, this would not provide a basis for enforcement action so 
long as investors are provided the Alternative Disclosures or 
modernized alternative disclosures) and the registrant meets all 
specified conditions of the Commission position as of July 1, 
2020.\1008\
---------------------------------------------------------------------------

    \1008\ See Section II.E.3.d. above for further discussion of 
this compliance date.
---------------------------------------------------------------------------

III. Other Matters

    Pursuant to the Congressional Review Act,\1009\ the Office of 
Information and Regulatory Affairs has designated this rule a ``major 
rule,'' as defined by 5 U.S.C. 804(2). If any of the provisions of 
these rules, or the application thereof to any person or circumstance, 
is held to be invalid, such invalidity shall not affect other 
provisions or application of such provisions to other persons or 
circumstances that can be given effect without the invalid provision or 
application.
---------------------------------------------------------------------------

    \1009\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

IV. Economic Analysis

    We are mindful of the costs imposed by, and the benefits obtained 
from, our rules. Section 3(f) of the Exchange Act, Section 2(b) of the 
Securities Act, and Section 2(c) of the Investment Company Act state 
that when the Commission is engaging in rulemaking under such titles 
and is required to consider or determine whether the action is 
necessary or appropriate in (or, with respect to the Investment Company 
Act, consistent with) the public interest, the Commission shall 
consider whether the action will promote efficiency, competition, and 
capital formation, in addition to the protection of investors. Further, 
Section 23(a)(2) of the Exchange Act requires the Commission to 
consider, among other matters, the impact such rules would have on 
competition and states that the Commission shall not adopt any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The following 
analysis considers, in detail, the potential economic effects that may 
result from the rule and form amendments, including the benefits and 
costs to investors and other market participants as well as the broader 
implications of the rule for efficiency, competition, and capital 
formation.

A. Introduction

    New rule 498A allows insurers the option to satisfy prospectus 
delivery requirements for variable contracts by providing investors 
with a summary prospectus while making the statutory prospectus and 
other disclosure documents available online. The approach involves the 
use of two types

[[Page 26054]]

of summary prospectus: 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 informed investment 
decisions, 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 format, with access to more detailed information available 
online and electronically or in paper format on request. The new 
disclosure framework permits issuers to satisfy portfolio company 
prospectus delivery obligations by, among other conditions, posting the 
portfolio company summary and statutory prospectus at a website address 
specified on the variable contract summary prospectus.
    The Commission is amending the registration forms for variable 
contracts to update and enhance the disclosure regime for these 
investment products. Additionally, our rule and form amendments require 
registrants to use Inline XBRL for the submission of certain 
disclosures contained in the contract statutory prospectus with the 
Commission with respect to contracts currently offered to new 
investors. We are also taking the position that if an issuer of a 
discontinued contract that is discontinued as of July 1, 2020 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 are 
provided the Alternative Disclosures or certain modernized alternative 
disclosures discussed above.\1010\ Finally, we are also adopting 
certain technical and conforming amendments to our rules and forms, 
including amendments to rules relating to variable life insurance 
contracts, and rescinding certain related rules and forms.\1011\
---------------------------------------------------------------------------

    \1010\ See supra Section II.E.
    \1011\ With respect to those amendments intended to reflect new 
rule 498A and the amendments to the registration forms, we do not 
believe there are any economic effects of these amendments that can 
be separated from the economic effects of amendments to rule 498A 
and the registration forms. In addition, we do not believe there are 
any economic effects of the technical amendments regarding certain 
variable life insurance rules, since market participants have 
already adjusted to the changes enacted by NSMIA that the amendments 
reflect in the rules. Similarly, we do not believe there are any 
economic effects of the rescission of certain rules and forms 
relating to the rights of periodic payment plan certificate holders, 
as the 2006 amendments to Section 27 of the Investment Company Act 
barred new issuances of such certificates; and we believe the notice 
rights of holders of certificates issued before those amendments 
have since expired. For those reasons, the economic effects of these 
technical and conforming amendments are not addressed separately in 
this section.
---------------------------------------------------------------------------

B. Economic Baseline

1. Overview of Variable Products Market
    In 2019 there were a total of 3,534 unique variable products 
offered by 73 insurance companies.\1012\ Total assets were $1,714 
billion \1013\ held in 25.9 million accounts.\1014\ Average contract 
value was $66,400.\1015\ Also in 2019, insurance companies sold 
1,289,500 contracts \1016\ with sales totaling $132.1 billion.\1017\ 
Our understanding is that investors typically purchase variable 
products through various distribution channels.\1018\
---------------------------------------------------------------------------

    \1012\ Based on Form N-CEN reports filed in calendar year 2019. 
The 3,534 variable products consist of 2,491 variable annuity 
products and 1,043 variable life insurance products.
    \1013\ Id. The total assets of $1,714 billion consist of $1,576 
billion of variable annuity assets and $138 billion of variable life 
insurance assets.
    \1014\ Id. The 25.9 million accounts consist of 22.2 million 
variable annuity accounts and 3.7 million variable life insurance 
accounts.
    \1015\ Id. Average contract value for variable annuity products 
and variable life insurance products was $71,100 and $37,800, 
respectively.
    \1016\ Id. The 1,289,500 contracts consisted of 1,189,100 
variable annuity contracts and 100,400 variable life insurance 
accounts.
    \1017\ Id. The $132.1 billion in sales (after rounding) 
consisted of $122.2 billion for variable annuity products and $10.0 
billion for variable life insurance products.
    \1018\ See IRI Fact Book, supra note 7, at 161. For example, in 
2018, investors purchased variable annuities across various 
distribution channels--independent broker-dealers, 23.9 percent of 
total sales; career agents, 20.6 percent; independent agents, 20.2 
percent; banks, 18.9 percent; regional broker-dealers, 9.0 percent; 
full service national broker-dealers, 4.6 percent; and direct 
response 2.8 percent.
---------------------------------------------------------------------------

    A variable contract investor may allocate his or her contract 
purchase payments to a range of options offered through an insurance 
company's separate account.\1019\ Separate accounts may be registered 
as management companies or UITs. As of 2019, there were five separate 
accounts registered as management companies and 670 structured as 
UITs.\1020\
---------------------------------------------------------------------------

    \1019\ Id. at 167. In 2018, the average number of portfolio 
companies per registered variable annuity contract was 60.
    \1020\ Based on Form N-CEN reports filed in 2019. Of the 670 
separate accounts organized as UITs, 426 were variable annuity 
separate accounts and 246 were variable life separate accounts. This 
information is based on registration statement filings on Form N-3, 
Form N-4, and Form N-6 with the Commission.
---------------------------------------------------------------------------

    Eighty-six percent of individual annuity investors purchased their 
first annuity before age 65, including 47 percent who were between the 
ages of 50 and 64 years old.\1021\ The average age of investors at 
first purchase of an annuity is 51.\1022\ The average current age of 
annuity investors is 70.\1023\ Eighty percent of individual annuity 
investor households have incomes under $100,000.\1024\ Sixty percent of 
household incomes are below $75,000, and 35 percent are below 
$50,000.\1025\
---------------------------------------------------------------------------

    \1021\ Gallup Survey, supra note 7, at 8.
    \1022\ Id.
    \1023\ Id.
    \1024\ Id. at 8 and 9.
    \1025\ Id. at 9. According the U.S. Census Bureau, in 2018 70 
percent of households had incomes of less than $100,000, 57 percent 
had incomes of less than $75,000, and 40 percent had incomes of less 
than $50,000. See U.S. Census Bureau, U.S. Income and Poverty in the 
United States: 2018 (Sept. 2019), available at https://www.census.gov/data/tables/2019/demo/income-poverty/p60-266.html.
---------------------------------------------------------------------------

2. Statutory and Regulatory Disclosure Requirements
    Currently, the default method for delivering the variable contract 
prospectus and the underlying portfolio company prospectuses is 
printing and mailing paper copies of the documents to investors. While 
the costs of providing paper copies of variable contract prospectuses 
are borne by the insurer, the allocation of the costs of printing and 
mailing the portfolio company prospectuses depends on the terms of the 
participation agreement between the insurance company and the portfolio 
company.\1026\ We understand that most insurers also offer investors 
the option to elect to receive the variable contract prospectus and 
portfolio company prospectuses electronically. Investors who have opted 
for electronic delivery of prospectuses typically receive an email from 
the insurer containing a link to a website where the materials are 
available.
---------------------------------------------------------------------------

    \1026\ We expect that costs borne by insurers and portfolio 
companies in supplying variable contracts to the market will 
ultimately be borne by contract investors through the fees that 
investors pay.
---------------------------------------------------------------------------

    Because insurers are not required to report investors' delivery 
elections to the Commission, we lack verifiable data on the percentage 
of variable contract prospectuses that are currently delivered 
electronically. In a 2016 letter to the Commission, one commenter 
estimated based on a survey of insurers conducted in 2015 that, 
generally, less than 15 percent of contract owners have affirmatively 
consented to electronic delivery.\1027\ Another industry source 
estimated in a 2016 report that approximately five percent of annuity 
investors had opted for electronic delivery at that time.\1028\ Based 
on these

[[Page 26055]]

estimates, and with consideration for the general increase in 
electronic delivery rates over time demonstrated in other investment 
products,\1029\ we estimate that currently 15 percent of variable 
contract statutory prospectuses and portfolio company summary 
prospectuses are delivered electronically.\1030\
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    \1027\ Comment Letter of the Committee of Annuity Insurers on 
Proposed Rule 30e-3 (July 22, 2016), available at https://www.sec.gov/comments/s7-08-15/s70815-612.pdf.
    \1028\ See Broadridge, Digital Transformation of Insurance 
Communications (2016), available at https://www.broadridge.com/_assets/pdf/digital-transformation-ins-comm.pdf.
    \1029\ See, e.g., Memorandum from the Division of Investment 
Management re: Meeting with Broadridge (Sept. 27, 2017) (including 
attachments thereto containing the survey data presented), available 
at https://www.sec.gov/comments/s7-08-15/s70815-2604201-161127.pdf 
(demonstrating increasing rates of electronic delivery in investment 
company fund reports).
    \1030\ We understand that variable contract investors typically 
make a single delivery method election that applies to both the 
variable contract statutory prospectus and the portfolio company 
prospectuses.
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    As discussed in Section II.E above, Commission staff has issued a 
series of no-action letters, referred to in this release as the ``Staff 
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 distributing certain 
alternative disclosures to investors. We estimate that as of the end of 
calendar year 2019, approximately 13 percent of existing variable 
annuity contracts and 49 percent of variable life contracts were 
Alternative Disclosure Contracts.\1031\
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    \1031\ Of the 1,061 Form N-4 variable annuity registration 
statements on file, 584 registration statements appear to be for 
Alternative Disclosure Contracts. Of the 584, there are four Staff 
Letters concerning contracts where the number of contract owners 
exceeds 5,000. As a result, we estimate that these 580 registration 
statements represent a maximum of 2.9 million investors. Staff 
estimates that the remaining four registration statements represent 
at most 90,542 investors. See supra note 930. As a result, we 
estimate that up to 2.99 million (= 90,542 + (580 * 5,000)) 
investors may hold Alternative Disclosure Contracts (13 percent of 
the total number of contracts = 2.99 million/22.2 million). Of the 
583 variable life registration statements on file, 360 registration 
statements appear to be for Alternative Disclosure Contracts. We 
estimate that these registration statements represent at most 1.8 
million (= 360 * 5,000) contracts, or 49 percent (= 1.8 million/3.7 
million) of the total number of contracts.
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C. Benefits and Costs of the Rule and Form Amendments

    Where possible, we have attempted to quantify the costs, benefits, 
and effects on efficiency, competition, and capital formation expected 
to result from the rule and form amendments. In some cases, however, we 
are unable to quantify the economic effects because we lack the 
information necessary to provide a reasonable and reliable estimate. 
For example, because summary prospectuses offer a less lengthy, less 
complex disclosure alternative compared to statutory prospectuses, we 
expect that readership of variable contract disclosure would increase. 
We do not have data on the extent to which the use of summary 
prospectuses enhances readership compared to a scenario in which 
variable contract investors were only to receive a statutory prospectus 
and not a summary prospectus.\1032\ Similarly, summary prospectuses 
could reduce the amount of time and effort investors require making an 
investment decision. Also, summary prospectuses could facilitate 
investor comparison of different variable product contracts. We do not 
have data on the extent to which variable contract summary prospectuses 
would reduce the amount of time and effort investors require to make an 
investment decision or to compare different variable product contracts, 
or the value of that time and effort to investors.\1033\ In those 
circumstances in which we do not have the requisite data to assess the 
impact of the rule and form amendments quantitatively, we have 
qualitatively analyzed the economic impact of the rule and form 
amendments.
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    \1032\ Prior to the Commission's 2009 adoption of mutual fund 
summary prospectus rules, 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. During this process, 
investors participating in focus groups were asked questions about a 
hypothetical summary prospectus. Investors participating in the 
telephone survey were asked questions relating to several disclosure 
documents, including mutual fund prospectuses. See Abt SRBI, Inc., 
Final Report: Focus Groups on a Summary Mutual Fund Prospectus (May 
2008), available at https://www.sec.gov/comments/s7-28-07/s72807-142.pdf. Although the results from the investor testing reflect 
stated investor preferences, they do not provide us with information 
with respect to the extent to which variable contract investors will 
actually be more likely to read a variable contract summary 
prospectus relative to a statutory prospectus.
    \1033\ Id. The survey results do not provide data on the extent 
to which a variable contract summary prospectus will actually reduce 
the amount of time and effort required to make an investment 
decision using summary prospectuses rather than statutory 
prospectuses.
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    Direct costs incurred by insurers discussed below may, to some 
extent, be absorbed by the insurance company or be passed on to 
investors in the form of increased fees. The share of these costs borne 
by insurers and investors depends on multiple factors, including the 
nature of competition among insurers and investors' relative 
sensitivity to changes in fees.
1. Optional Summary Prospectus Regime
    New rule 498A creates a choice for insurers. Insurers may continue 
to meet their prospectus delivery obligations by providing the 
statutory prospectus, or they may satisfy these obligations by 
providing a summary prospectus and making the statutory prospectus and 
other required documents available online. Those insurers that expect 
to benefit by providing summary prospectuses will choose to rely on the 
rule to meet their prospectus delivery obligations.\1034\ Those 
insurers that do not expect to benefit from this optional prospectus 
delivery regime will choose to continue to provide statutory 
prospectuses to investors.\1035\
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    \1034\ If the expected costs of using summary prospectuses 
exceed the expected benefits of doing so, insurers could simply 
choose to maintain the status quo and continue to deliver statutory 
prospectuses to investors.
    \1035\ Insurers that do not use summary prospectuses could be at 
a competitive disadvantage if investors choose variable products 
based on a preference for summary prospectuses, either because 
investors prefer summary prospectuses or because insurers that use 
summary prospectuses have lower expenses due to savings of printing 
and mailing costs. We expect that insurers will take any such 
competitive effects into account when assessing the costs of using 
summary prospectuses.
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    Insurers' choices of delivery methods will not reduce the 
information available to investors. If insurers choose to meet their 
prospectus delivery obligations by delivering summary prospectuses to 
investors, with other documents available online, investors will have a 
choice. Under the rule's layered disclosure framework, investors will 
receive information in the form of a summary prospectus, with more 
detailed information available online if the investor chooses to access 
it. Thus, investors can choose to continue to review the statutory 
prospectuses by accessing them online, or they may request paper or 
electronic delivery of statutory prospectuses on an ad hoc basis. 
Alternatively, investors may choose only to consult the summary 
prospectuses. Further, if investors want to rely on some combination of 
summary and statutory prospectuses to receive information about the 
contract, that choice is available to them as well.
    We expect a vast majority of insurers will choose to use summary 
prospectuses. Thus, we expect that the vast majority of investors will 
have the option to use both summary prospectuses and statutory 
prospectuses in their decision-making, in whatever proportion investors 
think is best for their preferences. We discuss below the benefits and 
costs to both investors and

[[Page 26056]]

insurers of the new options presented by the contract summary 
prospectus regime and associated new optional delivery method for 
portfolio company prospectuses.
a. Benefits and Costs for Investors
i. Summary Prospectus for Variable Contracts
(a) Benefits
(1) Initial Summary Prospectus
    Should insurers choose to use summary prospectuses, investors may 
benefit in a number of ways.\1036\ Variable contract prospectuses 
(particularly those that include optional benefits) are typically 
lengthy and complex,\1037\ and they also may describe different 
versions of the contract in one prospectus, some of which may no longer 
be available to new investors. In addition, investors generally 
allocate their purchase payments to one or more portfolio companies, 
each of which also has its own prospectus. Because industry practice is 
to bundle all portfolio company prospectuses with the variable contract 
prospectus, the disclosure documents that are delivered to investors at 
purchase and on an annual basis can be voluminous.
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    \1036\ Some investors may prefer to read statutory prospectuses, 
and therefore, the advantages associated with summary disclosure, as 
described in this section, may not apply to those investors. Because 
the statutory prospectus will, under the rule, be available online 
and in paper or electronic format upon request, we recognize that 
the need to take additional action to review a statutory prospectus 
imposes some costs for these investors, which are discussed below.
    \1037\ One commenter stated that variable annuity contracts are 
among the most complex investment products sold. The commenter also 
analyzed variable annuity contracts in terms of reading level 
assessment and stated that variable annuity contracts are written in 
language that requires an advanced degree or at least a college 
level of comprehension. See Cardozo Clinic Comment Letter.
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    We believe investors will benefit from the simplification of 
disclosure associated with initial summary prospectuses.\1038\ We 
understand that contract statutory prospectuses may 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 no-longer-offered features and options of a 
single contract, creates complexity that may make it more difficult for 
investors to distinguish between contract features and options that 
apply to them and those that do not.\1039\
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    \1038\ One commenter, citing academic research, stated that to 
the extent summary disclosure reduces information overload, it 
could, in turn, increase financial literacy. See ACLI Comment 
Letter; Julie Agnew & Lisa Szykman, Annuities, Financial Literacy 
and Information Overload (Pension Research Council WP 2010-33, Nov. 
11, 2010) available at https://ssrn.com/abstract=1707659. Three 
commenters were skeptical that certain aspects of the proposed 
initial summary prospectus would result in better investor 
comprehension of how a variable contract works, and recommended that 
we engage in investor testing to validate our assumptions. See supra 
note 38.
    \1039\ Existing research notes that individuals bear costs in 
absorbing information and that the ability of individuals to process 
information is not unbounded. See Richard Nisbett & Lee Ross, HUMAN 
INFERENCE: STRATEGIES AND SHORTCOMINGS OF SOCIAL JUDGMENT (1980); 
David Hirshleifer & Siew Hong Teoh, Limited Attention, Information 
Disclosure, and Financial Reporting, 36 J. ACCT. & ECON. 337 (2003).
---------------------------------------------------------------------------

    For example, a separate account could offer different contracts 
over time, but with the contracts having substantially similar names. 
Likewise, separate accounts could offer different contracts at a single 
point in time, but with the contracts also having substantially similar 
names. Thus, contract investors reviewing lengthy statutory 
prospectuses may find it difficult, confusing, and time-consuming to 
identify disclosures related to contract terms and features that are 
relevant to their investments. These characteristics of existing 
variable contract statutory prospectuses could result in a risk of 
inefficient allocation of funds among portfolio companies in variable 
contracts or inefficient matching of investors to variable contracts. 
Incomplete information about the variable contracts made available to 
investors may cause them to over- or underinvest in variable contracts 
or to misallocate parts of their investment portfolio held outside of 
variable contracts.
    Whereas statutory prospectuses may describe contracts and features 
no longer offered to new investors in addition to contracts currently 
offered to investors, the new initial summary prospectus is limited to 
describing only the contract and features currently available under the 
statutory prospectus. We believe this narrower focus will facilitate 
investors' understanding of their variable contract's features and 
risks and make these features and risks more salient. In reviewing the 
more targeted information in the initial summary prospectus, investors 
will be able to more easily and more efficiently understand the product 
they are investing in, leading to more informed investment choices. We 
believe the concise content provided in the initial summary prospectus, 
presented in a standardized manner, will also facilitate investors' 
comparison of contracts at the time of investment and re-evaluation of 
contracts during the free look period.\1040\ This could reduce the risk 
of investors selecting variable contracts that do not align with their 
needs or inefficient matching of investors to variable contracts.
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    \1040\ One commenter stated that the proposed summary prospectus 
requires too high a level of comprehension. Their analysis of the 
proposed initial summary prospectus concluded that it would require 
a college level of comprehension to understand. See Cardozo Clinic 
Comment Letter. We drew on our investor testing efforts in 
developing the summary prospectus framework and believe the adopted 
summary prospectus framework will help investors make an informed 
investment decision. Also, one commenter, citing academic research, 
questioned the relevance of the free look period to decision making, 
stating that choice-supportive bias is likely to cause consumers to 
ascribe benefits to their purchases in order to confirm that they 
made the right decision, and that this tendency increases with age. 
See CFA Comment Letter; Mara Maher & Marci Johnson, Choice-
Supportive Source Monitoring: Do Our Decisions Seem Better to Us as 
We Age?, 15 Psychol. & Aging 596 (2000). We acknowledge that certain 
investors may not re-evaluate contracts during the free look period, 
but for those investors that do, we believe the concise content 
provided in the initial summary prospectus will facilitate their re-
examination of the contract.
---------------------------------------------------------------------------

    To facilitate investor understanding and investor comparison of 
contract, the initial summary prospectus is designed to provide 
investors with key information relating to the contract's terms, 
benefits, and risks. The Key Information Table includes aspects of 
variable contracts that investors have most frequently stated that they 
failed to fully understand according to the complaints database 
maintained by the Commission's Office of Investor Education and 
Advocacy,\1041\ including: (1) Risk of loss of principal and/or lack of 
guarantees of income; (2) fees, including surrender charges; (3) 
illiquidity prior to the pay-out period; (4) tax consequences; (5) 
death benefits; and (6) conflicts of interest.\1042\ The overview 
describes the parties to the contract (the issuer and investor), and 
provides readers with basic information about the purpose of the 
contract, phases of the contract (for variable annuity contracts), 
premiums (for variable life insurance contracts), and contract 
features. We are also requiring registrants to summarize standard and 
optional benefits available to the investor under the contract.
---------------------------------------------------------------------------

    \1041\ See supra note 108.
    \1042\ See supra Section II.A.1.c.ii.(a).
---------------------------------------------------------------------------

    Later sections of the initial summary prospectus provide investors 
more detailed information about the cash flows related to contract 
purchase. One section provides information about cash flows to the 
insurer, such as initial and subsequent purchase and premium payments. 
Other sections discuss cash flows investors can expect to receive, such 
as death benefits and other

[[Page 26057]]

benefits. The initial summary prospectus for variable life insurance 
contracts also includes a section on how a contract could lapse, and 
thereby reduce payouts to investors. Also, a section on withdrawal and 
surrenders discusses how accessing the money in a variable contract 
early affects the payouts that an investor should expect to receive.
    Initial summary prospectuses also include additional information 
about 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. Finally, initial summary 
prospectuses include an appendix that provides summary information in a 
tabular form about the portfolio companies or investment options 
offered under the contract.
    In addition, given the time required to review a statutory 
prospectus, investors may benefit from summary prospectuses because 
they offer a shorter alternative to statutory prospectus disclosure. 
Indeed, there is evidence that suggests that consumers benefit from 
summary disclosures.\1043\ Within the specific context of investing, 
there is evidence from related contexts that suggests that summary 
prospectuses allow investors to spend less time and effort to arrive at 
the same portfolio decision as if they had relied on a statutory 
prospectus.\1044\ This research is consistent with the 2012 Financial 
Literacy Study, which showed that at least certain investors favor a 
layered approach to disclosure with the use, wherever possible, of 
summary documents containing key information about an investment 
product or service.\1045\
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    \1043\ There is evidence that the summarization of key 
information is useful to consumers. See, e.g., Sumit Agarwal et al., 
Regulating Consumer Financial Products: Evidence from Credit Cards, 
(Nat'l Bureau of Econ. Research, Working Paper 19484, 2013). The 
authors find that a series of requirements in the CARD Act, 
including provisions designed to promote simplified disclosure, has 
produced decreases in both over-limit and late fees, saving U.S. 
credit card users $20.8 billion annually; see also Robert Clark et 
al., Can Simple Informational Nudges Increase Employee Participation 
in a 401(k) Plan?, (Nat'l Bureau of Econ. Research, Working Paper 
19591, 2013). The authors find that a flyer with simplified 
information about an employer's 401(k) plan, and about the value of 
contributions compounding over a career, had a significant effect on 
participation rates.
    \1044\ See John Beshears et al., How Does Simplified Disclosure 
Affect Individuals' Mutual Funds Choices?, in Explorations in the 
Economics of Aging, 75 (David A. Wise ed., 2011), available at 
https://www.nber.org/chapters/c11933.pdf. We note, however, that 
while the authors find evidence that investors spend less time 
making their investment decision when they are able to use summary 
prospectuses, there is no evidence that the quality of their 
investment decisions is improved. In particular, ``On the positive 
side, the Summary Prospectus reduces the amount of time spent on the 
investment decision without adversely affecting portfolio quality. 
On the negative side, the Summary Prospectus does not change, let 
alone improve, portfolio choices. Hence, simpler disclosure does not 
appear to be a useful channel for making mutual fund investors more 
sophisticated . . .'' Id. at 13.
    \1045\ See 2012 Financial Literacy Study, supra note 108. 
Commenters also stated that their own client research found that 
investors prefer summary disclosure. See IRI Comment Letter I and 
WFA Comment Letter.
---------------------------------------------------------------------------

    Further, investors allocate their attention selectively,\1046\ and 
the sheer volume of disclosure that investors receive about variable 
contracts and the underlying portfolio companies may discourage 
investors from reading contract statutory prospectuses (and the 
prospectuses of the underlying portfolio companies).\1047\ The 
observations of a telephone survey conducted on behalf of the 
Commission with respect to mutual fund statutory prospectuses (which 
are typically shorter than variable contract statutory prospectuses) 
are consistent with the view that the volume of disclosure may 
discourage investors from reading statutory prospectuses.\1048\ That 
survey observed that many mutual fund investors do not read statutory 
prospectuses because they are long, complicated, and hard to 
understand. To the extent summary prospectuses increase readership of 
variable contract disclosures, they could improve the efficiency of 
portfolio allocations made on the basis of disclosed information for 
those investors who otherwise would not have read the statutory 
prospectus.\1049\
---------------------------------------------------------------------------

    \1046\ See George Loewenstein et al., Disclosure Psychology 
Changes Everything, 6 Ann. Rev. Econ. 391 (2014).
    \1047\ See supra note 548.
    \1048\ See supra note 1032.
    \1049\ Review of the complaints database maintained by the 
Commission's Office of Investor Education and Advocacy revealed that 
the most common type of complaint submitted by variable contract 
investors involved an investor's belief that a sales agent had made 
misrepresentations about the variable contract and/or recommended a 
variable contract despite the product being unsuitable for the 
investor. To the extent that summary prospectuses increase 
readership of variable contract disclosures, they may also 
facilitate stronger investor protection.
---------------------------------------------------------------------------

    Moreover, potential variable contract investors that choose to read 
disclosures despite their length may face ``information overload,'' 
causing them to make inefficient decisions about the size of their 
variable contract positions, their selection of optional benefits, or 
the allocation of funds across underlying portfolio companies.\1050\
---------------------------------------------------------------------------

    \1050\ See Troy Paredes, Blinded by the Light: Information 
Overload and Its Consequences for Securities Regulation, 81 Wash. U. 
Law Rev. 417 (2003).
---------------------------------------------------------------------------

    These benefits are potentially magnified given the demographic 
profile of variable contract investors. The average age of annuity 
investors is 70.\1051\ Studies indicate that exposure to financial 
harms may increase with age, potentially exacerbated by a decline in 
the capacity to process financial information for some 
individuals.\1052\ To the extent that summary prospectuses allow 
investors to spend less time and effort to understand their investments 
and arrive at investment decisions, that benefit is magnified in the 
context of variable contracts given the demographic profile of the 
underlying investor base.\1053\
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    \1051\ See supra note 1023 and accompanying text.
    \1052\ See e.g., David Schroeder & Timothy Salthouse, Age 
Related Effects on Cognition Between 20 and 50 Years of Age, 36 
Personality & Individual Differences 393 (2004); Timothy Salthouse, 
Aging and Measures Of Processing Speed, 54 Biological Psychology 35 
(2000); Ray Fair, How Fast Do Old Men Slow Down?, 76 Rev. Econ. & 
Stat. 103 (1994); Ulman Lindberger & Paul B. Baltes, Sensory 
Functioning and Intelligence in Old Age: A Strong Correlation, 9 
Psychol. & Aging 339 (1994); Ulman Lindberger & Paul B. Baltes, 
Intellectual Functioning in Old and Very Old Age: Cross-Sectional 
Results From the Berlin Aging Study, 12 Psychol. & Aging 410 (1997); 
Patricia D. Struck, NASAA Statement at SEC Seniors Summit, available 
at http://www.nasaa.org/860/nasaa-presidents-statement-at-sec-seniors-summit/; Karla Pak & Doug Shadel, AARP Foundation National 
Fraud Victim Study (2011).
    \1053\ If there are investors who would choose to rely on 
statutory prospectuses, one option available to them is to access 
the statutory prospectuses in electronic form online. If older 
investors are less likely to use the internet, that would attenuate 
the overall benefits of the rule for the older demographic.
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    The initial summary prospectus may also reduce the investor effort 
required to compare variable products when an investor considers a new 
investment. Information provided in a concise, user-friendly 
presentation could allow investors to compare information across 
products and as a result, may lead investors to make decisions that 
better align with their investment goals.\1054\ For example, the new 
rule requires insurers to distill certain key product information into 
tables, which could facilitate comparison across different products. 
The effect of the initial

[[Page 26058]]

summary prospectus alone on the ability of the investor to compare 
products may be limited, however, by the extent to which variable 
contracts are sold through agents.\1055\
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    \1054\ Research suggests that individuals are generally able to 
make more efficient decisions when they have comparative information 
that allows them to assess relevant trade-offs. See, e.g., 
Christopher Hsee et al., Preference Reversals between Joint and 
Separate Evaluations of Options: A Review and Theoretical Analysis, 
125 Psychol. Bull. 576 (1999); see also Jeffrey Kling et al., 
Comparison Friction: Experimental Evidence from Medicare Drug Plans, 
127 Q. J. Econ. 199 (2012). In a randomized field experiment, some 
senior citizens choosing between Medicare drug plans were randomly 
selected to receive a letter with personalized, standardized, 
comparative cost information. Plan switching was 28 percent in the 
intervention group, but only 17 percent in the comparison group, and 
the intervention caused an average decline in predicted consumer 
cost of about $100 a year among letter recipients.
    \1055\ However, we expect the requirement to file certain 
information from variable contract statutory prospectuses in Inline 
XBRL will facilitate data collection by third-party aggregators and 
financial analysts, as well as facilitate investors' comparison of 
variable products. See infra Section IV.C.3.
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    Additionally, the framework for variable contract summary and 
statutory prospectuses also includes design elements to facilitate 
investor use. In particular, the new rule 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. The linking requirements permit 
investors who use the electronic versions of contract prospectuses to 
quickly navigate between a table of contents of the contract statutory 
prospectus or SAI and the related sections of that document, as well as 
each section of the summary prospectus and any related section of the 
contract statutory prospectus and contract SAI that provides additional 
detail.\1056\ Further, the new rule also requires that investors either 
be able to view the definition of each special term used in an online 
summary prospectus upon command, 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. This 
requirement should facilitate understanding of terms that may be 
confusing or unfamiliar among investors viewing the documents online.
---------------------------------------------------------------------------

    \1056\ The Commission recently adopted rules requiring 
registrants to include a hyperlink to each exhibit identified in the 
exhibit index in any registration statement or report that is 
required to include exhibits under 17 CFR 29.601 (Item 601 of 
Regulation S-K) or under Form F-10 or Form 20-F. In connection with 
this rulemaking, commenters indicated that hyperlinking would make 
it easier and reduce the amount of time required for investors to 
navigate to related documents. See Exhibit Hyperlinks and HTML 
Format, Release No. 34-80132 (Mar. 1, 2017) [82 FR 14130 (Mar. 17, 
2017)] at nn.85 and 86. In 2019, the Commission adopted amendments 
to its investment company registration forms, including Forms N-3, 
N-4, and N-6, to require hyperlinks to exhibits required to be filed 
with the registration statement. See FAST Act Adopting Release, 
supra note 501.
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    Finally, the new rule requires that contract documents required to 
be posted online remain available on the website for at least 90 days. 
This requirement mirrors the online availability requirement for the 
mutual fund summary prospectuses. As a result, investors who prefer to 
access the disclosure documents online could be certain that the 
documents for both the contract and the portfolio companies would be 
available for the same period of time.
(2) Updating Summary Prospectus
    The new updating summary prospectus will have many of the same 
benefits for investors associated with the initial summary prospectus 
discussed above associated with presenting key information in an easier 
and less time-consuming manner for investors. Specifically, because 
many terms of the variable contract do not change from year-to-year, 
the contract statutory prospectus may contain a large amount of 
disclosure that is duplicative of disclosure that the investor has 
previously received. Those changes that do occur may be important to 
investors, but the disclosure about these changes could be difficult 
for the investor to identify given the volume of prospectus disclosure 
that investors currently receive, and the current lack of a requirement 
to identify new or changed information.
    Under the new rule, the updating summary prospectus includes a 
concise description of important changes affecting the statutory 
prospectus disclosure relating to certain topics that occurred within 
the prior year--namely the availability of portfolio companies (or 
investment options under a variable annuity registered on Form N-3) 
under the contract, the Key Information Table, the overview of the 
contract, the Fee Table, purchases and contract value (or premiums for 
variable life insurance contracts), lapse (for variable life insurance 
contracts), surrenders and withdrawals, the standard death benefit (for 
variable life insurance contracts), and the benefits available under 
the contract. We believe that these are the topics most likely to be 
important to investors because they affect how investors evaluate 
variable contracts and are relevant to investors when considering 
additional investment decisions. The updating summary prospectus, if 
used by insurers to satisfy their prospectus delivery obligations, 
would likely reduce the burden on investors and increase their 
understanding of their contract by highlighting certain changes to the 
contract made during the previous year, while forgoing the repetition 
of most information that had remained unchanged.\1057\
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    \1057\ Unlike with the initial summary prospectus, the new rule 
permits insurers to describe multiple contracts in the updating 
summary prospectus. However, given the limited number of changes in 
each contract on an annual basis, we do not believe that permitting 
multiple contracts in the updating summary prospectus will create 
significant confusion for investors or reduce any of the benefits 
associated with the description of key changes for each contract.
    We further recognize that the changes highlighted in the 
updating summary prospectus are only those relative to the 
immediately preceding updating summary prospectus and statutory 
prospectus. Accordingly, if an investor wanted to understand the 
changes to his or her contract since he or she initially purchased 
the contract, the investor will need to review all of the updating 
summary prospectuses (or each updated statutory prospectus). 
However, we have designed the updating summary prospectus to allow 
investors to better focus their attention on new or updated 
information relating to the contract. As noted above, we believe 
that existing investors in a variable contract will benefit more 
from a brief summary of changes that have occurred in the contract 
than a document like the initial summary prospectus, which is 
designed for someone making an initial investment decision. 
Therefore, we believe that requiring the updating summary prospectus 
to only provide information on the most recent changes strikes the 
appropriate balance between increasing investor's understanding of 
and access to information about changes in the updated statutory 
prospectus and imposing additional costs on insurers to create more 
tailored updating disclosures comparing the current state of the 
contract to the original contract for each contract holder.
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    The updating summary prospectus also includes the Key Information 
Table. The inclusion of this disclosure will benefit investors by 
reminding them of key facts about the variable contract, including the 
contract's fees and expenses, risks, restrictions, tax implications, 
and conflicts of interest. Finally, the updating summary prospectus 
includes an Appendix that provides summary information about the 
portfolio companies that the registrant offers under the contract. The 
inclusion of this portfolio company information could benefit investors 
by providing them information to inform one of the most important 
decisions they face during the lifecycle of a contract--that is, 
whether and where to reallocate funds among the portfolio companies or 
investment options available to them.
(b) Costs
    Should insurers opt to use summary prospectuses, we believe that 
the majority of investors will benefit from their disclosures; however, 
certain investors may also incur costs. For example, although research 
indicates that investors generally prefer to receive summary 
disclosures,\1058\ there may be investors who prefer to rely on 
statutory prospectuses when making investment decisions. While 
statutory prospectuses will be available online and in paper or 
electronic copy upon request, access to those statutory prospectuses 
will require investors to take additional steps,

[[Page 26059]]

imposing some burden. For example, investors choosing to access the 
statutory prospectus online rather than requesting a paper copy may 
need to manually enter a hyperlink from a paper updating summary 
prospectus or open an email link to a website containing the statutory 
prospectus.\1059\ To the extent that internet access and use among 
variable contract investors is not universal, those investors without 
home internet access might experience a reduction in their ability to 
quickly and easily access statutory prospectus information.\1060\ Even 
for those investors with home internet access, there may be some 
resistance to taking the additional step of accessing the statutory 
prospectus online.\1061\
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    \1058\ See supra note 10455.
    \1059\ Investors may also call or email to obtain the statutory 
prospectus.
    \1060\ According to the most recent U.S. census data, 
approximately 81.9 percent of U.S. households had some form of 
internet access in their home in 2016, and 89.3 percent had a 
computer (e.g., desktop, laptop, tablet or smartphone). See Camille 
Ryan, Computer and Internet Usage in the United States: 2016 (Aug. 
2018), available at https://www.census.gov/content/dam/Census/library/publications/2018/acs/ACS-39.pdf. According to data provided 
by the Pew Research Center, in 2019 90 percent of U.S. adults use 
the internet with usage varying by age with 88 percent of U.S. 
adults between the ages of 50 and 64 using the internet and 73 
percent of U.S. adults 65 and older using the internet. See 
Internet/Broadband Fact Sheet, available at https://www.pewresearch.org/internet/fact-sheet/internet-broadband/#who-uses-the-internet. See also Sarah Holden, Daniel Schrass & Michael 
Bogdan, Ownership of Mutual Funds, Shareholder Sentiment, and Use of 
the Internet, 2019, 25:8 ICI Res. Perspective (Oct. 2019), available 
at https://www.ici.org/pdf/per25-08.pdf (``In 2019, 94 percent of 
households owning mutual funds had internet access, up from about 
two-thirds in 2000'' and ``86 percent of mutual fund-owning 
households with a household head aged 65 or older had internet 
access in 2019''); Andrew Perrin & Maeve Duggan, Americans' Internet 
Access: 2000-2015 (June 2015), available at http://www.pewinternet.org/2015/06/26/americans-internet-access-2000-2015/ 
(finding in 2015, 84 percent of all U.S. adults use the internet).
    \1061\ One commenter urged us to require paper delivery as the 
default delivery of their prospectuses or summary prospectuses 
unless the retail investor has affirmatively chosen to receive these 
documents electronically. That commenter noted that in 2012 they 
commissioned a national survey of over 1,000 retirement plan 
participants and found that 66 percent of respondents ages 25-49 and 
84 percent of those 50 plus preferred paper document delivery. See 
AARP Comment Letter, supra note 33. Investors who prefer paper 
delivery of the statutory prospectus may request paper copies from 
the insurer. To the extent that investors request paper copies of 
the statutory prospectus, insurers will incur associated printing 
and mailing costs. See infra Section IV.C.1.b.i.
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    Moreover, those investors who prefer paper copies of statutory 
prospectuses and do not have ready access to the internet (and the 
ability to print out the statutory prospectus that is made available 
online \1062\), will not be able to elect paper delivery of statutory 
prospectuses on a going-forward basis. Rather, they will need to make 
an ad hoc request for paper delivery of the statutory prospectus each 
time one is made available. This may delay their review of the 
statutory prospectus as they await paper delivery, or, in some cases, 
if the investor does not take the additional step to request paper 
delivery, may result in the investor not receiving the statutory 
prospectus in his or her preferred format and ultimately receiving less 
information than they would like about their contract.\1063\ We believe 
that possibility is unlikely in this circumstance, however. We believe 
investors who prefer statutory prospectuses rather than summary 
prospectuses are likely investors who are willing to seek out detailed 
information to inform their investment decisions. We believe that for 
these investors, the additional effort required to access the statutory 
prospectus online or request paper or electronic statutory prospectuses 
would be incrementally minimal.
---------------------------------------------------------------------------

    \1062\ See supra Section II.A.5.
    \1063\ This outcome is suggested by research which finds that 
investors can experience a ``status quo bias.'' See, e.g., Richard 
H. Thaler & Shlomo Bernatzi, Save More Tomorrow\TM\: Using 
Behavioral Economics to Increase Employee Saving, 112 J. Pol. Econ. 
S164 (2004); Richard H. Thaler & Cass R. Sunstein, Libertarian 
Paternalism, 93 Am. Econ. Rev. 175 (2003). Thaler and Sunstein argue 
that a ``status quo'' bias results in the continuance of existing 
arrangements even if better options are available. The authors 
illustrate their argument with higher rates of initial enrollments 
in employee savings plans when enrollment is automatic as compared 
to when employees must first complete an enrollment form.
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    Also, the rule requires that a current version of each of the 
required contract documents remain available online for at least 90 
days after the date of delivery of a security or communication in 
reliance on the rule. Some investors may not have the flexibility to 
access this online information within 90 days after receiving the 
summary prospectus. As discussed above, however, because variable 
contracts (and their underlying portfolio companies) are generally 
continuously offered, a current contract prospectus and related 
documents would likely remain online for longer than 90 days. As a 
result, we believe any loss of flexibility to access online information 
more than 90 days after receiving a summary prospectus would be 
minimal.
ii. Portfolio Company Prospectus Delivery
    As described in Section IV.C.1.b below, we anticipate that the new 
optional delivery method for portfolio company prospectuses will result 
in cost savings from reduced printing expenses. To the extent that a 
portfolio company bears the printing expenses associated with portfolio 
company prospectuses, we expect that the reductions will benefit the 
portfolio company, as well as variable contract investors who have 
allocated contract value to the portfolio company (except perhaps in 
certain circumstances such as where the portfolio company is operating 
under an expense limitation arrangement). To the extent that the 
insurance company bears these costs, we expect that the reductions will 
benefit the insurance company, which may pass on such cost savings to 
existing variable contract investors and to new variable contract 
investors in the pricing of variable contracts offered in the 
future.\1064\
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    \1064\ Because the fees charged under variable contracts 
investors are typically fixed when the contract is purchased, we 
recognize that cost savings realized by the insurance company may 
not be passed along to existing investors except in the case of 
contracts offered by mutualized insurance companies, which return 
any profits they make to their investors.
    We expect the benefit in terms of lower pricing of variable 
contracts will be small. One commenter estimated a unit cost of 
$6.00 to print and mail a statutory prospectus to new investors and 
$2.20 to existing investors, inclusive of summary prospectuses for 
all portfolio companies offered by the contract. The commenter also 
estimated that portfolio company summary prospectuses would make up 
300 pages of the 400-page mailing that includes the variable 
contract statutory prospectus and portfolio company prospectuses. 
See Broadridge Comment Letter. The average value of a variable 
contract investor's investment is $66,400.
---------------------------------------------------------------------------

    Certain investors may incur additional costs. While the portfolio 
company prospectuses will be available online and in paper or 
electronically upon request on an ad hoc basis, investors may 
experience additional burdens when accessing the prospectuses. As with 
the summary prospectus for variable contracts discussed above, 
investors who prefer to review paper copies of the portfolio company 
prospectuses will be required to either affirmatively request delivery 
of paper copies, or bear the costs of printing the electronic versions 
of documents accessed through the website.
    Also, as discussed with respect to variable contract prospectuses 
above, internet access is not universal among variable contract 
investors, and investors who would prefer paper copies of prospectuses 
will be required to request paper delivery of those prospectuses on an 
ad hoc basis which could, in turn, delay investor review of those 
prospectuses.\1065\ Further, to the

[[Page 26060]]

extent that investors prefer paper copies of prospectuses, but do not 
request a paper copy or access the document online, there will be no 
investor review of those prospectuses.
---------------------------------------------------------------------------

    \1065\ As we discuss in Section IV.C.3 below, we understand that 
sales agents assist investors by providing information about 
underlying portfolio companies and sometimes recommending that 
investors allocate their contract value into specific portfolio 
companies. We anticipate that this will continue under the adopted 
framework, and that sales agents will 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, to 
the extent that sales agents continue to play a significant role in 
providing information about portfolio companies to investors, even 
if investors were to no longer automatically receive paper copies of 
portfolio company prospectuses, we expect the adopted framework to 
yield lower costs and higher benefits for investors.
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b. Benefits and Costs for Insurers
i. Summary Prospectus for Variable Contracts
    The total cost of providing disclosure in any particular framework 
is the sum of costs associated with producing the disclosure materials, 
including labor and legal fees, and the costs associated with delivery 
of the disclosure materials, including printing and mailing costs and 
costs of making the disclosures available on a website. Insurers will 
benefit from the options provided by the new rule, to the extent that 
providing layered disclosure through a summary contract prospectus 
regime (including costs of producing and delivering initial summary and 
updating summary prospectuses and of making statutory prospectuses, 
portfolio company prospectuses, and other documents available online) 
is less expensive than providing statutory prospectuses to new 
investors and updated statutory prospectuses to existing investors 
annually, along with portfolio company prospectuses and other related 
documents.
    As discussed later in this section, because we expect a primary 
driver of the benefit for insurers providing summary prospectuses to be 
cost savings associated with no longer printing and mailing lengthy 
statutory prospectuses for investors that currently receive these 
documents in paper, the magnitude of the benefit depends in part on the 
extent to which investors currently elect electronic delivery of 
materials associated with their variable contract. The higher the 
percentage of investors currently electing electronic delivery rather 
than paper, the smaller the benefit derived from forgoing the printing 
and mailing costs. Accordingly, to estimate the potential cost 
reduction associated with the rule, as noted above, we assume that 15 
percent of the contract investors currently elect electronic delivery 
of the statutory prospectus both at sale, and annually 
thereafter.\1066\ Moreover, we assume that at least 15 percent of 
variable contract investors will elect electronic delivery of the 
summary prospectus going forward.
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    \1066\ We lack verifiable data on current electronic delivery 
election rates among variable contract investors but are estimating 
15 percent based, in part, on the range of estimates provided by 
commenters and with consideration for the general increase in 
electronic delivery rates over time demonstrated in other investment 
products. See supra notes 1027 through 1029. If variable contract 
investors exhibit lower electronic delivery rates today than we 
estimate, the cost savings from reducing the amount of paper 
mailings under the amendments will be higher than estimated here. If 
variable contract investors exhibit higher electronic delivery rates 
today than we have estimated, the cost savings from reducing the 
amount of paper mailings under the amendments will be lower than 
estimated here.
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    To estimate the overall impact of the rule on insurers' cost of 
prospectus delivery, we begin by estimating the number of variable 
contract statutory prospectuses delivered in paper format. This 
requires a number of assumptions:
     We estimate that insurers will ultimately use summary 
prospectuses for 90 percent of contracts \1067\ that are not 
Alternative Disclosure Contracts.\1068\
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    \1067\ In response to the 2012 Financial Literacy Study, the 
Committee of Annuity Insurers submitted a comment letter in which it 
states that ``The Committee believes the Commission should embrace 
the use of layered disclosure for variable annuities (and other 
retail products, including other SEC-registered annuities), as it 
has done for mutual funds.'' According to its comment letter, the 
Committee of Annuity Insurers ``represent more than 80% of the 
annuity business in the United States.'' Although the layered 
disclosure framework for variable contracts is not identical to the 
corresponding framework for mutual funds and the creation of initial 
and updating summary prospectuses may be more costly for variable 
contracts than the creation of mutual fund summary prospectuses, we 
nevertheless anticipate that choosing to deliver summary 
prospectuses will provide cost savings for insurers. Given expressed 
industry support for layered disclosure with summary prospectuses, 
our experience that approximately 95 percent of mutual funds have 
adopted layered disclosure with summary prospectuses, and our 
anticipation that the rule will provide costs savings to insurers, 
we believe it is appropriate to assume that 90 percent of insurers 
will choose delivery of summary prospectuses.
    \1068\ See supra note 1066 and accompanying text.
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     Issuers of Alternative Disclosure Contracts provide 
alternative disclosures in lieu of statutory prospectuses.\1069\ Based 
on staff analysis, approximately 57 percent of variable contract 
registration statements are for Alternative Disclosure Contracts, and 
these registration statements apply to up to approximately 18 percent 
of variable contracts.\1070\ We further assume that each investor in an 
Alternative Disclosure Contract owns exactly one contract issued under 
a registration statement for an Alternative Disclosure Contract.
---------------------------------------------------------------------------

    \1069\ See supra note 928 and accompanying text.
    \1070\ (2.99 million variable annuity contracts + 1.8 million 
variable life contracts)/25.9 million variable contracts.
---------------------------------------------------------------------------

     We assume 15 percent of investors elect electronic 
delivery of prospectuses.
    Together with the baseline estimate of 25.9 million contracts in 
force at the end of 2019, these assumptions imply that insurers will no 
longer send approximately 16.1 million statutory prospectuses each 
year.\1071\
---------------------------------------------------------------------------

    \1071\ 25.9 million x (1-18 percent) x 90 percent x (1-15 
percent) = 16.1 million contracts.
---------------------------------------------------------------------------

    Next, we estimate the number of statutory prospectuses that will no 
longer be provided to investors in paper in connection with new 
contract purchases. In 2019, there were 25.9 million contracts in 
force.\1072\ Total sales of variable annuity contracts during 2019 was 
1,289,500 contracts. Based on these estimates, we further estimate that 
among investors who elect to receive paper copies of prospectuses, the 
new option to use a summary prospectus will be applied to 986,000 new 
contracts annually.\1073\
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    \1072\ See supra Section IV.B.1.
    \1073\ See supra note 1071. The number of new contracts falling 
within the proposed regime is calculated as: 1,289,500 contracts x 
(1-0.15) x 0.90 = 986,468 contracts.
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    We next estimate the cost difference, per prospectus, of sending 
summary prospectuses (initial summary prospectuses, as well as updating 
prospectuses) rather than statutory prospectuses.\1074\ In the 
Proposing Release, we estimated that printing and mailing expenses for 
statutory prospectuses are $0.53 per statutory prospectus. We received 
additional information on printing and mailing expenses from a 
commenter that persuaded us to revise our estimate.\1075\ In a change 
from the proposal, we estimate that printing and mailing expenses for 
statutory prospectuses are $1.50 per statutory prospectus for new 
investors and $0.55 for existing investors.\1076\ Also in a change from 
the

[[Page 26061]]

proposal, we estimate that printing and mailing expenses for initial 
summary prospectuses and updating summary prospectuses to be $1.20 and 
$0.55, respectively.\1077\ Assuming the 2019 level of contracts in 
force and contract purchases remains stable, we estimate the printing 
and mailing cost to insurers of meeting their disclosure requirements, 
as they relate to the delivery of disclosure documents, using initial 
and updating prospectuses will decline by up to $4,845,000.\1078\
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    \1074\ Variable contract issuers generally maintain current 
prospectuses for their products through the filing of annual post-
effective amendments to the registration statements. See supra note 
333. As a result, we assume updating prospectuses will be delivered 
annually.
    \1075\ See Broadridge Comment Letter.
    \1076\ See id. The commenter assumes the use of First Class or 
Priority Mail for documents mailed to new investors and the use of 
Standard Class ``bulk'' mail for documents mailed to existing 
investors. The commenter estimates the cost of printing and mailing 
expenses of statutory prospectuses, inclusive of summary 
prospectuses for each of the funds the contract offers, to be $6.00 
for new investors and $2.20 for existing investors. The commenter 
also estimates that the variable contract prospectus constitutes 25 
percent of the printed and mailed material and summary prospectuses 
for each of the portfolio companies offered constituting the other 
75 percent. As a result, we estimate the cost of printing and 
mailing variable contract prospectuses to be $1.50 (= $6.00 x 25 
percent) for new investors and $0.55 (= $2.20 x 25 percent) for 
existing investors. Also, we estimate the cost of printing and 
mailing summary prospectuses for each of the portfolio companies 
offered by the contract to be to be $4.50 (= $6.00 x 75 percent) for 
new investors and $1.65 (= $2.20 x 75 percent) for existing 
investors.
    \1077\ See id.
    \1078\ Calculated as ($1.50-$1.20) x 16,148,735 = $4,844,621. 
The calculation only includes initial disclosures as the printing 
and mailing costs of providing updated disclosure with respect to 
existing investors is assumed to be the same, $0.55. See supra note 
1076.
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    As noted earlier in this section, another key component of costs 
that insurer will consider when determining whether to provide summary 
prospectuses under the new rule is the cost of producing the initial 
and updating summary prospectuses. Insurers choosing to provide summary 
prospectuses will bear a one-time cost of preparing both the initial 
summary prospectus and the updating summary prospectus, as well as 
costs associated with preparing updated versions of both documents in 
the future on at least an annual basis.\1079\ We estimate the aggregate 
cost to prepare initial and updating summary prospectuses to be 
$3,299,285.\1080\
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    \1079\ We understand that even those contracts with existing 
initial summary prospectuses may have changes that need to be 
reflected in an initial summary prospectus sent to new investors, 
which will require modifications to the existing initial summary 
prospectus. However, we believe that once an initial summary 
prospectus is drafted for a particular contract, that document can 
serve as a basis for future versions of the initial summary 
prospectuses sent to new investors of the contract. Thus, we believe 
that drafting an ``updated'' initial summary prospectus will be less 
costly than drafting the original initial summary prospectus. 
Similarly, we believe that preparing subsequent updating summary 
prospectuses will be less costly than preparing the original 
updating summary prospectus.
    \1080\ See infra note 1230.
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    Insurers that choose to provide summary prospectuses are required 
to make statutory prospectuses and other materials available 
online.\1081\ We estimate the annual burden to comply with the website 
posting requirements of the rule for documents relating to variable 
contracts will be 1,217 hours,\1082\ at an internal cost equivalent of 
$301,816.\1083\
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    \1081\ The requirement that contract disclosure materials be 
available online for a period of 90 days mirrors the online 
availability requirement for disclosure materials associated with 
mutual funds using summary prospectuses, including most portfolio 
companies. While there are operational differences between the 
variable contract and mutual fund summary prospectus regimes, to the 
extent that the new rule harmonizes certain requirements, this could 
create efficiencies for contracts organized as UITs. This efficiency 
will not apply to Form N-3 registrants, which do not have underlying 
portfolio companies due to a single-tier investment company 
structure.
    \1082\ See infra note 1234.
    \1083\ See infra note 1235.
---------------------------------------------------------------------------

    Insurers are also required to include inter- and intra-document 
linking and special terms definitions. One linking requirement will 
allow the reader to move back and forth between a table of contents of 
the contract statutory prospectus or SAI and the related sections of 
each document. Although prospectuses and SAIs are not required to have 
individual headings corresponding to the items in the registration 
forms, we assume that the sections of a prospectus or SAI will 
correspond with the item requirements of the forms. We estimate that 
Form N-3 registrants will require 33 back-and-forth internal links, 
Form N-4 registrants will require 27, and Form N-6 registrants will 
require 28. The other linking requirement will 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 SAI that 
provides additional detail. This back-and-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 for the statutory prospectus 
or SAI, and vice versa. For our analysis, we assume direct links will 
tend to be more costly when compared with indirect linking through a 
table of contents.
    An initial summary prospectus for a Form N-3 registrant or a Form 
N-4 registrant includes seven sections and an initial summary 
prospectus for a Form N-6 registrant includes nine sections. However, 
the Key Information Table has instructions stating that a registrant 
should provide cross-references or links to the location in the 
statutory prospectus where the subject matter is described in greater 
detail, or should provide a means of facilitating access to that 
information through equivalent methods or technologies. There are 12 
sections of the Key Information Table. Therefore, we estimate that 
there will be 18 back-and-forth links between Form N-3 and Form N-4 
registrant initial summary prospectuses and statutory prospectuses, and 
20 back-and-forth links between Form N-6 registrant initial summary 
prospectuses and statutory prospectuses.
    An updating summary prospectus for a Form N-3, Form N-4, or Form N-
6 registrant includes three sections, one of which, the Key Information 
Table, includes 12 sections. One section is the ``Updated Information 
About Your Contract'' section. The number of links in this section will 
depend on the number of updates discussed. For example, assuming 
discussion of four updates, we estimate the number of back-and-forth 
links between a Form N-3, Form N-4, or Form N-6 registrant's updating 
summary prospectus and statutory prospectus to be 18.
    The rule will also require that investors either be able to view 
the definition of each special term used in an online summary 
prospectus upon command (e.g., by ``hovering'' the computer's pointer 
or mouse over the term), 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. We assume that 
registrants could replicate links to a glossary or the computer code 
required to implement access to definitions by ``hovering'' over a term 
with little or no burden, but that there will be a burden associated 
with creating the requisite link or code for each special term. 
Accordingly, we estimate the aggregate cost to comply with the 
requirement to include inter- and intra-document linking and special 
terms definitions as described above will include 3,812 burden hours 
and a cost of $508,320 annually.\1084\
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    \1084\ These burden hours and cost estimates are a portion of 
the overall burden and cost estimates associated with the collection 
of information for rule 498A discussed below in Section V.E. In a 
separate rulemaking, we required registrants that file registration 
statements and reports subject to the exhibit requirements under 
Item 601 of Regulation S-K, or that file Forms F-10 or 20-F, to 
include a hyperlink for each exhibit listed in the exhibit index of 
these filings. See Exhibit Hyperlinks and HTML Format Adopting 
Release, supra note 1056. We estimated the burden of including 
hyperlinks to be between one and four hours with 75 percent of the 
burden carried by the registrant internally and 25 percent of the 
burden carried by outside professionals retained by the registrant 
at an average cost of $400 per hour. Filings for which we estimated 
a burden of four hours had approximately 33 to 35 hyperlinks, on 
average. We do not have data on extent to which providing the ``two-
way'' inter- and intra-document linking and special terms 
definitions differs from providing ``one-way'' hyperlinks from one 
document to another. We estimate the burden of including inter- and 
intra-document linking and special terms definitions to be eight 
hours with 75 percent of the burden carried by the registrant 
internally and 25 percent of the burden carried by outside 
professionals at an average cost of $400 per hour. In the proposal, 
based on 726 registrants, we estimated total burden hours to be 
5,518 with 4,138 hours burden hours being carried by registrants 
internally and the cost of the burden carried by outside 
professionals to be $552,000. We are revising our estimates to 
reflect the number of registrants, 706], that filed during 2019. 
Revising our estimate of the number of registrants to 706, we 
estimate the total burden hours to be 5,083 = (706 registrants) x 
(90 percent relying on rule) x (8 burden hours per registrant). We 
estimate the burden hours carried by the registrants internally to 
be 3,807 = 5,083 x .75. We estimate the cost of the burden carried 
by outside professionals to be $508,320 = (5,083 x .25) x $400.

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[[Page 26062]]

    Finally, insurers may incur costs in connection with the 
requirement to provide a statutory prospectus and other documents upon 
request of an investor. We estimate that the annual cost associated 
with printing and mailing these documents will be $500 per 
registrant.\1085\ We estimate that the aggregate annual costs 
associated with printing and mailing statutory prospectuses will be 
$304,200.\1086\
---------------------------------------------------------------------------

    \1085\ See infra note 1233.
    \1086\ See infra note 1236.
---------------------------------------------------------------------------

ii. Portfolio Company Prospectus Delivery Option
    Form N-4 and Form N-6 registrants that use summary prospectuses may 
also benefit from the option to provide prospectuses for all underlying 
portfolio companies online.\1087\ While there will be certain costs 
associated with complying with the requirements for posting the 
portfolio company materials online, as discussed below, we anticipate 
that this new optional delivery method will result in overall reduced 
costs due to a reduction in printing and mailing costs. To the extent 
that insurers bear these costs, we expect the reductions will benefit 
the insurance company, which may pass such cost savings on to new 
variable contract investors in the pricing of variable contracts 
offered in the future, and possibly to existing variable contract 
investors. To the extent that a portfolio company bears these costs, 
cost savings will typically be passed along to investors.
---------------------------------------------------------------------------

    \1087\ See supra Section II.B. This new delivery option will not 
be available to Form N-3 registrants because they do not have 
underlying portfolio companies. As of the end of calendar 2019, 700 
of 706 (99 percent) registrants were either Form N-4 registrants 
(477) or Form N-6 registrants (223).
---------------------------------------------------------------------------

    Moreover, as with the reduction in printing and mailing costs 
associated with the delivery of the contract statutory prospectus, the 
magnitude of these cost savings is dependent on the extent to which 
investors currently elect to receive electronic versions of the 
portfolio company prospectuses rather than receive them in paper. The 
higher the percentage of investors who currently receive paper copies 
of portfolio company prospectuses, the greater the reduction in 
printing and mailing costs arising from the new delivery option. We 
estimate that 85 percent of investors currently receive paper copies of 
these documents.\1088\
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    \1088\ We recognize that by permitting the satisfaction of 
delivery obligations through the posting of portfolio company 
statutory prospectuses online (under the conditions specified in the 
rule), there may be a disincentive for portfolio companies to use a 
summary prospectus, as concerns about costs of printing and mailing 
the statutory prospectus will be reduced. However, the rule 
requires, as a condition of relying on the new delivery method, that 
the mutual fund summary prospectus be made available online. In 
addition, the Commission continues to believe that the costs of 
continuing to produce the mutual fund summary prospectus, which 
reflects a portion of the statutory prospectus, will be minimal. See 
2009 Summary Prospectus Adopting Release, supra note 17.
---------------------------------------------------------------------------

    In the Proposing Release, we estimated that printing and mailing 
expenses for summary prospectuses for underlying portfolio companies 
would be $0.53 per summary prospectus. We received additional 
information from a commenter that persuaded us to revise our 
estimate.\1089\ In a change from the proposal, we estimate that 
printing and mailing expenses for summary prospectuses for underlying 
portfolio companies to be $4.50 per set of prospectuses for new 
investors and $1.65 for existing investors.\1090\ Assuming the 2019 
level of contracts in force and contract purchases remains stable, we 
estimate the printing and mailing cost will decline by $4,439,000 for 
new investors and $26,645,000 for existing investors,\1091\ for 
aggregate cost savings of $31,085,000.\1092\ Registrants will incur 
costs associated with making the underlying portfolio company summary 
prospectus, statutory prospectus, SAI, and most recent shareholder 
reports available online under the conditions set forth in the rule. We 
estimate the annual burden to comply with the website posting 
requirements of the rule for documents relating to portfolio companies 
will be 1,206 hours,\1093\ at an internal cost equivalent of 
$299,088.\1094\
---------------------------------------------------------------------------

    \1089\ See Broadridge Comment Letter.
    \1090\ See supra note 1076.
    \1091\ Calculated as $4.50 x 986,468 = $4,439,104 for new 
investors and $1.65 x $16,148,735 = $26,645,413 for existing 
investors.
    \1092\ Calculated as $4,439,104 + $26,645,413 = $31,084,517.
    \1093\ See infra note 1234.
    \1094\ Id. Although we do not have data on the use of summary 
prospectuses for the underlying portfolio companies offered in 
variable contracts, we understand that delivery of summary 
prospectuses is typical. To the extent that there are portfolio 
companies for which no summary prospectus has been created, there 
will be costs associated with the summary prospectus requirement. 
Those costs will include the cost of creating the document, making 
sure that the summary prospectus is structured appropriately, and 
costs associated with filing the summary prospectus after it is 
first used under rule 497. We believe that these costs will be 
small, however. For example, the content of a mutual fund summary 
prospectus consists of Items 2 through 8 of Form N-1A, with the 
cover page as specified by rule 498.
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    Insurers and portfolio companies may incur costs in connection with 
the requirement to provide summary prospectuses for underlying 
portfolio companies upon request of an investor. We estimate that the 
annual cost associated with printing and mailing these prospectuses 
will be $500 per registrant.\1095\ We estimate that the aggregate 
annual costs associated with printing and mailing portfolio summary 
prospectuses will be $301,500.\1096\
---------------------------------------------------------------------------

    \1095\ See infra note 1241. Also, currently contract investors 
may request paper copies of online documents related to portfolio 
investments (e.g., SAIs). As a result, we estimate the cost of 
updating systems to accommodate requests for paper copies of 
prospectuses for portfolio investments will be minimal.
    \1096\ $500 x 90 percent x (477 Form N-4 registrants + 223 Form 
N-6 registrants) = $315,000.
---------------------------------------------------------------------------

    Thus, we estimate a reduction of costs related to delivery of 
portfolio company summary prospectuses of $30,479,000.\1097\
---------------------------------------------------------------------------

    \1097\ $31,084,517-$304,200-$301,500 = $30,478,817.
---------------------------------------------------------------------------

2. Changes to Forms N-3, N-4, and N-6
a. Benefits and Costs for Investors
    The amendments to Forms N-3, N-4, and N-6 are intended to reflect 
the evolution of variable contract features including, in particular, 
the prevalence of optional benefits that insurers offer under these 
contracts, and to provide greater consistency among the forms. For 
example, the amended forms require additional information about 
standard and optional benefits that a contract may offer. There is no 
current form requirement regarding optional benefits.
    The amended forms also increase consistency of disclosure 
presentation requirements among variable contracts that register on 
different form types. This increased consistency could help investors 
compare variable contracts that register on different form types. 
Certain investors who are considering variable annuities may also be 
considering variable life insurance (and vice versa). We believe a 
consistent presentation and common disclosure of elements that we 
consider useful in explaining variable contracts' features and risks 
could reduce investor confusion and promote investor understanding 
across types of variable products. Also, we believe that more

[[Page 26063]]

uniformity of disclosures across variable contract types may make it 
easier for investors to compare similar products.
    We are amending the General Instructions of Forms N-3, N-4, and N-6 
regarding the preparation and filing of registration statements. First, 
these amendments prescribe the ordering and location of the Key 
Information Table, the Overview of the Variable Annuity Contract, and 
the Fee Table. In particular, the amendments place this information at 
the beginning of the prospectus, benefitting investors to the extent 
that this placement makes information about a variable contract's key 
features, costs, and risks more readily available. We do not anticipate 
that these changes will impose substantial costs on investors. We 
acknowledge that investors familiar with the current ordering of 
information on Forms N-3, N-4, and N-6 could bear one-time costs 
associated with adjusting to the presentation of information on these 
forms.
    Second, we are amending the General Instructions to provide new 
guidance in each of the forms that addresses when a single prospectus 
may be used to describe multiple contracts and when multiple 
prospectuses may be included in a single registration statement. To the 
extent that ensuring that prospectuses and registration statements 
cover contracts with similar features, costs, and risks facilitates 
investors' understanding of contract characteristics, these amendments 
may benefit investors. While we do not have information available to 
quantify these benefits, we believe that these amendments are 
consistent with current industry practice and we therefore do not 
expect these benefits to be substantial. We do not anticipate that 
these changes will impose substantial costs on investors. We 
acknowledge that to the extent that the guidance results in 
presentation of information that investors are unaccustomed to, 
investors may bear one-time costs associated with adjusting to a new 
presentation of variable contract information.
    In a change from the proposal, we have decided to eliminate AUV 
tables currently in Forms N-3 and N-4 in their entirety.\1098\ 
Eliminating AUV tables may impose costs on current and potential 
investors, to the extent that such investors could make use of 
historical summary performance information as part of their decision to 
make additional investments or their decision to choose between 
insurers or variable products. We believe these costs are substantially 
mitigated, however, because investors can get summary information with 
respect to the net performance of an individual option from the 
Appendix to the summary prospectus.
---------------------------------------------------------------------------

    \1098\ See supra Section II.C.2.e.
---------------------------------------------------------------------------

b. Benefits and Costs for Insurers
    The form amendments will increase consistency of disclosure 
presentation requirements among variable contracts that are registered 
on different form types. We anticipate that this increased consistency 
among Forms N-3, N-4, and N-6 could have the benefit of reducing costs 
among sponsors that register variable contracts on multiple 
registration form types. For example, we anticipate that this will make 
the production of registration statements simpler, in that form 
instructions and content requirements will in many cases be the same 
(except in cases where structural differences or product differences 
that the different form types indicate will lead to requirements that 
will differ across the form types).\1099\
---------------------------------------------------------------------------

    \1099\ In 2019, 73 insurers filed Form N-CEN reports for 
separate accounts with registrations on Forms
    N-3, N-4, and N-6. 5 of the 73 (7 percent) insurers filed Form 
N-CEN reports for all three form types (N-3, N-4, and N-6). 58 of 
the 73 (79 percent) issuers filed Form N-CEN reports for two form 
types. Overall, 63 (86 percent) insurers filed Form N-CEN reports 
for more than one form type.
---------------------------------------------------------------------------

    In a change from the proposal and as discussed above, we have 
decided to eliminate AUV tables currently in Forms N-3 and N-4 in their 
entirety. For registrants utilizing these forms, we believe the 
amendments will reduce the costs related to preparing registration 
statement disclosure of information relating to the contract's 
accumulation unit values. We estimate the implementation costs for each 
of the three registrant types, while netting the reduced burden for 
Form N-3 and Form N-4 registrants, below.
    Form N-3 Estimates. We estimate that there are currently six 
insurer separate accounts that file on Form N-3. We estimate the total 
annual hour burden to comply with amended Form N-3 to be 2,836 hours, 
at an internal time cost equivalent of $762,884.\1100\ We also estimate 
the total external cost burden to comply with amended Form N-3 to be 
$123,114.\1101\
---------------------------------------------------------------------------

    \1100\ See infra note 1172.
    \1101\ See infra note 1173.
---------------------------------------------------------------------------

    Form N-4 Estimates. We estimate that there are currently 477 
insurer separate accounts that file on Form N-4. We estimate the total 
annual hour burden to comply with amended Form N-4 to be 300,937 hours, 
at an internal time cost equivalent of $80,952,053.\1102\ We also 
estimate the total external cost burden to comply with amended Form N-4 
to be $30,342,168.\1103\
---------------------------------------------------------------------------

    \1102\ See infra note 1183.
    \1103\ See infra note 1184.
---------------------------------------------------------------------------

    Form N-6 Estimates. We estimate that there are currently 223 
insurer separate accounts that file on Form N-6. We estimate the total 
annual hour burden to comply with amended Form N-6 to be 65,123 hours, 
at an internal time cost equivalent of $17,518,087.\1104\ We also 
estimate the total external burden to comply with amended Form N-6 to 
be $7,840,000.\1105\
---------------------------------------------------------------------------

    \1104\ See infra note 1194.
    \1105\ See infra note 1195.
---------------------------------------------------------------------------

    In addition to these implementation costs, the form amendments 
could impose costs related to changes in presentation of information. 
In particular, the amendments may impose costs on insurers to the 
extent that they limit insurers' flexibility in choosing the placement 
of information within the statutory prospectuses. While we do not have 
data necessary to quantify these costs, we do not expect them to be 
substantial.
3. Inline XBRL
    Generally as proposed, except as discussed below, we are requiring 
certain information from variable contract statutory prospectuses to be 
filed with the Commission in Inline XBRL. Inline XBRL is a 
specification of XBRL that is both human-readable and machine-readable 
for purposes of validation, aggregation, and analysis.
    The Inline XBRL requirement is expected to benefit investors 
directly by facilitating and enhancing the analysis and comparison of 
variable contracts by investors and by investment professionals working 
on their behalf, and indirectly by facilitating the analysis of 
variable contracts by financial analysts, data aggregators, Commission 
staff, variable contract issuers, and others. For example, we expect 
that investors will benefit from more accurate and timely information 
provided by data aggregators as a result of the Inline XBRL 
requirement.
    These benefits are expected to be greatest in instances of filings 
by a large number of registrants and for information from variable 
contract disclosures that is not aggregated by data aggregators today 
and therefore requires greater effort to extract and analyze on the 
part of investors. To the extent that some of the variable contract 
investors and other data users also review disclosures of mutual funds 
and ETFs, those investors and other data users will have familiarity 
with using Inline XBRL to view and analyze disclosures from having 
reviewed

[[Page 26064]]

prospectus risk/return summaries filed in Inline XBRL under the 
recently adopted Inline XBRL requirements for mutual funds and 
ETFs.\1106\
---------------------------------------------------------------------------

    \1106\ See Inline XBRL Adopting Release, supra note 892.
---------------------------------------------------------------------------

    For contracts being sold to new investors, variable contract 
registrants will incur costs to tag and review the required information 
in Inline XBRL. Some filers may perform the tagging in-house while 
others may retain outside service providers. We expect the outside 
service providers to pass along their costs to filers. Various XBRL 
preparation solutions have been developed and used by operating 
companies and open-end fund filers, and some evidence suggests that, 
for operating companies, XBRL tagging costs have decreased over 
time.\1107\ Because Inline XBRL allows filers to embed XBRL data 
directly into an HTML document, we expect costs to be even lower than 
with XBRL since Inline XBRL eliminates the need to tag a copy of the 
information in a separate XBRL exhibit. For filers that currently 
report information in Inline XBRL for other investment products they 
offer, such as open-end funds, filing variable contract information in 
Inline XBRL under the amendments will likely incur lower costs of 
compliance than filers adopting Inline XBRL for the first time.
---------------------------------------------------------------------------

    \1107\ See, e.g., XBRL Costs for Small Companies Have Declined 
45%, According to AICPA Study (Aug. 15, 2018), available at https://www.aicpa.org/press/pressreleases/2018/xbrl-costs-have-declined-according-to-aicpa-study.html (stating that ``the cost of XBRL 
formatting for small reporting companies has declined 45 percent 
since 2014, according to an updated pricing survey. . . 68.6 percent 
of the companies paid $5,500 or less on an annual basis (as compared 
to 29.9 percent of companies in the 2014 survey) for fully 
outsourced creation and filing solutions for their XBRL filings. 
Meanwhile, 11.8 percent of the companies paid annual costs between 
$5,500 to as much as $8,000 for their full-service outsourced 
solutions.'').
---------------------------------------------------------------------------

    In a departure from the proposal, we are applying the Inline XBRL 
requirement only to contracts that are being sold to new investors. As 
discussed in further detail below, we believe the benefits of 
structured data are less significant for contracts that are not being 
sold to new investors and do not justify the additional yearly tagging 
cost on filers of such contracts.\1108\ As a result, contracts that are 
offered to new investors after the Inline XBRL compliance date will 
include current structured data only until those contracts are no 
longer offered to new investors, at which point the structured data 
will no longer reflect any subsequent changes to the formerly tagged 
disclosures. Investors that use this structured data could therefore 
incur the cost of using potentially outdated information in their 
analysis. However, because prospectus disclosures related to contracts 
that are no longer sold to new investors are unlikely to materially 
change from year to year, and because these contracts are not potential 
investments for new investors comparing variable contract options, we 
believe this cost is of low significance.
---------------------------------------------------------------------------

    \1108\ See infra Section IV.E.5.
---------------------------------------------------------------------------

    Similar to the risk/return summary requirements for mutual funds 
and ETFs, (1) the amendments require variable contract registrants to 
submit to the Commission in Inline XBRL certain information from 
registration statements, post-effective amendments, and prospectuses 
with certain information that varies from the registration statement, 
and (2) the Interactive Data File will be submitted in post-effective 
amendment filings to the registration statement, which may make the 
filing incrementally more efficient than if the Interactive Data File 
was submitted in a separate filing.
    Those registrants affected by the requirement that have not had 
experience structuring disclosures in other contexts will likely incur 
initial costs to acquire the necessary expertise and/or software as 
well as ongoing costs of tagging required information in Inline XBRL, 
and any fixed costs of complying with the Inline XBRL requirement may 
have a relatively greater impact on smaller filers.\1109\ On an ongoing 
basis, registrants are expected to expend time to review the tagged 
information in Inline XBRL using their in-house staff. Some registrants 
may also incur an initial cost to license filing preparation software 
with Inline XBRL capabilities from a software vendor, and some may also 
incur an ongoing licensing cost. Other registrants may incur an initial 
cost to modify their existing filing preparation software to 
accommodate Inline XBRL preparation. Some registrants will incur the 
costs of filing agent services to rely on a filing agent to prepare 
their Inline XBRL filings. Initial costs involving investments in 
expertise and modifications to disclosure preparation solutions, or 
switching to a different software vendor or outside service provider, 
may result in a higher compliance cost during the first year of using 
Inline XBRL than in subsequent years. While the costs of compliance 
with the Inline XBRL requirement are likely to vary across registrants, 
we estimate that the average annual internal burden for a variable 
contract registrant on Forms N-3, N-4, and N-6 will be approximately 
$20,880, $14,616, and $14,616 per year, respectively, and the average 
external cost will be approximately $1,800, $900, and $900 per year, 
respectively.\1110\
---------------------------------------------------------------------------

    \1109\ See supra note 897.
    \1110\ See infra Section V.D.
---------------------------------------------------------------------------

    The compliance dates under the amendments are expected to give 
registrants additional time to obtain the necessary expertise and 
software, and mitigate the impact of transition on all filers, 
including smaller filers. However, we also expect that filers may 
realize benefits from the Inline XBRL requirement to the extent that 
making disclosures available in a structured format reduces some of the 
information barriers that make it costly for variable contract 
registrants to find new investors, as discussed in Section IV.D below.
    By making it easier to perform automated comparisons of disclosures 
across variable contracts, the amendments also might affect sales 
agents. Sales agents play a significant role in the distribution of 
variable contract products. For non-captive sales agents that 
independently compare variable contract products for recommendation to 
investors and prepare their own sales materials, we believe that those 
sales agents could benefit from the easier access and enhanced 
usability of information about variable contracts in Inline XBRL. 
Inline XBRL can facilitate faster search features across a larger set 
of variable contracts, with the Inline XBRL Viewer providing enhanced 
filtering and aggregation features. By using these features, sales 
agents may be able to select variable contract offerings that are 
better tailored to investors' demands. Similar benefits could also 
accrue to captive sales agents, to the extent that Inline XBRL permits 
them to more easily compare different variable contracts offered by a 
single issuer compared to manual review. Because having the required 
data in a structured format facilitates the analysis, aggregation, and 
comparison of information about variable contracts, the amendments 
might increase competition for investor capital among sales agents 
offering variable contract products of individual insurers or a narrow 
range of variable contract products.\1111\
---------------------------------------------------------------------------

    \1111\ Requiring variable contract registrants to file certain 
key information in Inline XBRL could facilitate comparisons of 
information across registrants which could increase competition 
among variable contract registrants for investor capital. Also, 
requiring variable contract registrants to file certain key 
information in Inline XBRL could reduce barriers to entry for third-
party aggregators and induce competition among firms that supply 
information about variable contracts to investors. These 
possibilities are discussed in greater detail below.

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[[Page 26065]]

4. Treatment of Discontinued Variable Contracts
    As discussed above, the Commission is taking the position that if 
an issuer of an Eligible Contract that is discontinued as of July 1, 
2020 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 are 
provided with the Alternative Disclosures or certain modernized 
alternative disclosures.\1112\
---------------------------------------------------------------------------

    \1112\ See supra Section II.E.
---------------------------------------------------------------------------

    Issuers providing alternative disclosures currently experience 
reductions in costs associated with updating registration statements 
and delivering updated prospectuses, compared to other variable 
contract issuers. In addition, the Commission position creates an 
option for issuers of Eligible Contracts. In lieu of providing 
financial statements and portfolio company prospectuses, issuers can 
send a Notice Document and post the portfolio company prospectuses and 
other required documents online. Issuers of Eligible Contracts will 
benefit from this position to the extent preparing and sending the 
Notice Document, in lieu of providing portfolio company prospectuses 
and financial statements, is less costly than providing Alternative 
Disclosures. This determination will be specific to agreements between 
insurers and portfolio companies as well as the circumstances of each 
contract, including the number of remaining contract investors, the 
number of underlying portfolio companies, and the proportion of the 
costs of printing and mailing the portfolio company prospectuses 
allocated to the variable contract issuer.
    We acknowledge that there are certain other costs and burdens that 
are currently reduced for issuers providing alternative disclosures, 
but would not be similarly reduced under the rule and form amendments. 
For example, a registrant relying on rule 498A will bear burdens of 
maintaining and updating the contract registration statement,\1113\ 
preparing and filing updating summary prospectuses, delivering the 
updating summary prospectus to investors annually, and making the 
contract statutory prospectus and SAI and other required documents 
available online. In addition, while the form amendments will simplify 
certain current disclosure requirements,\1114\ in other instances they 
will result in new or amended disclosures that, in the aggregate, we 
anticipate will result in a net increase in the burden associated with 
preparing an initial registration statement and post-effective 
amendments thereto.\1115\
---------------------------------------------------------------------------

    \1113\ Even when there are not material updates to the contract, 
the updating process still will entail internal burdens (e.g., for 
the registrant to confirm the continued accuracy of the information 
in the registration statement and to update information about the 
portfolio companies) and external expenses (e.g., for outside legal 
and auditor services).
    \1114\ For example, the amendments to Form N-3 and Form N-4 
include certain changes that eliminate burdens related to preparing 
and disclosing contract accumulation unit values. See supra Section 
II.C.2.e.
    \1115\ See infra Section IV.C.2.b.
---------------------------------------------------------------------------

    We estimate that approximately 4.79 million variable contracts are 
currently providing alternative disclosures.\1116\ For those contracts, 
the extent of the impact, compared to the baseline, of the Commission's 
position with respect to Eligible Contracts will depend on the extent 
to which insurers choose to provide modernized alternative disclosures. 
If insurers choose to provide the Alternative Disclosures, the impact 
would be minimal.\1117\ Alternatively, if issuers choose to provide 
modernized alternative disclosures, we believe investors will receive 
more useful information than the financial statements they currently 
receive.
---------------------------------------------------------------------------

    \1116\ See supra note 1031.
    \1117\ We note that insurers will have to file financial 
statements with the Commission as described in Section II.E.3.a 
above. See supra note 954.
---------------------------------------------------------------------------

    With respect to insurers with variable contracts outstanding, the 
Commission position likely will result in some costs. Existing 
contracts whose issuers are not currently operating in the manner 
described in the Staff Letters may have been structured or offered by 
insurers with the expectation that the insurer could provide 
alternative disclosures if a product launch is unsuccessful or the 
number of investors diminishes over time. Those contracts may 
experience unexpected future costs associated with updating the 
registration statement and delivering prospectuses under current 
regulatory requirements. However, those contracts could avail 
themselves of the summary prospectus regime, which, as discussed above, 
may mitigate some of those costs.
    Many of the burdens that are currently reduced for issuers 
providing alternative disclosures are also expected to be reduced under 
the summary prospectus framework; in particular, we expect reductions 
in costs associated with printing and mailing the contract summary 
prospectus and underlying portfolio company prospectuses to 
investors.\1118\ However, to the extent that the summary prospectus 
framework does not reduce future costs to the same extent as currently 
for issuers providing alternative disclosures, insurers may seek to 
terminate contracts with few remaining investors.
---------------------------------------------------------------------------

    \1118\ See supra Section IV.C.1.b.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    This section describes the effects we expect the rule and form 
amendments to have on efficiency, competition, and capital formation.
    Efficiency. To investors, the costs of purchasing a variable 
contract are more than just the dollar cost of the contract and include 
the value of an individual's time spent gaining an understanding of the 
contract as well as various aspects of the contract including optional 
benefits and fee structures, both prior to contract purchase and during 
the free look period following purchase. Further, for those investors 
who do not gain a full understanding of the contract, there could be a 
cost stemming from a potential mismatch between an investor's goals and 
the purchased contract. Depending on the size of an individual's 
potential purchase, certain of these additional costs could be 
considerable in comparison to the monetary costs associated with 
contract purchase and could discourage investors from considering 
variable contracts even in circumstances where investment in a variable 
contract would be beneficial.
    For their part, insurers only supply variable contracts to the 
extent they expect the benefits derived from providing the contracts to 
be greater than cost of supplying the contract.\1119\ For insurers, 
costs include not only those costs associated with producing and 
servicing variable contracts, but also those costs associated with 
meeting various statutory and regulatory obligations.
---------------------------------------------------------------------------

    \1119\ Insurers who expect the benefits derived from supplying 
contracts to be equal to the cost of supplying the contract will be 
indifferent between supplying and not supplying the contract.
---------------------------------------------------------------------------

    These costs borne by both insurers and individuals are examples of 
market ``frictions.'' Market frictions have the effect of reducing the 
benefits from contracting between market participants.\1120\ Rules that 
reduce costs for investors, insurers, or both, reduce market frictions. 
The summary

[[Page 26066]]

prospectus framework offers the opportunity for both insurers and 
investors to reduce their costs associated with variable contracts. 
Summary prospectuses provide information in a concise, user-friendly 
way that may allow investors to better understand variable products. 
The summary prospectus framework offers opportunities for insurers to 
reduce the costs of producing and delivering required disclosures to 
investors.\1121\
---------------------------------------------------------------------------

    \1120\ If market frictions are sufficiently large, market 
frictions could eliminate exchange altogether.
    \1121\ For example, as discussed above, greater investor 
understanding of variable products could lead to a better match 
between investor goals and purchased variable contracts. In other 
words, investment efficiency could increase.
---------------------------------------------------------------------------

    Similarly, the amendments to the registration forms will make key 
information more salient for investors and will make the presentation 
of this information more consistent across variable contract types. 
Additional consistency across forms will also reduce compliance burdens 
for insurers that are required to file using multiple form types, as 
will the amendments that reduce or eliminate certain disclosure 
requirements such as the AUV table requirement. The resulting decrease 
in market frictions should lead to greater efficiency by reducing 
barriers that insurers may face in supplying variable contracts to 
investors, and reducing barriers investors may face in evaluating 
variable contracts sold to them by insurers, particularly during the 
free look period.\1122\ In addition, requiring variable contract 
registrants to file certain information in Inline XBRL will enable 
investors to capture and analyze that information more quickly and 
efficiently than is possible using the same information provided in a 
static, text-based format. This improved functionality is expected to 
also facilitate the analysis performed by other data users (such as 
financial analysts, data aggregators, Commission staff, academics, and 
financial journalists) to the ultimate benefit of investors.
---------------------------------------------------------------------------

    \1122\ As noted above, there may be investors who prefer to rely 
on statutory prospectuses when making an investment decision who may 
not take the steps necessary to access the statutory prospectus. To 
the extent there are both investors who prefer to rely on statutory 
prospectuses when making an investment decision and who do not take 
the steps necessary to access the statutory prospectus, the 
increased barrier (the steps necessary to access the statutory 
prospectus) could lead to reduced efficiency in investor evaluation 
of variable contracts.
---------------------------------------------------------------------------

    These increases in efficiency could manifest as a higher likelihood 
that investors make investment decisions that are informationally 
efficient. First, it may increase the likelihood that investors choose 
a level of participation in variable contracts that is consistent with 
their overall financial needs and objectives--a level that may be 
higher or lower than current levels. The rule and form amendments may 
help promote investment in variable contracts by investors who would 
benefit from them. Second, more concise, user-friendly disclosure 
facilitates comparison across variable contracts and could make it more 
likely that investors choose the contracts that best meet their needs 
and reject those that do not. We also note that in facilitating 
comparison across variable products, concise, user-friendly disclosures 
may promote competition among insurers on dimensions such as fees, 
costs, and conflicts which could, in turn, improve investor welfare. 
Third, improved access to information resulting from more concise 
disclosure could facilitate more efficient investor allocation of 
assets across portfolio companies within variable contracts. Finally, 
access to clearer information about the contract terms may reduce the 
chances that an investor surrenders a variable contract when the costs 
of surrender do not justify the benefits of surrender.
    Furthermore, we considered the potential impact of our position on 
Alternative Disclosure Contracts on efficiency. We recognize that our 
position likely will cause insurers with non-Alternative Disclosure 
Contracts outstanding to incur additional costs due to the disclosure 
obligations that they may not have anticipated. To the extent that 
these unexpected costs drive insurers to take actions to encourage 
investors to exchange old contracts for new contracts or to buy out 
existing contracts, the Commission's position may result in 
inefficiencies. However, we believe that this reduction in efficiency 
may be offset by the expected increase in informational efficiency 
associated with the disclosures that will be afforded to contract 
holders in lieu of the alternative disclosures described in the Staff 
Letters.
    Competition. If the rule and form amendments increase efficiency of 
exchange in the variable contracts market, then we may observe a change 
in investment in variable contracts. For example, if there are 
individuals who currently do not invest in variable contracts (or 
invest less than they would have) because the costs other than the 
price of the contract are too high, then to the extent the rule lowers 
those costs we would expect to observe more people entering the 
variable contract market. Conversely, there may be investors who, 
because of the burden, choose not to read statutory prospectuses. To 
the extent those investors are more likely to read summary 
prospectuses, those investors may decide, as a result, that other 
investments or products are better suited to their investment goals. 
This could result in fewer investments in variable contracts. If there 
are insurers who limit their participation in the variable contract 
market, or limit the portfolio companies they offer as a result of the 
costs of current prospectus delivery requirements, those insurers may 
increase participation or increase the number of portfolio companies 
they offer as a result of this rule. To the extent that competition in 
a market is related to the size of the market, the net effect of these 
potential changes in investor demand for, and insurer supply of, 
variable contracts could affect competition in the variable contract 
market.
    The rule could also affect competition by requiring that 
information about the variable contract be presented in a concise, 
user-friendly way in the summary prospectus, which enhances the ability 
of investors to compare information across products. Requiring variable 
contract registrants to file certain information in Inline XBRL will 
further facilitate comparisons of information across contracts by 
making it easier for investors (directly or through data aggregators) 
to extract and aggregate information through automated means for 
analysis and comparison, which could increase competition among 
variable contract registrants for investor capital, particularly in 
combination with the free look period.\1123\ For example, the rule and 
form amendments require insurers to distill certain information into 
tables. The presentation of this information in a table facilitates 
comparison across different products. Greater comparison across 
different variable products could lead to greater

[[Page 26067]]

competition on dimensions which could improve investor welfare. 
Insurers could leverage the enhanced comparative capabilities arising 
from the Inline XBRL requirement (as well as the broader informational 
benefits arising from the summary prospectus and registration statement 
updating requirements) to better survey the variable contract products 
offered by their competitors and develop innovations to differentiate 
their own products from those offered by their competitors. 
Furthermore, the comparative benefits discussed above could increase 
further to the extent third-party data aggregators enter the market and 
use information disclosed in prospectuses to provide consolidated data 
on variable products, as search and processing costs could be reduced 
even further for investors. By reducing the costs associated with 
aggregating data across variable contracts, the Inline XBRL 
requirements could reduce barriers to entry for third-party data 
aggregators and induce competition among firms that supply information 
about variable contracts to investors, including other third-party 
aggregators and sales agents.
---------------------------------------------------------------------------

    \1123\ Competitive dynamics are more effective in areas where 
comparisons can be more easily made. For example, we believe that in 
the market for mutual funds and exchange-traded funds--particularly 
index funds--the enhanced comparability provided by mutual fund 
summary prospectuses and competition, among other factors, have 
driven down fees significantly. Comparability among index funds that 
follow the same market index is facilitated in part by their passive 
style of investing. Actively managed funds that follow the same 
investment strategy can show different performance due to, among 
other things, the ``skill'' of the manager of outperforming the 
market (or any other benchmark). This skill is unobservable and 
generally hard to measure, which makes comparisons across actively 
managed funds difficult. In contrast, comparisons across index funds 
that follow the same market index and that have passive investment 
styles are based more on observable variables, such as fees, rather 
than unobservable variables, such as managerial skill. In this 
context, disclosure that is more salient with respect to these 
observable variables may facilitate comparisons across index funds.
---------------------------------------------------------------------------

    The effect on competition between insurers could be limited, 
however, to the extent variable contract investors continue to rely on 
an agent to help them select and customize their variable contract(s) 
and do not have access to broad comparisons of variable contracts 
enabled by the Inline XBRL requirements at the time of sale or during 
the free look period.\1124\ Agents generally only provide their 
customers with a subset of the variable contracts available in the 
general marketplace. Thus, while the product information in summary 
prospectuses will facilitate comparison across products offered by the 
agent, the effect will likely be limited to the agent's set of products 
rather than to the broader market.
---------------------------------------------------------------------------

    \1124\ See IRI Fact Book, supra note 16, at 176.
---------------------------------------------------------------------------

    We recognize that any fixed costs of compliance with the new 
requirements, including Inline XBRL requirements, could have a 
relatively greater impact on small filers. However, the overall 
magnitude of such costs, discussed in greater detail in Section V 
below, and thus the magnitude of the associated competitive effects, is 
expected to be modest.
    We also considered the potential impact of our position on 
Alternative Disclosure Contracts on competition between insurers. 
Above, we discussed the possibility that, because contracts that are 
not Alternative Disclosure Contracts as of the effective date of the 
final summary prospectus rules could not provide alternative 
disclosures after such date, the Commission's position could cause 
these insurers to experience future costs of disclosure obligations 
that they may not have anticipated. The Commission's position thus may 
place at a competitive advantage those insurers with a greater 
proportion of contracts that may operate under the Commission 
position.\1125\ We note, however, that Alternative Disclosure Contracts 
are no longer offered for sale to the public and, therefore, do not 
compete for investment by new investors. The competitive effect will be 
limited to additional investment by existing investors in existing 
Alternative Disclosure Contracts.
---------------------------------------------------------------------------

    \1125\ One commenter stated that our position on Alternative 
Disclosure Contracts would create an advantage to insurance 
companies with large existing bases of variable contract investors. 
See Better Markets Comment Letter.
---------------------------------------------------------------------------

    Commenters stated that the Alternative Disclosure Contract 
framework has enabled insurers to continually innovate and introduce 
new products for investors.\1126\ One commenter indicated that in the 
absence of the Alternative Disclosure Contract framework, insurers 
would be less likely to innovate and offer new products which could, in 
turn, limit investor choice and dampen competition among 
insurers.\1127\ As discussed above, however, we generally believe that 
all variable contract issuers should provide investors the same 
information and be subject to the same liability standards.\1128\
---------------------------------------------------------------------------

    \1126\ See CAI Comment Letter; Brighthouse Comment Letter; 
Transamerica Comment Letter.
    \1127\ See CAI Comment Letter.
    \1128\ See Section II.E.3.a.
---------------------------------------------------------------------------

    Finally, four commenters stated that our requirement to base 
certain fee calculations in the Key Information Table on an assumed 
account balance of $100,000 would put insurers offering variable 
contracts at a competitive disadvantage to mutual funds which are 
required to assume a $10,000 balance.\1129\ As we note above, $100,000 
more closely approximates the current average value of a variable 
annuity, and therefore we continue to believe that figure is more 
likely to result in cost projections that align with actual investor 
expectations and experience.\1130\
---------------------------------------------------------------------------

    \1129\ See supra note 132.
    \1130\ See supra note 133. We note also that while variable 
contracts and mutual funds share certain characteristics, variable 
contracts provide insurance benefits that mutual funds do not. See, 
e.g., ``How is a Variable Annuity Different from a Mutual Fund?'' 
available at https://irionline.org/consumer-articles/how-is-a-variable-annuity-different-from-a-mutual-fund-. The insurance 
benefits of variable contracts may limit competition between 
variable contracts and mutual funds. The extent of competition 
between insurers and mutual funds depends on the extent to which 
investors view variable products and mutual funds as substitutes for 
one another, even though variable contracts provide insurance 
benefits that mutual funds do not.
---------------------------------------------------------------------------

    Capital Formation. As discussed in connection with the potential 
effects of the rule on competition, if the rule increases the 
efficiency of exchange in the variable contracts market, then we may 
observe a change in investment in variable contracts. Greater 
investment in variable contracts could lead to increased demand for 
securities held by the portfolio companies that underlie the variable 
contracts (or held directly by the separate account in the case of a 
Form N-3 registrant).\1131\ The increased demand for securities could, 
in turn, facilitate capital formation.\1132\ Diminished investment, 
however, could lead to reduced demand for such securities. We expect 
either of these effects to be small. We further note that to the extent 
increased or decreased investment in variable contracts reflects 
substitution from other investment vehicles, the effect on capital 
formation will be attenuated.
---------------------------------------------------------------------------

    \1131\ This would be true to the extent funds invested in 
variable contracts would not otherwise have been invested in 
securities.
    \1132\ One commenter stated that summary disclosure could 
facilitate capital formation by enabling consumers to understand the 
role of variable life insurance and variable annuities in financial 
and retirement security. See ACLI Comment Letter.
---------------------------------------------------------------------------

    The Inline XBRL requirements could increase the efficiency of 
capital formation to the extent that making disclosures available in a 
structured format reduces some of the information barriers that make it 
costly for variable contract registrants to find new investors. Smaller 
registrants in particular may benefit more from enhanced exposure to 
investors. If reporting the disclosures in a structured format 
increases the availability, or reduces the cost of collecting and 
analyzing, key information about variable contracts, smaller variable 
contract registrants may benefit from improved coverage by third-party 
information providers and data aggregators.
    To the extent that the rule reduces costs for some variable 
contract registrants, we expect reduced costs to increase the portion 
of investor money that is retained as the investor's contract value, 
rather than used to cover expenses, resulting, over time, in a net 
positive effect on the level of capital invested through variable 
contracts. Furthermore, to the extent that reductions in expenses have 
a positive effect on the performance of variable

[[Page 26068]]

contracts and attract new investors or additional capital from existing 
investors, the rule may result in greater capital formation. We expect 
this effect to be small.

E. Reasonable Alternatives

1. Mandating Summary Prospectuses
    New rule 498A will provide registrants the option to use the 
summary prospectus regime the rule establishes. Alternatively, we 
considered mandating the use of summary prospectuses.\1133\ We expect 
that use of summary prospectuses will provide net benefits to investors 
because they are shorter, simpler, and designed to make salient the 
most important variable contract terms. A mandatory regime would ensure 
that those benefits are available to all investors, not just those who 
have invested in variable contracts offered by insurers that would 
elect to deliver summary prospectuses.\1134\
---------------------------------------------------------------------------

    \1133\ See supra note 42
    \1134\ As discussed above, we understand that some investors who 
prefer statutory prospectuses may experience costs if they are given 
summary prospectuses and need to request statutory prospectuses. 
Under a mandatory regime, this cost would be borne by all investors 
who prefer statutory prospectuses, not just those who have invested 
in variable contracts offered by insurers that would elect to 
deliver summary prospectuses. Regardless, as noted above, we believe 
the number of investors who would prefer statutory prospectuses, as 
well as the number of insurers that would not elect to deliver 
summary prospectuses, to be a minority.
---------------------------------------------------------------------------

    We believe that insurers will only choose to rely on the optional 
summary prospectus regime where they expect that the benefits will 
outweigh the costs. While we believe that reliance on the summary 
prospectus regime will yield cost savings for insurers, we acknowledge 
that these cost savings will vary across insurers and there may be 
insurers that do not expect benefits in excess of the expected costs of 
relying on summary 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. 
Imposing a mandatory summary prospectus regime would entail imposing 
net costs on these insurers.
    Based on our analysis of cost savings and other efficiencies above, 
our expectation is that insurers offering variable contracts to new 
investors will choose to use summary prospectuses. We believe that 
making reliance on rule 498A optional will give insurers the 
opportunity to gradually transition to the new summary prospectus 
regime while minimizing disruption to their current registration and 
business processes. Given our expectation that most insurers offering 
variable contracts to new investors will chose to use summary 
prospectuses, and the anticipated cost-savings and other efficiencies 
available to insurers that rely on the rule, we do not at this time 
believe a mandatory approach is necessary to achieve the goals of the 
variable contract summary prospectus regime.
2. Summary Prospectuses Delivered With Statutory Prospectuses
    New rule 498A requires 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 the cover of the summary 
prospectus. As we discuss above, investors who wish to use statutory 
prospectuses as well as summary prospectuses will bear an additional 
burden of accessing statutory prospectuses online. Alternatively, the 
rule could require insurers to provide both summary and statutory 
prospectuses together in paper or, if the investor has elected to 
receive the document electronically, in electronic form. This 
alternative would offer the benefit, for those investors choosing to 
receive the documents in paper, that any investor wishing to use both 
summary and statutory prospectuses in his or her decision making would 
not be required to bear the additional burden of accessing statutory 
prospectuses online.
    While providing both summary and statutory prospectuses together 
would eliminate the necessity of those investors who wish to use both 
summary and statutory prospectuses having to bear the burden of 
accessing statutory prospectuses online, we have decided against this 
alternative for two reasons. First, rather than reducing printing and 
mailing costs, this alternative would create additional printing and 
mailing costs. We believe that the increased printing and mailing costs 
would cause few insurers to choose to provide both summary and 
statutory prospectuses. Thus, de facto, the potential benefits of 
layered disclosure would likely not be available to most investors.
    Second, summary prospectuses will provide investors with key 
information relating to the contract's terms, benefits, and risks in a 
concise and more reader-friendly document. We are concerned that 
variable contract investors may not read or understand the disclosures 
they currently receive. If investors were to receive both summary and 
statutory prospectuses, the increase in materials received could lead 
to potentially fewer investors reading either of the documents.\1135\
---------------------------------------------------------------------------

    \1135\ This effect is mitigated to the extent that investors 
want to receive the additional disclosure. For example, those 
investors who currently read statutory prospectuses in consideration 
of their investment decisions may find the incremental burden 
associated with receiving the additional disclosure in the form of 
summary prospectuses to be small.
---------------------------------------------------------------------------

3. Contract-Specific Updating Summary Prospectuses
    The adopted variable contract summary prospectus regime requires 
that the initial summary prospectus only describe a single contract 
that the registrant currently offers for sale, but permits an updating 
summary prospectus to describe more than one contract covered in the 
statutory prospectus to which the updating summary prospectus relates. 
Commenters supported the optionality to allow the updating summary 
prospectus to include multiple contracts under the statutory prospectus 
to which the summary prospectus relates.\1136\ As an alternative, we 
considered requiring that the updating summary prospectus describe only 
a single contract.
---------------------------------------------------------------------------

    \1136\ See supra note 344.
---------------------------------------------------------------------------

    An updating summary prospectus that describes solely the contract 
held by an investor could be easier for that investor to consume than 
an updating summary prospectus that describes more than one contract, 
and therefore could be more beneficial to investors than the final 
rule's approach. The magnitude of this increase in benefits depends on 
the extent to which information about multiple contracts confuses 
investors or causes investors not to read the information, which, in 
turn, likely depends on the number of changes to contracts and the 
number of different contracts that would be presented in the updating 
summary prospectus.
    We acknowledge that this alternative would permit investors to 
easily focus on key information on a single contract. However, we 
believe this increase in benefits would be limited because, based on 
our current understanding of variable contracts, there are a limited 
number of changes to contracts in any given year, and many of those 
changes (such as changes to the available portfolio companies or the 
addition of new optional benefits) typically apply to similar contracts 
in the same prospectus. Accordingly, although the section of the 
updating prospectus that describes changes to the contracts will

[[Page 26069]]

cover multiple contracts, the number of changes concerning any 
individual contract is expected to be relatively brief, thus minimizing 
the amount of inapplicable information the investor would read.
    We do note that under this alternative, an insurer could limit the 
costs associated with printing and mailing by only delivering those 
updating summary prospectuses to an investor that holds the contracts 
they describe. However, such a process would likely entail systems 
upgrades and changes to back-office operations needed to tailor 
mailings on an investor-by-investor basis.\1137\
---------------------------------------------------------------------------

    \1137\ We understand that the process involved in drafting and 
printing an updating summary prospectus that only describes the 
changes made to a single contract (and then distributing a tailored 
updating summary prospectus to each investor based on their 
particular contract) is quite complex. In contrast, the same process 
with respect to the initial summary prospectus is relatively 
straightforward since the document, which would only describe the 
currently available contract, would be provided all new investors.
---------------------------------------------------------------------------

4. Do Not Provide Updating Summary Prospectuses
    We considered two closely related alternative approaches to the 
final summary prospectus regime in which only initial contract 
purchasers would receive a summary prospectus, and afterwards, 
investors who make additional purchase payments or who reallocate 
contract value would either (1) receive no updating summary prospectus 
or (2) receive only a notice that the statutory prospectus is available 
online. Such an alternative would likely yield larger cost savings for 
insurers because insurers would not be required to produce, print, and 
mail updating summary prospectuses and would instead incur only costs 
associated with providing the initial summary prospectus when an 
investor first purchases the contract or reallocates contract value.
    However, under either of these alternatives, investors would not 
benefit from the ongoing layered disclosure provided by the updating 
summary prospectus. As discussed above, the Commission believes that 
the updating summary prospectus's brief description of any important 
changes to the contract that occurred within the prior year will allow 
investors to better focus their attention on new or updated information 
relating to the contract. Relatedly, the updating summary prospectus 
includes certain information required in the initial summary prospectus 
that we consider most relevant to investors when considering additional 
investment decisions, and investors would not have access to this 
concise presentation of key information under either alternative.
5. Inline XBRL
    The amendments require variable contract registrants to file 
certain information from statutory prospectuses with the Commission in 
Inline XBRL. As an alternative, we considered allowing, but not 
requiring, variable contract registrants to file the information in 
Inline XBRL. Compared to the amendments, a fully voluntary Inline XBRL 
program would lower costs for those filers, particularly filers that do 
not already file information in Inline XBRL.\1138\ However, a voluntary 
program would reduce the usability of the required data. If information 
was not submitted by the registrant in a structured, machine-readable 
format, investors and other data users who wish to instantly analyze, 
aggregate, and compare the data would be required to incur the costs of 
paying a third-party provider to manually rekey the data, review the 
data for data quality problems during the duplication process, and 
disseminate the data to the users. Alternatively, investors or data 
users unwilling to pay a third-party provider would incur the time to 
conduct that process themselves. In either scenario, the data would not 
be usable in as timely a manner as if it were made machine-readable. In 
addition, under a voluntary program, data that is not submitted in 
Inline XBRL would not be validated in EDGAR. Validations are technical 
restrictions that test for completeness of the data and that the data 
is appropriately formatted. Validations enable the Commission to ensure 
consistency of the data so that the disclosures can be immediately used 
for aggregation, comparison, and analysis. Without validations, data 
would likely be submitted inconsistently, thus decreasing the overall 
data quality of the data submitted. Poor data quality reduces any data 
user's ability to meaningfully analyze, aggregate, and compare data.
---------------------------------------------------------------------------

    \1138\ In expressing support for the availability of hardship 
exemptions for Inline XBRL tagging, one commenter stated, 
``Generally speaking, it could be helpful to conceive of a 
transition from voluntary to mandated use, especially with respect 
to smaller organizations for which implementation could potentially 
be unduly burdensome.'' See Chemas Comment Letter.
---------------------------------------------------------------------------

    Under the amendments, filing the information in Inline XBRL will be 
required for the Key Information Table, Fee Table, Principal Risks of 
Investing in the Contract, Standard Death Benefits (for Form N-6), 
Benefits Available Under the Contract (for Forms N-3 and N-4), Other 
Benefits Available Under the Contract (for Form N-6), Portfolio 
Companies Available Under the Contract (for Forms N-4 and N-6), 
Investment Options Available Under the Contract (for Form N-3), and 
Additional Information about Investment Options Available Under the 
Contract (for Form N-3). The information required to be filed in Inline 
XBRL largely parallels the information that is required of mutual funds 
and ETFs, and we believe it is likely to be of greatest utility for 
investors and others that seek to use the information in a structured 
format to assist with decisions about variable products.
    As another alternative, we considered requiring variable contract 
registrants to submit all, or a larger subset, of the information from 
the statutory prospectus, rather than only the information covered by 
the amendments, in Inline XBRL. Compared to the amendments, this 
alternative would improve the timeliness and usability of the required 
disclosures, but potentially impose additional costs on registrants. To 
the extent that the other required disclosures in the affected forms 
contain information that is more specific to individual registrants 
without any comparability or aggregation utility, the benefits of 
having those additional required disclosures in a structured format may 
be lower than the more limited subset of disclosures required to be 
filed in Inline XBRL under the amendments.
    Under the proposal, the Inline XBRL requirement would have applied 
to all variable contracts. As discussed above, under the amendments, 
the Inline XBRL requirement will not apply to contracts that are not 
being sold to new investors.\1139\ One commenter who opposed the 
requirement to tag such contracts stated, ``Inline XBRL is primarily 
designed to help investors and other market participants compare 
investments and decide which, if any, to buy. Applying the Inline XBRL 
requirements to insurance contracts no longer being sold would impose 
unnecessary costs and burdens on insurers without providing any benefit 
to investors.'' \1140\ Other commenters emphasized the need for all 
filers to structure disclosures in the Inline XBRL format, and noted 
that comparability of information would be impaired if only some 
products reported data in

[[Page 26070]]

structured format.\1141\ We agree that applying the Inline XBRL 
requirements to contracts no longer being sold to new investors could 
provide some additional benefit to investors by expanding the overall 
comparability of variable contracts, however as discussed below, we 
believe this additional benefit would be limited and would not justify 
the additional tagging costs to filers because such contracts do not 
represent potential investment targets for new investors.
---------------------------------------------------------------------------

    \1139\ See supra Section II.D.
    \1140\ See CAI Comment Letter.
    \1141\ See XBRL US Comment Letter; Better Markets Comment 
Letter.
---------------------------------------------------------------------------

    Requiring filers to structure contracts that are not being sold to 
new investors on an ongoing basis would impose additional costs on 
filers each year, although we expect such costs would be limited. As 
discussed in further detail below, a significant portion of the costs 
to filers associated with the tagging requirement will be incurred the 
first time a registration statement for the contract is filed.\1142\ 
Furthermore, prospectuses for contracts that become discontinued after 
the effective date of the amendments are unlikely to materially change 
from year to year.
---------------------------------------------------------------------------

    \1142\ See infra Section V.D.
---------------------------------------------------------------------------

    Existing investors in a contract that is not being sold to new 
investors often consider various investment decisions that would likely 
derive some benefit from analysis facilitated by Inline XBRL tagging. 
For example, such investors may decide to make additional investments 
in the contract, purchase different optional benefits available under 
the contract, or reallocate value among the contract's investment 
options. In addition, as discussed above, investors in a contract that 
is not being sold to new investors may consider whether to accept a 
buyout offer from their insurer or exchange their current contract for 
a new contract with different optional benefits.\1143\ In such 
instances, having their contract's disclosures available in structured 
format could benefit investors by simplifying the comparison of their 
current contract to other available contracts. However, these investors 
would likely already be familiar with the disclosures in their 
contracts, and would only need to compare those disclosures to the 
disclosures in other currently offered contracts, which will be tagged 
in Inline XBRL and therefore suitable for instant comparison and 
analysis. Thus, the benefit to investors of tagging disclosures in 
contracts that are not being offered to new investors is significantly 
lower than the benefit to investors of tagging contracts that are being 
offered to new investors. In addition, while Inline XBRL does 
facilitate comparisons across reporting periods, investors would derive 
a related benefit from the Inline XBRL tagging of contracts that are 
not being sold to new investors only to the extent they find historical 
information of what was formerly offered to be useful in their review 
of currently offered products.
---------------------------------------------------------------------------

    \1143\ See supra Section II.D.
---------------------------------------------------------------------------

    The proposed amendments would have provided filers with an 18-month 
transition period after the effective date of the amendments to give 
registrants sufficient time to update their prospectuses and to prepare 
new registration statements that comply with the amendments, including 
with the Inline XBRL tagging requirement. As discussed in Section II.G 
above, in a departure from the proposal, the new rule includes an 
additional 12-month transition period for compliance with the Inline 
XBRL tagging requirement. Compared to the proposed amendments, this 
additional transition period will permit filers to defer Inline XBRL 
compliance costs and may ease the transition for filers, particularly 
smaller filers and filers that encounter challenges in acquiring 
expertise and software solutions needed to prepare Inline XBRL 
filings.\1144\ However, the longer transition period will also defer 
the benefits of making the information available in a structured format 
to investors in variable contracts.
---------------------------------------------------------------------------

    \1144\ As noted in Section IV.C.3 above, some evidence suggests 
that, for operating companies, the costs of tagging in XBRL format 
have decreased over time. See supra note 1107. To the extent this 
trend applies to Inline XBRL tagging of variable contract 
registration statements, providing an additional 12-month transition 
period may impose lower initial tagging costs compared to the 
proposal.
---------------------------------------------------------------------------

    As another alternative, we considered requiring the disclosures to 
be filed in another structured format, such as the XBRL or XML format. 
Compared to the Inline XBRL requirement, the use of the XBRL format 
entails complete duplication of the data, which can adversely affect 
the quality and usability of the structured data as well as the 
efficiency and cost of preparation and review of the structured data. 
Compared to the requirement to use Inline XBRL, the alternative to 
requiring the use of XML could have resulted in lower costs for filers. 
However, compared to the amendments, XML would have provided less 
flexibility in tagging complex information as well as less extensive 
data quality validation capabilities. In addition, neither the XBRL nor 
XML options are human-readable. As a result, investors and other data 
users would not have the benefits of having a document that is both 
machine-readable and human-readable, or the benefits of using an inline 
viewer when accessing the filing, such as enhanced search features, 
filtering capabilities, and built-in definitional references. Investors 
and other data users would have needed to access two different 
documents to view and analyze the same data. Filers would also have 
diminished data quality benefits. Because Inline XBRL embeds structured 
data directly into an HTML document, filers will not need to review a 
separate structured data document to identify and correct data quality 
errors. Moreover, by using an Inline XBRL viewer, filers can more 
easily identify discrepancies in their data before filing.
6. Alternatives to Form N-3, N-4, and N-6 Amendments
    The Commission is adopting amendments to Forms N-3, N-4, and N-6. 
Collectively, these amendments are meant to update and enhance the 
disclosures to investors in variable annuity contracts, and to 
implement the summary prospectus regime.
    We considered adopting a subset of the amendments to the 
registration forms. Fewer amendments to the registration forms could be 
less costly for registrants, because registrants would be required to 
make fewer changes to their disclosure. However, the adopted form 
amendments also simplify certain current disclosure requirements, and 
so the net economic effects of proposing only a subset of the 
amendments depends on the particular subset of amendments. As described 
in Section II.C above, we believe that the form amendments that we have 
adopted promote investor understanding of variable contracts by 
presenting information in a clear manner and by reflecting industry 
developments. Requiring only a subset of these amendments could result 
in less investor understanding relative to the understanding resulting 
from the adopted amendments.
    Additionally, the Commission is adopting a new General Instruction 
in each of Forms N-3, N-4, and N-6 to encourage the use of disclosure 
effectiveness principles in variable contract disclosure. Specifically, 
General Instruction C.3.(c) in each form encourages registrants to use, 
as appropriate, question-and-answer presentations, tables, side-by-side 
comparisons, captions, bullet points, numeric examples, illustrations 
or similar presentation methods.\1145\ We considered mandating the use 
of these

[[Page 26071]]

presentation methods. Investors might gain a clearer understanding of 
the features and risks of variable contracts as a result. We are 
concerned, however, that mandating a particular presentation method 
(besides the presentation methods that the form amendments specifically 
require) could provide less flexibility to registrants to describe 
variable contracts in the manner they think is most appropriate. 
Moreover, there could be a risk that mandating the use of certain 
presentation methods could unintentionally obscure, or not clearly 
explain, certain variable contract features and risks.
---------------------------------------------------------------------------

    \1145\ See supra note 597.
---------------------------------------------------------------------------

    Also, we are adopting a requirement that the Key Information Table 
include cross-references to the location in the statutory prospectus 
where the subject matter is described in greater detail (and that 
cross-references in electronic versions of the summary prospectus and/
or statutory prospectus should link directly to the location in the 
statutory prospectus where the subject matter is discussed in more 
detail, or should provide a means of facilitating access to that 
information through equivalent methods or technologies). As an 
alternative to this instruction, we considered requiring that, where a 
topic is summarized in the statutory prospectus and is discussed in 
more detail elsewhere in the statutory prospectus, the summarized topic 
must include a cross-reference (and a hyperlink in electronic document 
versions) to the location in the statutory prospectus where the topic 
is discussed in more detail. This alternative requirement would make 
use of the layered disclosure approach that underlies the rulemaking 
proposal in a manner that could make information in the prospectus more 
accessible to investors and leverage technology in a way that could 
further assist investors in navigating the prospectus. We believe, 
however, that adding additional cross-references and hyperlinks would 
increase costs for insurers and could lead to greater uncertainty among 
registrants about where cross-references and hyperlinks are required 
(i.e., whether a topic is summarized in one part of the prospectus and 
then discussed in more detail later could be viewed as a subjective 
determination). Further, the benefits of cross-references and 
hyperlinks might be limited, given that rule 498A will require 
electronic versions of the statutory prospectus to include a table of 
contents that would allow the reader to move directly between it and 
the related sections of the document.
7. Requiring All Variable Contracts (Including Eligible Contracts) To 
Prepare Updated Registration Statements and Deliver Statutory or 
Summary Prospectuses
    Instead of permitting Eligible Contracts to operate under the 
Commission position, we considered requiring issuers of all contracts 
to prepare updated registration statements and comply with either the 
current standard prospectus delivery requirements or the optional 
summary prospectus regime. In this scenario, investors in Eligible 
Contracts would receive the statutory prospectus or the optional 
updating summary prospectuses, while continuing to have access (either 
upon request or online, under the summary prospectus regime) to 
financial statements. As explained in detail above, the optional 
summary prospectus regime, if relied on, provides significant 
additional benefits for investors in terms of facilitating the review 
and understanding of available disclosures.\1146\ At the same time, the 
optional summary prospectus regime also permits insurers to satisfy 
delivery obligations for the underlying company prospectuses by making 
those documents available online, which could create a burden for 
investors who prefer to use those prospectuses when making allocation 
decisions and who would have been sent those documents as part of the 
Alternative Disclosures.
---------------------------------------------------------------------------

    \1146\ See supra Section IV.C.1.a.i.(a).
---------------------------------------------------------------------------

    With respect to the impact on insurers, under this alternative, 
issuers of Eligible Contracts could incur significant costs to update 
their registration statements under the new form requirements, most of 
which have not been updated for many years.\1147\ These costs could 
vary, including based on the period of time since the insurer had last 
updated the relevant registration statement. In addition, insurers 
would bear the ongoing costs associated with maintaining an effective 
registration statement and sending investors documents under the 
current standard prospectus delivery requirements or the optional 
summary prospectus regime. We expect these costs would exceed the costs 
associated with providing investors with the Alternative Disclosures or 
modernized alternative disclosures particularly when combined with 
electronic delivery of underlying portfolio company prospectuses.
---------------------------------------------------------------------------

    \1147\ See supra Section II.E.2.
---------------------------------------------------------------------------

    On balance, given the burdens associated with preparing an updated 
registration statement and compliance with either standard prospectus 
delivery requirements or the optional summary prospectus regime, 
Eligible Contracts may operate in the manner discussed above.\1148\
---------------------------------------------------------------------------

    \1148\ See supra Section II.E.
---------------------------------------------------------------------------

8. Alternative Approaches to Discontinued Contracts
    The Commission is declining to extend its position to contracts 
that are not Eligible Contracts. For Eligible Contracts, the Commission 
position will allow insurers to choose whether to provide Alternative 
Disclosures or modernized alternative disclosures.\1149\
---------------------------------------------------------------------------

    \1149\ See supra Section II.E.3. Alternatively, issuers of 
currently discontinued contracts could choose to begin using the 
summary prospectus framework.
---------------------------------------------------------------------------

    We considered and received comment on two alternative approaches; 
each alternative approach could have been implemented only on a going 
forward basis or for all contracts, including Eligible Contracts.\1150\ 
For Method 1, under which each approach would be applied only on a 
going forward basis for contracts that become discontinued in the 
future, we analyze the costs and benefits of each approach relative to 
the adopted summary prospectus framework. For Method 2, under which 
each approach would also be applied to Eligible Contracts, we analyze 
the costs and benefits of each approach relative to the options under 
Commission position. In addition to these economic impacts to existing 
contracts, the costs and benefits of these approaches could also affect 
the development of new variable contracts in the future. For example, 
to the extent that an approach represents additional costs/cost savings 
associated with a variable contract relative to the adopted rule, these 
alternative approaches could result in higher/lower fees and charges 
for future variable contracts. Similarly, these relative costs and 
benefits may affect insurers' willingness to develop and offer new 
variable products.
---------------------------------------------------------------------------

    \1150\ See supra note 939.
---------------------------------------------------------------------------

    For the reasons described above, the Commission is declining to 
adopt either alternative and believes that it will benefit from further 
study and data regarding the potential cost savings and other burden 
reductions under Approach 2.\1151\ We welcome input from the public as 
we undertake this further study.
---------------------------------------------------------------------------

    \1151\ See supra Section II.E.4.
---------------------------------------------------------------------------

a. Approach 1
    Approach 1 would codify existing practices under the Staff Letters 
with

[[Page 26072]]

certain modifications.\1152\ The Commission could have implemented 
Approach 1 only on a going forward basis (Method 1) or for all 
contracts, including Eligible Contracts (Method 2).
---------------------------------------------------------------------------

    \1152\ See Proposing Release, supra note 6, at Section II.C.
---------------------------------------------------------------------------

i. Method 1
    New rule 498A and Approach 1 would require generally the same 
information to be delivered to investors. For example, Approach 1 would 
require insurers of discontinued contracts to deliver an annual notice 
to investors that contains information substantially similar to that 
included in an updating summary prospectus under 498A. In addition, 
under both frameworks, portfolio company prospectuses and shareholder 
reports would be delivered to all investors but insurers could satisfy 
portfolio company prospectus delivery requirements by making the 
portfolio company prospectuses available online and delivering them to 
investors upon request. As a result, we do not believe that Approach 1 
would have a substantial effect on the costs incurred by insurers 
associated with preparing and delivering disclosures to investors in 
contracts that become discontinued in the future.
    The summary prospectus framework is a layered disclosure regime, 
however, with a contract's current statutory prospectus (and certain 
other information) available online and delivered upon request. This 
additional information would not be available to investors under 
Approach 1. Unlike the summary prospectus framework, Approach 1 would 
also allow issuers of certain contracts that become discontinued in the 
future to cease maintaining an updated registration statement.\1153\ As 
a result, investors also would not have access to the more detailed 
information that would be included in an updated registration statement 
under the summary prospectus framework but not in the materials 
delivered to investors or available upon request under Approach 1. 
Under Approach 1 issuers of certain contracts that become discontinued 
in the future would face lower costs relative to the summary prospectus 
framework because they would not be required to maintain an updated 
registration statement for the duration of the contract.
---------------------------------------------------------------------------

    \1153\ Id.
---------------------------------------------------------------------------

    As a further consequence, under Approach 1 the liability provisions 
available under the federal securities laws would not apply to the same 
extent as under the current variable contract prospectus delivery 
regime and under the summary prospectus regime for registrants that 
choose to rely on rule 498A. The loss of these liability protections 
represents a potential cost to investors in contracts that may become 
discontinued in the future.
ii. Method 2
    The Commission could also choose to apply Approach 1 not only to 
future discontinued contracts but to all contracts, including Eligible 
Contracts. Under the Commission position, insurers of Eligible 
Contracts may choose whether to provide Alternative Disclosures or 
modernized alternative disclosures. Issuers of Eligible Contracts who 
elect to utilize modernized alternative disclosures may provide 
investors a notice containing information comparable to that in an 
updating summary prospectus and post the portfolio company 
prospectuses, statutory prospectus, SAI, and shareholder reports online 
in lieu of mailing these materials to investors. This is similar to 
Approach 1 and therefore, where insurers elect to utilize modernized 
alternative disclosures, we do not believe that investors or insurers 
in those contracts would realize additional costs or benefits 
associated with preparing and delivering disclosures under Approach 1.
    In contrast, issuers of Eligible Contracts who elect to provide 
Alternative Disclosures under the Commission position would face 
additional costs under Approach 1 associated with providing an annual 
notice to investors. This cost may be mitigated by savings on printing 
and mailing costs resulting from Approach 1's option to provide 
portfolio company prospectuses and updated financial statements by 
posting them on a website. However, investors in these contracts would 
benefit by receiving the additional information included in the annual 
notice they would be provided under Approach 1 but would not receive as 
part of the Alternative Disclosures.
b. Approach 2
    Approach 2 would require that insurers maintain an updated 
registration statement, but would allow financial statements to be 
forward incorporated by reference into the registration 
statement.\1154\ The Commission could have implemented Approach 2 only 
on a going forward basis (Method 1) or for all contracts, including 
Eligible Contracts (Method 2).
---------------------------------------------------------------------------

    \1154\ See Proposing Release, supra note 6, at Section II.C.
---------------------------------------------------------------------------

i. Method 1
    Under Approach 2, the documents insurers would prepare and deliver 
to investors are similar to those that are prepared and delivered in 
the summary prospectus framework. As a result, we do not believe that 
Approach 2 would have a substantial effect on the costs incurred by 
insurers associated with preparing and delivering disclosures to 
investors in contracts that become discontinued in the future. Like the 
summary prospectus framework, Approach 2 would require issuers of 
discontinued contracts to maintain a current registration statement and 
to make the statutory prospectus and SAI available online. However, 
Approach 2 would only require insurers to file post-effective 
amendments to update their registration statements when there are 
material changes to the offering, and would allow forward incorporation 
by reference of updated financial statements in the registration 
statement. This approach could reduce costs for issuers of future 
discontinued contracts to the extent that it reduced the number of 
post-effective amendments compared to the summary prospectus framework.
    For investors in contracts that may become discontinued in the 
future, the disclosures that would be delivered to them under Approach 
2 are similar to those they will receive under the adopted summary 
prospectus framework. Further, because the summary prospectus framework 
and Approach 2 would both require insurers to maintain an updated 
registration statement for the life of the contract, investors in 
future discontinued contracts under both frameworks would have access 
to the more detailed information included in the updated registration 
statement.
ii. Method 2
    The Commission could also choose to apply Approach 2 not only to 
future discontinued contracts but to all contracts, including Eligible 
Contracts. If the Commission chose to apply Approach 2 to all 
contracts, insurers issuing Eligible Contracts would likely face 
additional costs relative to the Commission position. Issuers of 
Eligible Contracts who choose to provide modernized alternative 
disclosures under the Commission position would face similar costs 
associated with preparing and delivering disclosures to investors under 
Approach 2, but these insurers would incur an additional cost to bring 
their registration statement up to date. Insurers who choose instead to

[[Page 26073]]

provide Alternative Disclosures under the Commission position would 
similarly incur costs under Approach 2 to bring their registration 
statement up to date, as well as the additional cost of providing the 
notice document. However, Approach 2's option to post portfolio company 
statements and updated financial statements on a website would likely 
mitigate these additional costs to insurers that would otherwise opt to 
provide Alternative Disclosures under the Commission position.
    Under Approach 2, investors in all Eligible Contracts would benefit 
from the liability protections of the federal securities laws, which 
they would not receive under either option under the Commission 
position. Investors who would receive Alternative Disclosures under the 
Commission position would further benefit from the disclosures provided 
in the annual notice they would receive under Approach 2.

V. Paperwork Reduction Act

    New rule 498A will result in new ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\1155\ In addition, the new rule and other amendments will 
impact the collections of information under Form N-3, Form N-4, Form N-
6, and Mutual Fund Interactive Data (which will be retitled as 
``Investment Company Interactive Data'') within the meaning of the 
PRA.\1156\
---------------------------------------------------------------------------

    \1155\ 44 U.S.C. 3501-3520.
    \1156\ We recently issued a release that, among other things, 
proposed to retitle the ``Mutual Fund Interactive Data'' information 
collection as ``Investment Company Interactive Data.'' See Closed-
End Offering Reform Release, supra note 18.
---------------------------------------------------------------------------

    The titles for the existing collections of information are: (1) 
``Form N-3, Registration Statement under the Securities and Investment 
Co. Acts for Insurance Co. Separate Accounts Issuing Variable Annuity 
Contracts'' (OMB Control No. 3235-0316); (2) ``Form N-4, Registration 
Statement under the Securities and Investment Co. Acts for Insurance 
Co. Separate Accounts Issuing Variable Annuity Contracts'' (OMB Control 
No. 3235-0318); (3) ``Form N-6 under the Investment Company Act of 1940 
and the Securities Act of 1933, Registration Statement of Variable Life 
Insurance Separate Accounts Registered as Unit Investment Trusts'' (OMB 
Control No. 3235-0503); and ``Mutual Fund Interactive Data'' (OMB 
Control No. 3235-0642) (re-titled as ``Investment Company Interactive 
Data''). The title for the new collection of information under rule 
498A is ``Summary Prospectus for Variable Annuity and Variable Life 
Insurance Contracts.'' \1157\ The Commission is submitting these 
collections of information to the Office of Management and Budget 
(``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 
1320.11. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid control number.
---------------------------------------------------------------------------

    \1157\ As discussed above, we are adopting minor revisions to 
Form N-14. See supra note 587 and accompanying text. However, such 
changes do not impact the form's existing collection of information 
(titled ``Form N-14, Registration Statement under the Securities Act 
of 1933'' (OMB Control No. 3235-0337)).
---------------------------------------------------------------------------

    We published notice soliciting comments on the collection of 
information requirements in the Proposing Release and submitted the 
proposed collections of information to OMB for review in accordance 
with 44 U.S.C. 3507(d) and 5 CFR 1320.11. We received two comments that 
discussed our estimates of burdens and costs associated with certain 
collection of information requirements under the proposal.\1158\ We 
address these comments below, along with a discussion generally of the 
collection of information burdens and costs associated with new rule 
498A and where applicable, the existing collections of information.
---------------------------------------------------------------------------

    \1158\ See Broadridge Comment Letter; Memorandum from the 
Division of Investment Management re: May 29, 2019 meeting with 
representatives of the Committee of Annuity Insurers (including 
attachments), available at https://www.sec.gov/comments/s7-23-18/s72318-5604687-185508.pdf. (``CAI Presentation Materials'').
---------------------------------------------------------------------------

    The amendments to Forms N-3, N-4, and N-6 update and enhance the 
required disclosures provided to variable contract investors. For 
example, the amendments require registrants to summarize certain key 
information about the contract at the beginning of the prospectus, as 
well as update the presentation of fee information and require 
additional information about standard and optional benefits that a 
contract may offer. They also standardize presentation requirements to 
make the information more accessible to retail investors, while 
retaining key elements of the disclosure that is available today.
    In addition, we are amending Forms N-3, N-4, and N-6, along with 
certain rules that effectuate the Commission's requirements regarding 
the use of Inline XBRL format for the submission of certain required 
disclosures \1159\ in variable contract statutory prospectuses. These 
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.
---------------------------------------------------------------------------

    \1159\ We are amending rules 485 and 497 of Regulation C (OMB 
Control No. 3235-0074), which describes the procedures to be 
followed in preparing and filing registration statements with the 
Commission, and rules 11 and 405 of Regulation S-T (OMB Control No. 
3235-0424), which specifies the requirements that govern the 
electronic submission of documents. The additional collection of 
information burden that will result from these changes, as well as 
the burdens that we estimate will result from the amendments to the 
General Instructions of Forms N-3, N-4, and N-6, are included in our 
estimates for the ``Investment Company Interactive Data'' collection 
of information.
---------------------------------------------------------------------------

    New rule 498A permits a person to satisfy its prospectus delivery 
obligations under the Securities Act for a variable contract by 
providing a summary prospectus to investors and making the statutory 
prospectus available online. The rule also will consider a person to 
have met its prospectus delivery obligations for any portfolio 
companies associated with a variable contract if these prospectuses are 
posted online. Pursuant to the rule, registrants using a summary 
prospectus also are required to send these documents to investors upon 
request.
    Finally, the amendments to rule 497 provide the requirements for 
filing summary prospectuses with the Commission and for submitting 
information to the Commission in Inline XBRL format. These amendments 
do not constitute a separate collection of information under rule 497. 
The burden required by these amendments is part of the collection of 
information under new rule 498A, and for filings of Interactive Data 
Files, are part of the ``Investment Company Interactive Data'' 
collection of information.

A. Form N-3

    Form N-3 is the form used by separate accounts offering variable 
annuity contracts that are organized as management investment companies 
to register under the Investment Company Act and/or to register and 
offer their securities under the Securities Act. Form N-3 contains 
collection of information requirements. Compliance with the disclosure 
requirements of Form N-3 is mandatory. Responses to the disclosure 
requirements are not confidential.
    Form N-3 generally imposes two types of reporting burdens on 
investment companies: (1) The burden of preparing and filing the 
initial registration statement; and (2) the burden of preparing and 
filing post

[[Page 26074]]

effective amendments to a previously effective registration statement. 
The hour and cost burden estimates for preparing and filing initial 
registration statements and post-effective amendments on Form N-3 are 
based on the Commission's experience with the contents of the form. The 
number of burden hours and cost may vary depending on, among other 
things, the complexity of the filing and whether preparation of the 
form is performed by internal staff or outside counsel. We currently 
estimate for Form N-3 a total of 2,518 internal burden hours, with a 
total annual external cost burden of $164,144.\1160\
---------------------------------------------------------------------------

    \1160\ These estimates are included in Form N-3's current 
information collection, which was approved in July 2019 and reflects 
the adoption of certain form amendments associated with rule 30e-3 
under the Investment Company Act. See Investment Company Shareholder 
Reports Release, supra note 19.
     We currently estimate that registrants spend 922.7 internal 
burden hours per investment option to prepare and file an initial 
registration statement on Form N-3, and 156.2 internal burden hours 
per investment option for each post-effective amendment. We also 
estimate that Form N-3 registrants spend $24,873 in external costs 
per investment option for each initial filing, and $10,259 per 
investment option for each post-effective amendment.
---------------------------------------------------------------------------

    We are adopting amendments to Form N-3 to update and enhance the 
disclosures to investors in variable annuity contracts, and to 
implement the new summary prospectus regime. We are amending certain 
disclosures that Form N-3 currently requires with respect to the 
separate account's investment objectives and risks, management of the 
registrant, investment advisory and other services, portfolio managers, 
and brokerage allocation and other practices. In addition, amended Form 
N-3 requires certain new disclosures regarding, among other things: The 
Key Information Table, an overview of the contract, principal risks, 
optional benefits, loans, and the Appendix of available investment 
options. We are also reducing or eliminating certain disclosures 
currently required by the form, such as the AUV tables.\1161\
---------------------------------------------------------------------------

    \1161\ See supra Section II.C.2.e.
---------------------------------------------------------------------------

    The table below summarizes the estimated adjustments to the Form N-
3 collection of information from the proposed amendments,\1162\ the 
estimated adjustments to the Form N-3 collection of information from 
the final amendments, and the final PRA estimates for internal and 
external burdens associated with amended Form N-3:
---------------------------------------------------------------------------

    \1162\ As part of these estimates, Commission staff estimated 
that there would be no initial filings and eight post-effective 
amendments on Form N-3 per year, and further estimated that these 
filings would be made by five registrants covering an average of 
three investment options per filing. See Proposing Release, supra 
note 6, at Section IV.A for more detail regarding the proposed 
estimates.

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[[Page 26075]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.006


[[Page 26076]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.007

Changes to Burden Estimates Resulting From Final Amendments
    We did not receive public comment on our proposed PRA estimates for 
the amendments to Form N-3, which we are adopting largely as proposed. 
With one exception, we generally believe the modifications to the 
proposed amendments in the aggregate do not result in changes to our 
proposed estimates of the effect of the amendments on the current 
burdens. We believe, however, that registrants will experience a 
reduction in internal hourly burdens due to the elimination of the 
requirement to provide AUV tables and are reducing the estimated hourly 
burden to prepare and file a post-effective amendment by 5 hours per 
investment option.\1163\ We are also revising our estimates to reflect 
current figures for the number of Form N-3 registration statements 
filed annually and updated internal wage rates,\1164\ as set forth in 
the table above.
---------------------------------------------------------------------------

    \1163\ We assume that removing the requirement to disclose AUV 
tables will largely impact the internal burdens associated with 
post-affective amendments (certain initial filings may provide AUV 
tables, but the form currently and as amended generally requires AUV 
tables in all post-effective amendments).
    \1164\ The $269 wage rate reflects current estimates of the 
blended hourly rate for an in-house compliance attorney ($365) and 
intermediate accountant ($172), which is derived from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013 
(modified to account for an 1,800-hour work year; multiplied by 5.35 
to account for bonuses, firm size, employee benefits and overheard, 
and adjusted for inflation).
    The Proposing Release estimates were based on a blended hourly 
rate for an in-house compliance attorney and a senior programmer. 
Because we believe an intermediate accountant is more likely to 
assist in the preparation of a registration statement than a senior 
programmer, the wage rate estimate reflects this change in 
professional positions.
---------------------------------------------------------------------------

    Initial registration statements. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     For disclosures that are not related to the contract's 
investment options, an additional 1.7 hours per initial registration 
statement.\1165\
---------------------------------------------------------------------------

    \1165\ We estimate, as proposed, that the amendments to Form N-3 
will increase the burden of preparing an initial registration 
statement by 5 hours per investment option per filing, which 
amortized over 3 years equals 1.7 hours annually (5 hours + 0 hours 
+ 0 hours)/3 years = 1.7 hours per year (we assume 0 hours in years 
2 and 3 because after year 1, the registrant will prepare and file 
post effective amendments)). As Commission staff estimates that no 
initial registration statements will be filed on Form N-3 in the 
next 3 years, we continue to estimate a 0 hour burden for initial 
registration statement filings.

---------------------------------------------------------------------------

[[Page 26077]]

     For disclosures related to the contract's investment 
options, an additional 2 hours per investment option per initial 
registration statement.\1166\
---------------------------------------------------------------------------

    \1166\ We estimate, as proposed, that the amendments to Form N-3 
will require an additional 6 hours per investment option per initial 
filing, which amortized over 3 years equals 2 hours annually on a 
per investment option basis: (6 hours + 0 hours + 0 hours)/3 years = 
2 hours per year. We assume 0 hours in years 2 and 3 because after 
year 1, the registrant will prepare and file post effective 
amendments.
---------------------------------------------------------------------------

     We estimate no change to the external cost burden due to 
the amendments.
     Unrelated to the amendments, we estimate an external cost 
burden of $20,300 per initial registration statement to provide 
disclosures other than those related to the contract's investment 
options, and an additional $8,291 per investment option per initial 
registration statement to provide disclosures that are related to the 
contract's investment options. This reflects a change in our 
methodology regarding how to calculate burdens attributable to 
investment options.\1167\
---------------------------------------------------------------------------

    \1167\ We currently estimate the external cost to prepare and 
file an initial registration statement on Form N-3 is $24,873 per 
investment option. See supra note 1160.
     As discussed in the Proposing Release, in our most recently 
approved PRA submission, we estimated that a registrant with 
multiple investment options would experience a burden of complying 
with the requirements of Form N-3 that is proportional to the number 
of investment options that the registrant offers. See supra note 6 
at n.777. Since many of the disclosure requirements of Form N-3 do 
not depend on the number of investment options offered by the 
registrant, we are revising our approach to estimate an incremental 
burden per investment option (as opposed to a burden that is 
proportional to the number of investment options that the registrant 
offers). Pursuant to this change in methodology, we estimate the 
cost to prepare and file an initial registration statement on Form 
N-3 will be $24,873 for disclosures not related to the contract's 
investment options, and an additional $8,291 per investment option 
(or \1/3\ of the cost to provide non-investment option-related 
disclosures) to provide disclosures related to each investment 
option: $24,873/3 = $8,291. As we estimate no initial registration 
statements will be filed on Form N-3, we continue to estimate $0 in 
external costs for initial registration statement filings.
---------------------------------------------------------------------------

    Post-effective amendments. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     For disclosures that are not related to the contract's 
investment options, a one-time burden of 20 hours per registration 
statement the first time the registration statement is amended and an 
ongoing burden of an additional 5 hours per registration statement per 
year thereafter. Amortizing these burdens over a three-year period 
results in an estimated average annual burden of 10 hours per initial 
registration statement.\1168\
---------------------------------------------------------------------------

    \1168\ (20 hours in year 1 + 5 hours in year 2 + 5 hours in year 
3)/3 years = 10 hours per year.
---------------------------------------------------------------------------

     For disclosures related to the contract's investment 
options other than the AUV table requirement, a one-time burden of 6 
hours per investment option the first time the registration statement 
is amended by post-effective amendment. Subsequently, we estimate an 
ongoing burden of 1.5 hours per investment option per post-effective 
amendment. Amortizing these burdens over a three-year period results in 
an estimated average annual burden of 3 hours per investment option to 
prepare and file a post-effective amendment.\1169\
---------------------------------------------------------------------------

    \1169\ (6 hours in year 1 + 1.5 hours in year 2 + 1.5 hours in 
year 3)/3 years = 3 hours per year.
---------------------------------------------------------------------------

     For elimination of the AUV table requirement, we estimate 
a reduction in the annual hour burden of 5 hours per investment option 
per year. Adding this reduction to the burden increases discussed in 
the prior bullet point results in a net reduction of 2 hours per 
investment option per year for disclosures related to the contract's 
investment options.
     We estimate no change to the external cost burden due to 
the amendments.
     Unrelated to the amendments, we estimate an external cost 
burden of $10,259 per post-effective amendment to update disclosures 
not related to investment options, and an additional $3,420 per 
investment option per post-effective amendment to update disclosures 
that are related to the contract's investment options. This reflects a 
change in our methodology regarding how to calculate burdens 
attributable to investment options.\1170\
---------------------------------------------------------------------------

    \1170\ See supra note 1167 (regarding change in methodology). We 
currently estimate $10,259 per investment option for each post-
effective amendment. See supra note 1160.
---------------------------------------------------------------------------

    In the aggregate, we estimate the total annual hour burden to 
comply with amended Form N-3 to be 2,836 hours,\1171\ at an average 
time cost of $762,884.\1172\ We also estimate the total external cost 
burden to comply with amended Form N-3 to be $123,114.\1173\ These 
estimates reflect the change in our methodology for estimating burdens 
attributable to investment options, the increase in estimated burdens 
associated with the amendments, the increase in the estimated average 
number of investment options per Form N-3 registration statement from 
two to three investment options, and current estimates for the number 
of post-effective amendments filed annually.
---------------------------------------------------------------------------

    \1171\ 0 initial registration statements + ((156.2 hours 
(current burden per post-effective amendment) + (10 hours for 
amendments not related to investment options / 3 investment options) 
+ (3 hours per investment option for amendments related to 
investment options other than elimination of AUV table 
requirement)--(5 hours per investment option for elimination of the 
AUV table requirement)) x 3 investment options per post-effective 
amendment x 6 post-effective amendments = 2,836 hours.
    \1172\ 2,836 hours x $269/hour = $762,884.
    \1173\ 0 initial registration statements + ($10,259 per post-
effective amendment to update disclosures not related to investment 
options + ($3,420 per investment option to update disclosures 
related to investment options x 3 investment options)) x 6 post-
effective amendments = $123,114.
---------------------------------------------------------------------------

B. Form N-4

    Form N-4 is the form used by separate accounts offering variable 
annuity contracts that are organized as unit investment trusts to 
register under the Investment Company Act and/or to register and offer 
their securities under the Securities Act. Form N-4 contains collection 
of information requirements. Compliance with the disclosure 
requirements of Form N-4 is mandatory. Responses to the disclosure 
requirements are not confidential.
    Form N-4 generally imposes two types of reporting burdens on 
investment companies: (1) The burden of preparing and filing the 
initial registration statement; and (2) the burden of preparing and 
filing post effective amendments to a previously effective registration 
statement. The hour and cost burden estimates for preparing and filing 
initial registration statements and post-effective amendments on Form 
N-4 are based on the Commission's experience with the contents of the 
form. The number of burden hours and cost may vary depending on, among 
other things, the complexity of the filing and whether preparation of 
the form is performed by internal staff or outside counsel. We 
currently estimate for Form N-4 a total of 271,914 internal burden 
hours, with a total annual external cost burden of $32,111,916.\1174\
---------------------------------------------------------------------------

    \1174\ These estimates are included in Form N-4's current 
information collection, which was approved in July 2019 and reflects 
the adoption of certain form amendments associated with rule 30e-3 
under the Investment Company Act.
     We currently estimate that on a per filing basis, registrants 
spend 278.5 internal burden hours to prepare and file an initial 
registration statement on Form N-4, and 197.25 internal burden hours 
for each post-effective amendment. We also estimate that registrants 
incur $23,013 in external costs for initial filings and $21,813 for 
post-effective amendments. As discussed below, we are adjusting some 
of these estimates.
---------------------------------------------------------------------------

    We are adopting amendments to Form N-4 to update and enhance the 
disclosures to investors in variable annuity contracts, and to 
implement the new summary prospectus regime. We

[[Page 26078]]

are amending certain disclosure requirements that Form N-4 currently 
requires. In addition, amended Form N-4 requires certain new 
disclosures regarding, among other things: The Key Information Table, 
an overview of the contract, principal risks, optional benefits, loans, 
and the Appendix of available portfolio companies. We are also reducing 
or eliminating certain disclosures currently required by the form, such 
as the AUV tables.
    The table below summarizes the estimated adjustments to the Form N-
4 collection of information from the proposed amendments,\1175\ the 
estimated adjustments to the Form N-4 collection of information from 
the final amendments, and the final PRA estimates for internal and 
external burdens associated with amended Form N-4:
---------------------------------------------------------------------------

    \1175\ As part of these estimates, Commission staff estimated 
that there would be 35 initial filings and 1,326 post-effective 
amendments on Form N-4 per year. See Proposing Release, supra note 
6, at Section IV.B for more detail regarding the proposed estimates.

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[[Page 26079]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.008

Changes to Baseline Burden Estimates
    We received one comment regarding our proposed estimates for 
internal burdens and external costs associated with the current burdens 
associated with preparing and filing a post-effective amendment.\1176\ 
The estimates that were submitted were in some respects higher, and in 
others lower,

[[Page 26080]]

than our proposed estimates.\1177\ In light of the commenter's 
estimates, and because variable annuity contracts registered on Form N-
4 today tend to offer greater numbers of portfolio companies and 
optional benefits than variable annuity contracts offered in the past, 
we believe that certain of our current estimates may be too low. 
Therefore, we are adjusting the baseline current estimates (before the 
effect of the amendments we are adopting) for certain burdens and costs 
associated with Form N-4,\1178\ as follows:
---------------------------------------------------------------------------

    \1176\ See CAI Presentation Materials supra note 1158. These 
estimates were supplied to illustrate the disparity between the 
burdens associated with filing a post-effective amendment compared 
to the reduced burdens for registrants that rely on the Great-West 
no-action letters. Because only Form N-4 and N-6 filers have 
received Great-West no-action relief, we assume the commenter's 
estimates only concern amendments filed on those forms.
    \1177\ See supra notes 6 and 1176. The commenter estimated that 
``based on information provided by certain members, internal 
business and legal teams spend approximately 310 hours in connection 
with the update of a single active registration statement'' with 
associated ``soft costs'' (internal costs) of $25,000 and ``hard 
costs'' described as ``outside counsel, auditor, typesetting and 
mailing,'' estimated to be an average of $170,000.''
     Our current estimates for Form N-4 are based on previously 
approved estimates that assume a registrant's in-house staff spends 
197.25 internal burden hours to prepare and file a post-effective 
amendment (for an internal cost of $56,019 per filing based on the 
$284 wage rate used in the most-recently approved PRA (July 2019)), 
with external costs (e.g., outside counsel, independent auditors, 
consultants) of $21,813 for each filing. See supra note 1174.
     We note that the commenter's estimates for external costs 
include typesetting and printing and mailing, while our estimates 
for our registration forms do not because the forms do not impose a 
delivery requirement. The obligation to deliver a prospectus is 
imposed by Section 5(b)(2) of the Securities Act. See United States 
v. Wunder, 919 F.2d 34, 38 (6th Cir. 1990) (``The Paperwork 
Reduction Act therefore, does not apply to the statutory 
requirement, but only to the forms themselves.'').
    \1178\ See supra note 1174.
---------------------------------------------------------------------------

     We are increasing our estimate to prepare and file an 
initial registration statement from 278.5 hours to 800 hours per 
filing; \1179\
---------------------------------------------------------------------------

    \1179\ We are also increasing this estimate for consistency with 
the currently approved estimates for initial registration statements 
on Form N-3 (922.7 hours per investment option per filing) and Form 
N-6 (770.25 hours per filing).
---------------------------------------------------------------------------

     We are increasing our estimate to prepare and file a post-
effective amendment from 197.25 hours to 227.25 per filing; and
     We are increasing our estimate of the external cost to 
prepare and file an initial registration statement from $23,013 to 
$40,000 per filing.
Changes to Burden Estimates Resulting From Final Amendments
    With one exception, we generally believe the modifications to the 
proposed amendments in the aggregate do not result in changes to our 
proposed estimates of the effect of the amendments on the current 
burdens. We believe, however, that registrants will experience a 
reduction in internal hourly burdens due to the elimination of the 
requirement to provide AUV tables and are reducing the estimated hourly 
burden to prepare and file a post-effective amendment by 30 hours 
(reducing the adjusted estimated hourly burden from 227.25 hours to 
197.25 hours per filing).\1180\ Our revised estimates also reflect 
updated data for the number of Form N-4 initial registration statements 
and post-effective amendments filed annually, and revised internal wage 
rates,\1181\ as set forth in the table above.
---------------------------------------------------------------------------

    \1180\ As with Form N-3, we assume that removing the requirement 
to disclose AUV tables will largely impact the internal burdens 
associated with post-affective amendments (certain initial filings 
may provide AUV tables, but the form currently and as amended 
generally requires AUV tables in all post-effective amendments). See 
supra note 1163.
    \1181\ See supra note 1164 (providing revised internal wage rate 
estimates for purposes of preparing and filing reports on Form N-3, 
and that apply equally to Form N-4).
---------------------------------------------------------------------------

    Initial registration statements. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     We estimate that, on a net basis, the amendments to Form 
N-4 will increase the burden of preparing and filing an initial 
registration statement by 5 hours per filing. Amortizing this burden 
over a three-year period results in an estimated average annual burden 
of 1.7 hours per initial registration statement.
     We estimate no change to the external cost burden for 
these amendments.
    Post-effective amendments. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     We estimate a one-time burden of an additional 20 hours 
per registration statement the first time the registration statement is 
amended by post-effective amendment following adoption of the 
amendments. Subsequently, we estimate an ongoing burden of an 
additional 5 hours per registration statement to prepare and file a 
post-effective amendment. Amortizing these burdens over a three-year 
period results in an estimated average annual burden of an additional 
10 hours per registration statement to prepare and file a post-
effective amendment.
     We estimate no change to the external cost burden for 
these amendments.
    In the aggregate, we estimate the total annual hour burden to 
comply with amended Form N-4 to be 300,937 hours,\1182\ at an average 
time cost of $80,952,053.\1183\ We also estimate the total external 
cost burden to comply with amended Form N-4 to be $30,342,168.\1184\ 
These estimates reflect the increase in estimated burdens associated 
with the amendments, adjustments to certain per filing estimates, and 
current estimates for the number of filings on Form N-4.
---------------------------------------------------------------------------

    \1182\ For initial registration statements: 30 initial filings x 
(as adjusted 800 hours per filing + 1.7 hours under amendments) = 
24,051 hours. For post-effective amendments: 1,336 post-effective 
amendments x (197.25 hours current per filing burden + 10 hours 
under amendments) = 276,886 hours. 24,051 hours + 276,886 hours = 
300,937 hours.
    \1183\ 300,937 hours x $269/hour = $80,952,053.
    \1184\ For initial registration statements: 30 initial filings x 
$40,000 per filing (as adjusted external cost per filing) = 
$1,200,000. For post-effective amendments: 1,336 post-effective 
amendments x $21,813 (current external cost per filing) = 
$29,142,168. $1,200,000 + $29,142,168 = $30,342,168.
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C. Form N-6

    Form N-6 is the form used by separate accounts organized as unit 
investment trusts that offer variable life insurance contracts to 
register under the Investment Company Act and/or to register and offer 
their securities under the Securities Act. Form N-6 contains collection 
of information requirements. Compliance with the disclosure 
requirements of Form N-6 is mandatory. Responses to the disclosure 
requirements are not confidential.
    Form N-6 generally imposes two types of reporting burdens on 
investment companies: (1) The burden of preparing and filing the 
initial registration statement; and (2) the burden of preparing and 
filing post-effective amendments to a previously effective registration 
statement. The hour and cost burden estimates for preparing and filing 
initial registration statements and post-effective amendments on Form 
N-6 are based on the Commission's experience with the contents of the 
form. The number of burden hours and cost may vary depending on, among 
other things, the complexity of the filing and whether preparation of 
the form is performed by internal staff or outside counsel. We 
currently estimate for Form N-6 a total of 31,987 internal burden 
hours, with a total annual external cost burden of $3,816,692.\1185\
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    \1185\ Form N-6's current information collection, which was 
approved in July 2019, reflects the adoption of certain form 
amendments associated with rule 30e-3 under the Investment Company 
Act.
     We currently estimate that on a per filing basis, registrants 
spend 770.25 internal burden hours to prepare and file an initial 
registration statement on Form N-6, and 67.5 internal burden hours 
for each post-effective amendment. We also estimate that Form N-6 
registrants spend $26,169 in external costs per initial filing, and 
$9,493 per post-effective amendment. As discussed below, we are 
adjusting some of these estimates.

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[[Page 26081]]

    We are adopting amendments to Form N-6 to update and enhance the 
disclosures to investors in variable life insurance contracts, and to 
implement the new summary prospectus regime. We are amending certain 
disclosures that Form N-6 currently requires. In addition, amended Form 
N-6 requires certain new disclosures regarding, among other things: The 
Key Information Table, an overview of the contract, principal risks, 
optional benefits, loans, lapse, and the Appendix of available 
portfolio companies. We are also reducing certain disclosures currently 
required by the form.
    The table below summarizes the estimated adjustments to the Form N-
6 collection of information from the proposed amendments,\1186\ the 
estimated adjustments to the Form N-6 collection of information from 
the final amendments, and the final PRA estimates for internal and 
external burdens associated with amended Form N-6:
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    \1186\ As part of these estimates, Commission staff estimated 
that there would be eight initial filings and 380 post-effective 
amendments on Form N-6 per year. See Proposing Release, supra note 
6, at Section IV.C for more detail regarding the proposed estimates.

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[[Page 26082]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.009

Changes to Baseline Burden Estimates
    We did not receive public comment on our PRA estimates for the 
amendments to Form N-6, which we are adopting largely as proposed. 
However, in light of the comment we received regarding estimated 
burdens associated with preparing and filing a post-effective amendment 
on Form N-4,\1187\ and because variable life insurance

[[Page 26083]]

contracts registered on Form N-6 today tend to offer greater numbers of 
portfolio companies and optional benefits than variable life insurance 
contracts offered in the past, we believe that certain of our estimates 
may be too low. Therefore, we are adjusting the baseline current 
estimates (before the effect of the amendments we are adopting) for 
certain burdens and costs associated with Form N-6,\1188\ as follows:
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    \1187\ See supra notes 1176-1177 and accompanying text.
    \1188\ See supra note 1185.
---------------------------------------------------------------------------

     We are increasing our estimate to prepare and file a post-
effective amendment from 67.5 hours to 150 hours per filing;\1189\
---------------------------------------------------------------------------

    \1189\ Due to differences in the products and the respective 
form requirements associated with each, we estimate the burden hours 
associated with preparing a post-effective amendment for a 
registrant on Form N-6 to be approximately \2/3\ of the burden hours 
associated with preparing a post-effective amendment for a 
registrant on Form N-4. As discussed above, we have revised our 
baseline estimate of the burdens associated with preparing a post-
effective amendment for a registrant on Form N-4 to 227.5 hours. See 
Section V.B supra.
---------------------------------------------------------------------------

     We are increasing our estimate of the external cost to 
prepare and file an initial registration statement from $26,169 to 
$40,000 per filing; \1190\ and
---------------------------------------------------------------------------

    \1190\ We estimate the external costs to prepare and file an 
initial registration statement on Form N-6 to be roughly equivalent 
to those associated with preparing and filing an initial 
registration statement on Form N-4. As discussed above, we have 
increased our baseline estimate of the external costs associated 
with preparing and filing an initial registration statement on Form 
N-4 to $40,000 per filing. See Section V.B supra.
---------------------------------------------------------------------------

     We are increasing our estimate of the external cost to 
prepare and file a post-effective amendment from $9,493 to $20,000 per 
filing.\1191\
---------------------------------------------------------------------------

    \1191\ We are increasing this estimate to be roughly equivalent 
to the same burden associated with preparing and filing a post-
effective amendment on Form N-4. See Section V.B supra.
---------------------------------------------------------------------------

Changes to Burden Estimates Resulting From Final Amendments
    We believe that the modifications to the proposed amendments in the 
aggregate do not result in changes to our proposed estimates of the 
effect of the amendments on the current burdens. Our revised estimates, 
however, reflect updated data for the number of Form N-6 initial 
registration statements and post-effective amendments filed annually, 
and revised internal wage rates,\1192\ as set forth in the table above.
---------------------------------------------------------------------------

    \1192\ See supra note 1164 (providing revised internal wage rate 
estimates for purposes of preparing and filing reports on Form N-3, 
and that apply equally to Form N-6).
---------------------------------------------------------------------------

    Initial registration statements. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     We estimate that, on a net basis, the amendments to Form 
N-6 will increase the burden of preparing and filing an initial 
registration statement by 4 hours per filing. Amortizing this burden 
over a three-year period results in an estimated average annual burden 
of 1 hour per initial registration statement.
     We estimate no change to the external cost burden for 
these amendments.
    Post-effective amendments. As proposed, we estimate that the 
amendments will result in the following changes to the internal hours 
and external cost burdens:
     We estimate a one-time burden of an additional 15 hours 
per registration statement the first time the registration statement is 
amended by post-effective amendment following adoption of the 
amendments. Subsequently, we estimate an ongoing burden of an 
additional 4 hours per registration statement to prepare and file a 
post-effective amendment. Amortizing these burdens over a three-year 
period results in an estimated average annual burden of an additional 8 
hours per registration statement to prepare and file a post-effective 
amendment.
     We estimate no change to the external cost burden for 
these amendments.
    In the aggregate, we estimate the total annual hour burden to 
comply with amended Form N-6 to be 65,123 hours,\1193\ at an annual 
time cost of $17,518,087.\1194\ We also estimate the total external 
cost burden to comply with amended Form N-6 to be $7,840,000.\1195\ 
These estimates reflect the increase in estimated burdens associated 
with the amendments, adjustments to certain per filing estimates, and 
current estimates for the annual number of filings on Form N-6.
---------------------------------------------------------------------------

    \1193\ For initial registration statements: 7 initial filings x 
(770.25 hours current burden + 1 hour under amendments) = 5,399 
hours. For post-effective amendments: 378 post-effective amendments 
x (150 hours (as adjusted per filing) + 8 hours under amendments) = 
59,724 hours. 5,399 + 59,724 = 65,123 hours.
    \1194\ 65,123 hours x $269/hour = $17,518,087.
    \1195\ For initial registration statements: 7 initial filings x 
$40,000 (as adjusted external cost per filing) = $280,000. For post-
effective amendments: 378 post-effective amendments x $20,000 (as 
adjusted external cost per filing) = $7,560,000. $280,000 + 
$7,560,000 = $7,840,000.
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D. Investment Company Interactive Data

    Generally as proposed,\1196\ we are amending the General 
Instructions of Forms N-3, N-4, and N-6, rules 485 and 497 under the 
Securities Act, and rules under Regulation S-T,\1197\ to require the 
use of Inline XBRL format for the submission of certain required 
disclosures in variable contract statutory prospectuses. Specifically, 
registrants will submit the following information in Inline XBRL format 
in registration statements or post-effective amendments regarding 
contracts being sold to new investors, as well as in forms of 
prospectuses filed pursuant to rule 497(c) or 497(e) under the 
Securities Act for such contracts that include information that varies 
from the registration statement:
---------------------------------------------------------------------------

    \1196\ See supra Section II.D for a discussion on how the 
adopted amendments differ from the proposal.
    \1197\ See supra note 1159.
---------------------------------------------------------------------------

     Form N-3 registrants: information provided in response to 
Items 2, 4, 5, 11, 18, and 19 of Form N-3;
     Form N-4 registrants: information provided in response to 
Items 2, 4, 5, 10 and 17 of Form N-4; and
     Form N-6 registrants: information provided in response to 
Items 2, 4, 5, 10, 11 and 18 of Form N-6.
    The title of the collection of information affected by these 
amendments is ``Mutual Fund Interactive Data,'' which we are re-titling 
as ``Investment Company Interactive Data.'' Compliance with these 
disclosure requirements is mandatory, and responses are not 
confidential.
    The amendments generally impose two types of reporting burdens on 
variable contracts being sold to new investors: (1) The burden of 
submitting certain information in Inline XBRL to the Commission in 
registration statements or post-effective amendments filed on Form N-3, 
Form N-4, and Form N-6; and (2) the burden of submitting certain 
information in Inline XBRL to the Commission in forms of prospectuses 
filed pursuant to rule 497(c) or 497(e) under the Securities Act that 
include information that varies from the registration statement. We 
currently estimate a total annual hour burden of 178,803 hours for this 
collection of information, and a total annual external cost burden of 
$10,000,647.\1198\
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    \1198\ These estimates are referenced in the most-recent 
information collection submission, reflecting the Commission's 2018 
adoption of amendments to require the use of Inline XBRL format for 
the submission of mutual fund risk/return summary information. See 
Inline XBRL Adopting Release, supra note 892.
---------------------------------------------------------------------------

    The tables below summarize the proposed estimates included in the 
Proposing Release \1199\ and the final PRA estimates for internal and 
external

[[Page 26084]]

burdens associated with the structured data requirements for Forms N-3, 
N-4, and N-6.
---------------------------------------------------------------------------

    \1199\ See Proposing Release, supra note 6, at Section IV.D for 
more detail regarding the proposed estimates.
[GRAPHIC] [TIFF OMITTED] TR01MY20.010


[[Page 26085]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.011

    We did not receive public comment on our proposed PRA estimates for 
the burdens and costs associated with requiring variable contract 
registrants to use Inline XBRL to tag certain information in the 
specified variable contract filings. We continue to estimate the same 
burdens and costs associated with structured data requirements as 
proposed.\1200\ As reflected in the table above, we are revising our 
estimates to reflect current figures for the number of registration 
statements and rule 497 filings annually filed on Forms N-3, N-4, and 
N-6, and updated internal wage rates.\1201\
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    \1200\ Although in a change from the proposal contracts not 
being sold to new investors are excluded from the Inline XBRL 
requirement, for purposes of these estimates we are assuming on a 
conservative basis that all contracts are subject to the 
requirement.
    \1201\ The $348 wage rate reflects current estimates of the 
blended hourly rate for an in-house compliance attorney ($365) and 
senior programmer ($331), which is derived from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013 (modified to 
account for an 1,800 hour work year; multiplied by 5.35 to account 
for bonuses, firm size, employee benefits and overheard; and 
adjusted for inflation).
---------------------------------------------------------------------------

Internal Hour Burden
    We estimate, as proposed, that registrants that file on Forms N-3, 
N-4, and N-6 will require approximately 18 burden hours of in-house 
personnel time to tag and submit the required disclosure information in 
Inline XBRL format for each post-effective amendment \1202\ in the 
first year, and the same task in subsequent years will require 
approximately 12 hours for each post-effective amendment.\1203\ With 
respect to Form N-3 registrants, we estimate an additional burden of 2 
hours per investment option to tag and submit the required disclosure 
information for each post-effective amendment. Therefore, we estimate 
the average annual burden over a three-year period for each post-
effective amendment filed on Form N-3 will be 20 hours,\1204\ and for 
those filed on Forms N-4 and N-6, 14 hours.\1205\ We further estimate 
that the burden for each rule 497 filing will be 25% of that, or 3.5 
hours per response.\1206\
---------------------------------------------------------------------------

    \1202\ We are not including estimates for Form N-3 initial 
registration statements, as none have been filed in the past three 
years.
    \1203\ Our estimates are based on our prior experience with 
Inline XBRL. See, e.g., Inline XBRL Adopting Release, supra note 
892. We are largely following the same approach to estimating hourly 
burdens for variable contracts as in the context of mutual funds in 
the Inline XBRL Adopting Release.
    \1204\ (18 hours for the first submission + 12 hours for the 
second submission + 12 hours for the third submission)/3 years) + (2 
hours per investment option x 3 investment options) = 20 hours.
    \1205\ (18 hours for the first submission + 12 hours for the 
second submission + 12 hours for the third submission)/3 years = 14 
hours.
    \1206\ Because rule 497 filings are typically 1-3 pages in 
length, we estimate the burden will be only 25% of the burden 
associated with tagging the relevant disclosures in a full 
registration statement filing.
---------------------------------------------------------------------------

    We also estimate, as proposed, a weighted burden average of 
approximately 3 responses per year per registrant to file initial and 
post-effective registration statements and rule 497 filings, based on 
weighting the burden for each rule 497 filing as 25% of the burden of a 
post-effective amendment filing, averaging the burden for each form 
equally, and estimating (based on a survey by Commission staff of 
filings made pursuant to rule 497) that 75% of rule 497 filings by

[[Page 26086]]

registrants on each form will contain data that would be required to be 
submitting in Inline XBRL format.\1207\
---------------------------------------------------------------------------

    \1207\ For Form N-3, we estimate a burden of 1.6 responses per 
year. This estimate is based on the following calculation: ((0 
initial registration statements + 6 post-effective amendments) + (18 
rule 497 filings x 75% of which will contain data that will need to 
be tagged x 25% weighted burden))/6 Form N-3 registrants = 
approximately 1.6 responses per year per registrant.
    For Form N-4, we estimate a burden of 4.9 responses per year. 
This estimate is based on the following calculation: ((30 initial 
registration statements + 1,336 post-effective amendments) + (3,896 
rule 497 filings x 75% of which will contain data that will need to 
be tagged x 25% weighted burden))/426 Form N-4 registrants = 
approximately 4.9 responses per year per registrant.
     For Form N-6, we estimate a burden of 2.3 responses per year. 
This estimate is based on the following calculation: ((7 initial 
registration statements + 378 post-effective amendments) + (1,130 
rule 497 filings x 75% of which will contain data that will need to 
be tagged x 25% weighted burden))/244 Form N-6 registrants = 
approximately 2.4 responses per year per registrant.
    Overall, we estimate approximately 3 responses per year. This 
estimate is based upon the following calculation: (1.6 responses per 
N-3 registrant + 4.9 responses per N-4 registrant + 2.4 responses 
per N-6 registrant)/3 = 3 responses per year.
---------------------------------------------------------------------------

    As reflected in the table above, we estimate that in the aggregate, 
adoption of the Inline XBRL requirements will result in 360 burden 
hours annually for Form N-3 registrants, with a collective internal 
cost burden of $125,280, to tag and submit the required Form N-3 
disclosure information in Inline XBRL.\1208\ We estimate 17,892 burden 
hours annually for Form N-4 registrants (with an internal cost burden 
of $6,226,416),\1209\ and 10,248 burden hours annually for Form N-6 
registrants (with an internal cost burden of $3,566,304) to tag and 
submit the required disclosures in Inline XBRL.\1210\
---------------------------------------------------------------------------

    \1208\ 6 Form N-3 registrants x 3 responses per year per 
registrant x (14 hours per registrant + (2 hours per investment 
option x 3 investment options per registrant)) = 360 burden hours/
year. The internal time cost equivalent is calculated by multiplying 
the total hour burden (360 hours) by the estimated hourly wage of 
$348 (updated to reflect inflation) = $125,280.
    \1209\ 426 Form N-4 registrants x 3 responses per year per 
registrant x 14 hours per registrant = 17,892 burden hours/year. The 
internal time cost equivalent of is calculated by multiplying the 
total hour burden (17,892 hours) by the estimated hourly wage of 
$348 = $6,226,416.
    \1210\ 244 Form N-6 registrants x 3 responses per year per 
registrant x 14 hours per registrant = 10,248 burden hours/year. The 
internal time cost equivalent is calculated by multiplying the total 
hour burden (10,248 hours) by the estimated hourly wage of $348 = 
$3,566,304.
---------------------------------------------------------------------------

External Cost Burden
    Compliance with the Inline XBRL requirements is expected to entail 
certain external costs, such as for software and/or the services of 
consultants and filing agents. For Form N-4 and Form N-6 registrants, 
we estimate, as proposed, an external cost burden of $900 per 
registrant for the cost of goods and services purchased to comply with 
the proposed Inline XBRL requirements.\1211\ For Form N-3 registrants, 
we estimate, as proposed, an additional cost of $300 per investment 
option for the cost of goods and services purchased to comply with the 
Inline XBRL requirements for an estimated external cost burden of 
$1,800 per registrant.\1212\
---------------------------------------------------------------------------

    \1211\ This estimate is based on the estimated average external 
cost burden associated with the Inline XBRL preparation expenses for 
mutual funds and ETFs. See Inline XBRL Adopting Release, supra note 
892.
    \1212\ $900 per registrant + (3 investment options per 
registrant x $300 per investment option) = $1,800 per Form N-3 
registrant.
---------------------------------------------------------------------------

Aggregate Burdens for Form N-3, N-4, and N-6 Registrants
    We estimate that the new Inline XBRL requirements for Form N-3, N-
4, and N-6 registrants will result in 28,500 internal burden hours 
annually,\1213\ with a collective internal time cost of approximately 
$9,918,000.\1214\ We therefore estimate the aggregate total hour burden 
for the collection of information to be 207,303 hours as a result of 
the amendments.\1215\ We estimate the aggregate external cost burden 
under the new Inline XBRL requirements for Form N-3, N-4, and N-6 
registrants to be approximately $613,800.\1216\ We therefore estimate 
the aggregate total external cost burden for the collection of 
information will be $10,614,447 as a result of the final 
amendments.\1217\ These estimates include the additional internal 
burdens and external costs associated with the final amendments that 
will require variable contracts to use Inline XBRL to tag certain 
specified disclosures in their registration statements and rule 497 
filings.
---------------------------------------------------------------------------

    \1213\ 360 burden hours for Form N-3 registrants + 17,892 burden 
hours for Form N-4 registrants + 10,248 burden hours for Form N-6 
registrants = 28,500 hours.
    \1214\ 28,500 hours x $348/hour = $9,918,000.
    \1215\ 178,803 hours (current internal burden estimate for 
Mutual Fund Interactive Data (retitled as Investment Company 
Interactive Data)) + 28,500 burden hours due to new Inline XBRL 
requirements for variable contracts = 207,303 total burden hours.
    \1216\ (6 Form N-3 registrants x ($900 per registrant + ($300 
per investment option x 3 investment options))) + (426 Form N-4 
registrants x $900 per registrant) + (244 Form N-6 registrants x 
$900 per registrant) = $613,800.
    \1217\ $10,000,647 (current external cost estimate for Mutual 
Fund Interactive Data (retitled as Investment Company Interactive 
Data)) + $613,800 external costs due to new Inline XBRL requirements 
for variable contracts = $10,614,447.
---------------------------------------------------------------------------

E. Rule 498A

    New rule 498A contains collection of information requirements. The 
likely respondents to this information collection are variable annuity 
and variable life insurance separate accounts registered or registering 
with the Commission.\1218\ Under rule 498A, use of the summary 
prospectus is voluntary, but the rule's requirements are mandatory for 
variable annuity and variable life insurance separate accounts that 
elect to send or give a summary prospectus in reliance upon rule 498A. 
The information provided under rule 498A will not be kept confidential.
---------------------------------------------------------------------------

    \1218\ Rule 498A can be broadly relied upon by any person to 
satisfy prospectus delivery obligations under Section 5(b)(2) under 
the Securities Act for a variable contract or portfolio company. 
However, we expect the hour and cost burdens of the rule (i.e., to 
create and file initial and updating summary prospectuses and to 
make certain documents available online and to distribute them upon 
request) will generally be borne by registrants. We base this 
expectation in part on the fact that our amendments require 
prospectuses and summary prospectuses to include the website address 
where the documents required to be posted online are located, and 
contact information to call or email to obtain paper copies of those 
documents, and we expect registrants to list their own website and 
their own contact information to satisfy these requirements, as 
opposed to directing investors to various financial intermediaries 
who may be involved in distributing those contracts.
---------------------------------------------------------------------------

    The summary prospectus is voluntary, so the percentage of variable 
annuity and variable life insurance separate accounts that will choose 
to utilize it is uncertain. Given this uncertainty, we have assumed 
that 90% of registrants will choose to use a summary prospectus under 
rule 498A.\1219\
---------------------------------------------------------------------------

    \1219\ Given expressed industry support for layered disclosure 
with summary prospectuses, our estimate that approximately 93% of 
mutual funds currently use summary prospectuses (see supra note 21), 
and our anticipation that the rule will provide costs savings to 
insurers, we believe it is appropriate to assume that 90% of 
insurers will choose to use summary prospectuses. This differs from 
the estimate of 95% in the Proposing Release which was based on 
available data at the time. See Proposing Release, supra note 6, at 
Section IV.E.
---------------------------------------------------------------------------

    The table below summarizes the proposed estimates included in the 
Proposing Release \1220\ and the final PRA estimates for internal and 
external burdens associated with rule 498A for Forms N-3, N-4, and N-6:
---------------------------------------------------------------------------

    \1220\ See Proposing Release, supra note 6, at Section IV.E for 
more detail regarding the proposed estimates.

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[[Page 26087]]

[GRAPHIC] [TIFF OMITTED] TR01MY20.012


[[Page 26088]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.013


[[Page 26089]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.014

    The only public comment we received regarding our PRA estimates for 
proposed rule 498A discussed estimated external costs associated with 
printing and mailing initial and summary prospectuses pursuant to the 
proposed rule.\1223\ As discussed below, in response to this comment, 
we are adjusting our estimates for external costs. In all other 
respects, we generally believe the modifications to the proposed rule 
in the aggregate do not result in changes to our proposed estimates of 
the burdens associated with the rule unrelated to printing and mailing 
the summary prospectuses. Therefore, we are not otherwise adjusting our 
proposed estimates, except to reflect estimates for printing and 
mailing costs, and revised estimates for the number of variable 
contract registrants and internal wage rates.
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    \1221\ The Proposing Release included an aggregate estimate of 
17,359 hours, which reflected a mathematical error. The table 
includes the corrected calculation based on the estimates in the 
Proposing Release.
    \1222\ The Proposing Release included an aggregate estimated 
time cost equivalent of $5,565,971, which reflected a mathematical 
error relating to the estimated total annual burden hours. The table 
includes the corrected calculation based on the estimates in the 
Proposing Release.
    \1223\ See Broadridge Comment Letter.
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Preparation of Initial Summary Prospectus and Updating Summary 
Prospectus
Internal Hour Burden
    We did not receive any comments on our proposed estimates 
associated with the internal burdens to prepare and file initial and 
updating summary prospectuses. We continue to estimate that for 
registrants that choose to rely upon rule 498A, a one-time collective 
burden of 40 hours per registration statement to prepare and file both 
a new initial summary prospectus and a new updating summary prospectus 
for offerings on Forms N-4 or N-6.\1224\ In addition, we estimate an 
ongoing collective burden of 10 hours per registration statement during 
each subsequent year for the registrant to prepare and file updates of 
the initial summary prospectus and updating summary prospectus for 
offerings on Forms N-4 or N-6. For offerings on Form N-3, we estimate a 
one-time collective burden of 40 hours per registration statement to 
prepare and file both a new initial summary prospectus and a new 
updating summary prospectus, plus a further burden of 12 hours per 
contract investment option. Subsequently, we estimate an ongoing 
collective burden of 10 hours per registration statement that would be

[[Page 26090]]

incurred each following year to prepare and file updates of summary 
prospectuses, plus a further burden of 3 hours per investment option. 
As previously discussed, we estimate that each registration statement 
filed on Form N-3 will include three investment options.
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    \1224\ We are aware that more than one prospectus may be filed 
as part of a registration statement, but we do not have data 
regarding how many registration statements currently include more 
than one prospectus. For purposes of this analysis we assume one 
prospectus is filed per registration statement.
---------------------------------------------------------------------------

    Because the PRA estimates represent the average burden over a three 
year period, we estimate, as proposed, the average annual hour burden 
per registration statement to prepare and file initial and updating 
summary prospectuses to be 20 hours for filings on Form N-4 or N-
6,\1225\ and 38 hours for filings on Form N-3.\1226\
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    \1225\ ((40 hours in year 1) + (10 hours in year 2) + (10 hours 
in year 3))/3 years = 20 hours per year.
    \1226\ (((40 hours + (12 hours per investment option x 3 
investment options) in year 1) + (10 hours + (3 hours per investment 
option x 3 investment options in year 2) + (10 hours + (3 hours per 
investment option x 3 investment options) in year 3))/3 years = 38 
hours per year.
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External Cost Burden
    Registrants may also bear external costs to prepare and update the 
initial and updating summary prospectuses, such as the services of 
independent auditors and outside counsel. However, any external costs, 
such as for outside counsel and auditors, that may be associated with 
preparing and updating the initial summary prospectus as an exhibit to 
a registration statement will be reflected in the external costs 
associated with those registration statements.
    For registrants that choose to rely upon rule 498A, we continue to 
estimate a one-time collective external cost burden of $10,000 per 
registration statement to prepare both a new initial summary prospectus 
and a new updating summary prospectus for offerings on Forms N-4 or N-
6. In addition, we estimate an ongoing collective burden of $2,500 per 
registration statement during each subsequent year for the registrant 
to prepare updates of the initial summary prospectus and updating 
summary prospectus for offerings on Forms N-4 or N-6. For offerings on 
Form N-3, we estimate a one-time collective burden of $10,000 per 
registration statement to prepare and file both a new initial summary 
prospectus and a new updating summary prospectus, plus a further burden 
of $3,000 per contract investment option. Subsequently, we estimate an 
ongoing collective burden of $2,500 per registration statement during 
each following year to prepare and file updates of summary 
prospectuses, plus a further burden of $750 per investment option. As 
discussed above, we estimate that each registration statement filed on 
Form N-3 will include three investment options.
    Because the PRA estimates represent the average burden over a 
three-year period, we estimate that the average annual cost burden to 
prepare and file initial and updating summary prospectuses will be 
$5,000 per filing on Forms N-4 and N-6.\1227\ For Form N-3, we estimate 
the average annual cost burden per registration statement to prepare 
and update initial and updating summary prospectuses will be 
$9,500.\1228\
---------------------------------------------------------------------------

    \1227\ (($10,000 in year 1) + ($2,500 in year 2) + ($2,500 in 
year 3))/3 years = $5,000 per year.
    \1228\ ((($10,000 to prepare new initial and updating summary 
prospectuses + ($3,000 per investment option x 3 investment options) 
in year 1) + ($2,500 + ($750 per investment option x 3 investment 
options)) in year 2) + ($2,500 + ($750 per investment option x 3 
investment options) in year 3)/3 = $9,500 per year.
---------------------------------------------------------------------------

Aggregate Burdens for Preparing and Filing Summary Prospectuses
    As discussed above, in light of our consideration of a comment 
received on our printing and mailing estimates, we have revised our 
estimate of related external costs which was $3,469,875 in the 
proposal. We now estimate the aggregate annual hour burden to prepare 
and file initial and updating summary prospectuses for offerings on 
Forms N-3, N-4, and N-6 will be 12,265 hours,\1229\ at an internal cost 
equivalent of $3,299,285.\1230\ We also estimate the aggregate annual 
external costs associated with preparing and filing summary 
prospectuses to be $3,066,300.\1231\
---------------------------------------------------------------------------

    \1229\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: ((38 hours x 6 registrants on Form N-3 = 
228) + (20 hours x 426 registrants on Form N-4 = 8,520) + (20 hours 
x 244 registrants on Form N-6 = 4,880)) x 90% = 12,265 hours.
    \1230\ 12,265 hours x $269 per hour = $3,299,285.
    \1231\ (($9,500 x 6 registrants on Form N-3 = $57,000) + ($5,000 
x 426 registrants on Form N-4 = $2,130,000) + ($5,000 x 244 
registrants on Form N-6 = $1,220,000)) x 90% = $3,066,300.
---------------------------------------------------------------------------

Online Availability of Contract Statutory Prospectus and Certain Other 
Documents Relating to the Contract
    Registrants that choose to rely on rule 498A are required to make 
certain documents relating to the contract available online, including 
a variable contract's initial summary prospectus, updating summary 
prospectus, statutory prospectus, and SAI for contracts registered on 
Forms N-3, N-4, or N-6, and the contract's most recent annual and semi-
annual reports to shareholders under rule 30e-1 in the case of a 
variable annuity contract registered under Form N-3. We received no 
comments on this aspect of the proposal, and continue to estimate, as 
proposed, the average burden to comply with the website posting 
requirements to be 2 hours per set of documents associated with a 
single registration statement, both in the first year and annually 
thereafter.\1232\ Registrants must also provide these documents upon 
request. We estimate, as proposed, that the average annual costs 
associated with printing and mailing these documents upon request to be 
collectively $500 for all specified contract documents associated with 
a single registrant.\1233\
---------------------------------------------------------------------------

    \1232\ Separate account registrants are generally larger 
entities, and therefore, based on our experience with these 
registrants, we assume that all separate account registrants already 
have their own website and will not experience any burdens 
associated with developing a website.
    \1233\ Because we do not have specific data regarding cost of 
printing and mailing the documents that must be provided on request, 
for purposes of our analysis we continue to estimate, as proposed, 
$500 per year to collectively print and mail upon request all of the 
specified contract documents associated with a single registrant. 
Investors could also request to receive these documents 
electronically. We estimate that there will be negligible external 
costs associated with emailing electronic copies of these documents.
---------------------------------------------------------------------------

    In total, we estimate the annual burden to comply with the website 
posting requirements of the rule for documents relating to variable 
contracts will be 1,217 hours,\1234\ at an internal cost equivalent of 
$301,816.\1235\ We also estimate the aggregate annual external costs 
associated with printing and mailing these documents upon request to be 
$304,200.\1236\
---------------------------------------------------------------------------

    \1234\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: 2 hours per registrant x (6 registrants on 
Form N-3 + 426 registrants on Form N-4 + 244 registrants on Form N-
6) x 90% = 1,217 hours.
    \1235\ 1,217 hours x $248 per hour = $301,816.
    \1236\ $500 per registrant x (6 registrants on Form N-3 + 426 
registrants on Form N-4 + 244 registrants on Form N-6) x 90% = 
$304,200.
---------------------------------------------------------------------------

Online Availability of Portfolio Company Statutory Prospectuses and 
Certain Other Documents Relating to Portfolio Companies
    Registrants on Forms N-4 and N-6 that choose to rely on the new 
delivery option for portfolio company prospectuses are also required to 
post online the portfolio company's summary prospectus, statutory 
prospectus, SAI, and most recent annual and semi-annual shareholder 
reports.\1237\ We received no comments

[[Page 26091]]

on this aspect of the proposal. Accordingly, we estimate, as proposed, 
the average burden to comply with the website posting requirements to 
be 2 hours per set of documents associated with a single registration 
statement, both in the first year and annually thereafter. Because 
registrants may incur external costs in connection with the requirement 
to provide these documents upon investor request, we estimate, as 
proposed, the average annual costs associated with printing and mailing 
these documents upon request to be collectively $500 for all specified 
portfolio company documents associated with a single registrant.\1238\
---------------------------------------------------------------------------

    \1237\ The obligation to post these documents online will fall 
upon the party that has the prospectus delivery obligation for the 
portfolio company prospectus. For purposes of this PRA analysis, we 
assume that delivery of portfolio company prospectuses will be done 
by registrants, rather than portfolio companies or financial 
intermediaries such as broker-dealers. In some situations, portfolio 
company documents may already be posted online, such as in the case 
of portfolio companies that already use summary prospectuses and 
therefore are subject to the document posting requirements of rule 
498. However, for purposes of this PRA, we still assume that the 
registrant will bear the burden of posting those documents since we 
expect the registrant will repost those documents to make them 
available on a single website. See supra note 1218.
    \1238\ As previously noted, investors could also request to 
receive these documents electronically. We estimate that there will 
be negligible external costs associated with emailing electronic 
copies of these documents.
---------------------------------------------------------------------------

    In total, we estimate the annual burden to comply with the website 
posting requirements of the rule for documents relating to portfolio 
companies will be 1,206 hours,\1239\ at an internal cost equivalent of 
$299,088.\1240\ We estimate that the aggregate annual external costs 
associated with printing and mailing these documents upon request will 
be $301,500.\1241\
---------------------------------------------------------------------------

    \1239\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: 2 hours per registrant x (426 registrants on 
Form N-4 + 244 registrants on Form N-6) x 90% = 1,206 hours.
    \1240\ 1,206 hours x $248/hour = $299,088.
    \1241\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: $500 per registrant x (426 registrants on 
Form N-4 + 244 registrants on Form N-6) x 90% = $301,500. For 
purposes of this PRA analysis and based upon our experience, we 
assume the burden of emailing these documents will be outsourced to 
third-party service providers and therefore included within these 
external cost estimates.
---------------------------------------------------------------------------

Printing and Mailing Summary Prospectuses
    In the Proposing Release, the Commission did not estimate any costs 
associated with printing and mailing the initial and updating summary 
prospectuses. In response to the Commission's general request for 
comments on our PRA estimates, one commenter provided an estimate of $8 
million for total costs to print and mail initial and updating summary 
prospectuses annually.\1242\ We received no other comments in this 
regard. Based on the commenter's methodology (updated to reflect new 
estimates for new and existing contracts, which the commenter used as 
the basis for estimating the number of summary prospectuses delivered 
each year), we estimate the external cost for registrants to print and 
mail the summary prospectuses to be $10,038,200 annually.\1243\
---------------------------------------------------------------------------

    \1242\ See Broadridge Comment Letter. Because this commenter's 
estimates assumed the inclusion of portfolio company prospectuses, 
it appears to only contemplate the costs associated summary 
prospectuses for Forms N-4 and N-6 (Form N-3 does not offer 
underlying portfolio companies).
     The commenter's figures, which rely on estimates in the 
Economic Analysis section of the Proposing Release for the number of 
new and existing contracts likely to use the summary prospectus 
option, see supra note 6, n.698 and accompanying text, assume that 
700,000 initial summary prospectuses and 13 million updating summary 
prospectuses will be printed and mailed annually, with an estimated 
unit cost of $1.20 (first-class) for each initial summary 
prospectus, and $0.55 (bulk rate) for each updating summary 
prospectus.
    \1243\ The commenter's estimates assume that each new and 
existing contract is a proxy for a single new and existing investor, 
which conflicts with our understanding that each contract may have 
many investors (new and existing). However, lacking other specific 
data upon which to estimate printing and mailing costs associated 
with summary prospectuses, we apply the commenter's methodology for 
purposes of this PRA analysis (updated to reflect revised estimates 
for the number of initial and existing contracts likely to use a 
summary prospectus). See supra note 1077 and accompanying text. 
Calculated as follows: Initial summary prospectuses ($1.20 unit cost 
x 986,000 new contracts (initial mailings)) = $1,183,200) + updating 
summary prospectuses ($0.55 unit cost x 16.1 million existing 
contracts (annual updates)) = $8,855,000) = $10,038,200 combined.
---------------------------------------------------------------------------

Aggregate Total Burdens Associated With Rule 498A
    We estimate the aggregate total annual hour burden for registrants 
under rule 498A to be 14,688 hours,\1244\ at an internal time cost 
equivalent of $3,900,189 \1245\ which reflects a decrease from the 
proposed estimates due to revised estimates for the number of variable 
contract registrants and revised estimates of the percentage of 
insurers that will choose to use summary prospectuses. We also estimate 
the total external cost to be $12,706,380, which reflects an increase 
over the proposed estimate due to the inclusion of costs associated 
with the printing and mailing of summary prospectuses.\1246\
---------------------------------------------------------------------------

    \1244\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: 12,265 hours to prepare and update summary 
prospectuses + 1,217 hours for online posting of contract documents 
+ 1,206 hours for online posting of portfolio company documents = 
14,688 hours.
    \1245\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: $3,299,285 to prepare and update summary 
prospectuses + $301,816 for online posting of contract documents + 
$315,704 for online posting of portfolio company documents = 
$3,900,189. Due to rounding, this estimate differs slightly from the 
corresponding number posted in the table above ($3,900,193).
    \1246\ This estimate, which assumes 90% reliance on the rule, is 
based on the following: ($3,407,000 to prepare and update summary 
prospectuses + $338,000 for online posting of contract documents + 
$335,000 for online posting of portfolio company documents + 
$10,038,200 to annually print and mail all summary prospectuses) x 
90% = $12,706,380 (total external costs for rule 498A).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act Certification

    Pursuant to 5 U.S.C. 605(b), we hereby certify that rule 498A under 
the Securities Act and amendments to Forms N-3, N-4, N-6, and N-14 
under the Securities Act and the Investment Company Act, as adopted, 
will not have a significant economic impact on a substantial number of 
small entities.\1247\
---------------------------------------------------------------------------

    \1247\ We also certified that the proposed rule and proposed 
form amendments would not have a significant economic impact on a 
substantial number of small entities. See Proposing Release, supra 
note 6, at Section V. We received no comments on that certification. 
As discussed below, we are also adopting minor amendments to Form N-
14 in response to a comment letter.
---------------------------------------------------------------------------

    We are adopting rule 498A under the Securities Act pursuant to 
authority set forth in Sections 5, 6, 7, 10, 19, and 28 of the 
Securities Act [15 U.S.C. 77e, 77f, 77g, 77j, 77s, and 77z-3] and 
Sections 8, 24(a), 24(g), 30, and 38 of the Investment Company Act [15 
U.S.C. 80a-8, 80a-24(a), 80a-24(g), 80a-29, and 80a-37]. Rule 498A 
provides a new option that permits a person to satisfy its variable 
annuity and variable life insurance contract prospectus delivery 
obligations under the Securities Act by providing a summary prospectus 
to investors.
    A person will have the option of satisfying 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. Rule 
498A requires 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 by email 
upon request. Additionally, the rule permits satisfaction of any 
portfolio company prospectus delivery obligations by posting the 
portfolio company summary and statutory prospectuses online at the 
website

[[Page 26092]]

address specified on the variable contract summary prospectus.\1248\
---------------------------------------------------------------------------

    \1248\ This option does not apply to Form N-3 registrants, which 
do not have underlying portfolio companies due to a single-tier 
investment company structure.
     The obligation to post these documents online will fall upon 
the party that has the prospectus delivery obligation for the 
portfolio company prospectus. For purposes of this Regulatory 
Flexibility Act analysis, we assume that delivery of portfolio 
company prospectuses will be done by registrants, rather than 
portfolio companies or financial intermediaries such as broker-
dealers. See supra note 1237 (making the same assumption for 
purposes of the Paperwork Reduction Act analysis).
---------------------------------------------------------------------------

    Investors will also be able to request and receive those documents 
in paper or electronically at no cost. No variable contract separate 
accounts will be required to send or give a summary prospectus.
    We are also adopting amendments to Forms N-3, N-4, N-6, and N-14 
pursuant to authority set forth in Sections 5, 6, 7, 10, and 19(a) of 
the Securities Act [15 U.S.C. 77e, 77f, 77g, 77j, and 77s(a)] and 
Sections 8, 24(a), 24(g), 30, and 38 of the Investment Company Act [15 
U.S.C. 80a-8, 80a-24(a), 80a-24(g), 80a-29, and 80a-37]. The amendments 
to Forms N-3, N-4, and N-6 are intended to update and enhance the 
disclosures to investors in variable annuity and variable life 
insurance contracts, and to implement the proposed summary prospectus 
framework.
    Specifically, the amendments to Forms N-3, N-4, and N-6 add new 
disclosures requiring, among other things, an overview of the contract, 
key information, consolidated risk disclosures, a list of the available 
portfolio companies with expense and performance information, and 
information about standard and optional benefits that a contract may 
offer. The amendments also standardize presentation requirements across 
registration statement forms to make the information more accessible to 
retail investors. We are also requiring variable contracts to use the 
Inline XBRL format for the submission of certain required disclosures 
in the variable contract statutory prospectus.\1249\ All insurance 
company separate accounts offering variable annuity and variable life 
insurance contracts will be subject to the new disclosure and reporting 
requirements, regardless of size. In addition, the amendments to Form 
N-14 provide that a portfolio company prospectus whose delivery 
obligations were satisfied via new rule 498A(j) may be incorporated by 
reference into a filing on Form N-14 without being sent to investors, 
so long as that portfolio company was listed in the variable contract 
summary prospectus Appendix at the time the disclosures required by 
Form N-14 were delivered to investors.\1250\
---------------------------------------------------------------------------

    \1249\ See supra Section II.D.
    \1250\ See supra Section II.B.2.d.
---------------------------------------------------------------------------

    Generally, an investment company is a small entity if, together 
with other investment companies in the same group of related investment 
companies, it has net assets of $50 million or less as of the end of 
its most recent fiscal year.\1251\ The analysis is slightly different 
for insurance company separate accounts. Because state law generally 
treats separate account assets as the property of the sponsoring 
insurance company, rule 0-10 aggregates each separate account's assets 
with the assets of the sponsoring insurance company, together with 
assets held in other sponsored separate accounts.\1252\ As a result, 
the Commission expects few, if any, separate accounts to be treated as 
small entities.
---------------------------------------------------------------------------

    \1251\ 17 CFR 270.0-10(a) (rule 0-10(a)).
    \1252\ Rule 0-10(b).
---------------------------------------------------------------------------

    For this reason, we believe rule 498A and the amendments to Forms 
N-3, N-4, N-6, and N-14, as adopted, will not have a significant 
economic impact on a substantial number of small entities.

VII. Statutory Authority

    We are adopting the rule and form amendments contained in this 
document under the authority set forth in the Securities Act, 
particularly, Sections 10, 19, and 28 thereof [15 U.S.C. 77a et seq.], 
the Exchange Act, particularly, Section 23 thereof [15 U.S.C. 78a et 
seq.], the Investment Company Act, particularly, Sections 8, 30, and 38 
thereof [15 U.S.C. 80a et seq.], and 44 U.S.C. 3506, 3507.

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Organization and functions 
(Government agencies).

17 CFR Parts 230, 270, and 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

17 CFR Part 232

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Parts 239 and 240

    Reporting and recordkeeping requirements, Securities.

Text of Rule and Form Amendments

    For reasons set forth in the preamble, title 17, chapter II of the 
Code of Federal Regulations is amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

Subpart N--Commission Information Collection Requirements Under the 
Paperwork Reduction Act: OMB Control Numbers

0
1. The authority citation for subpart N of part 200 continues to read 
as follows:

    Authority: 44 U.S.C. 3506; 44 U.S.C. 3507.


0
2. Amend Sec.  200.800 in the table in paragraph (b) by adding an entry 
in numerical order by part and section number for ``Rule 498A'' to read 
as follows:


Sec.  200.800   OMB control numbers assigned pursuant to the Paperwork 
Reduction Act.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                      17 CFR part or
                                      section where       Current OMB
Information collection requirement   identified  and      control No.
                                        described
------------------------------------------------------------------------
 
                              * * * * * * *
Rule 498A.........................           230.498A          3235-0765
 
                              * * * * * * *
------------------------------------------------------------------------


[[Page 26093]]

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
3. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Public Law 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48 
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
* * * * *

0
4. Amend Sec.  230.159A by revising paragraph (a)(2) to read as 
follows:


Sec.  230.159A   Certain definitions for purposes of Section 12(a)(2) 
of the Act.

    (a) * * *
    (2) Any free writing prospectus as defined in Sec.  230.405 (Rule 
405) relating to the offering prepared by or on behalf of the issuer or 
used or referred to by the issuer and, in the case of an issuer that is 
an open-end management company registered under the Investment Company 
Act of 1940 (15 U.S.C. 80a-1 et seq.) or a separate account (as defined 
in Section 2(a)(14) of the Securities Act) (15 U.S.C. 77b(a)(14)) 
registered under the Investment Company Act of 1940 on Sec. Sec.  
239.17a and 274.11b of this chapter (Form N-3), Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), or Sec. Sec.  239.17c and 274.11d 
of this chapter (Form N-6), any summary prospectus relating to the 
offering provided pursuant to Sec.  230.498 (Rule 498) or Sec.  
230.498A (Rule 498A), respectively;
* * * * *

0
5. Amend Sec.  230.431 by revising the introductory text to paragraph 
(a) to read as follows:


Sec.  230.431   Summary prospectuses.

    (a) A summary prospectus prepared and filed (except a summary 
prospectus filed by an open-end management investment company 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.) or a separate account (as defined in section 2(a)(14) of the 
Securities Act (15 U.S.C. 77b(a)(14)) registered under the Investment 
Company Act of 1940 on Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter (Form N-4), 
or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6) as part of 
a registration statement in accordance with this section shall be 
deemed to be a prospectus permitted under section 10(b) of the Act (15 
U.S.C. 77j(b)) for the purposes of section 5(b)(1) of the Act (15 
U.S.C. 77e(b)(1)) if the form used for registration of the securities 
to be offered provides for the use of a summary prospectus and the 
following conditions are met:
* * * * *

0
6. Amend Sec.  230.482 by revising paragraph (a) to read as follows:


Sec.  230.482   Advertising by an investment company as satisfying 
requirements of section 10.

    (a) Scope of rule. This section applies to an advertisement or 
other sales material (advertisement) with respect to securities of an 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.) (1940 Act), or a business development 
company, that is selling or proposing to sell its securities pursuant 
to a registration statement that has been filed under the Act. This 
section does not apply to an advertisement that is excepted from the 
definition of prospectus by section 2(a)(10) of the Act (15 U.S.C. 
77b(a)(10)), Sec.  230.498(d), or Sec.  230.498A(g) or (j)(2), or to a 
summary prospectus under Sec.  230.498 or Sec.  230.498A. An 
advertisement that complies with this section, which may include 
information the substance of which is not included in the prospectus 
specified in section 10(a) of the Act (15 U.S.C 77j(a)), will be deemed 
to be a prospectus under section 10(b) of the Act (15 U.S.C. 77j(b)) 
for the purposes of section 5(b)(1) of the Act (15 U.S.C. 77e(b)(1)).

    Note 1 to paragraph (a): The fact that an advertisement complies 
with this section does not relieve the investment company, 
underwriter, or dealer of any obligations with respect to the 
advertisement under the antifraud provisions of the Federal 
securities laws. For guidance about factors to be weighed in 
determining whether statements, representations, illustrations, and 
descriptions contained in investment company advertisements are 
misleading, see Sec.  230.156. In addition, an advertisement that 
complies with this section is subject to the legibility requirements 
of Sec.  230.420.

* * * * *

0
7. Amend Sec.  230.485 by revising paragraph (c)(3) to read as follows:


Sec.  230.485  Effective date of post-effective amendments filed by 
certain registered investment companies.

* * * * *
    (c) * * *
    (3) A registrant's ability to file a post-effective amendment, 
other than an amendment filed solely for purposes of submitting an 
Interactive Data File, under paragraph (b) of this section is 
automatically suspended if a registrant fails to submit any Interactive 
Data File as required by General Instruction C.3.(g) of Sec. Sec.  
239.15A and 274.11A of this chapter (Form N-1A), General Instruction 
C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter (Form N-3), 
General Instruction C.3.(h) of Sec. Sec.  239.17b and 274.11c of this 
chapter (Form N-4), or General Instruction C.3.(h) of Sec. Sec.  
239.17c and 274.11d of this chapter (Form N-6). A suspension under this 
paragraph (c)(3) shall become effective at such time as the registrant 
fails to submit an Interactive Data File as required by General 
Instruction C.3.(g) of Form N-1A, or General Instruction C.3.(h) of 
Form N-3, General Instruction C.3.(h) of Form N-4, or General 
Instruction C.3.(h) of Form N-6. Any such suspension, so long as it is 
in effect, shall apply to any post-effective amendment that is filed 
after the suspension becomes effective, but shall not apply to any 
post-effective amendment that was filed before the suspension became 
effective. Any suspension shall apply only to the ability to file a 
post-effective amendment pursuant to paragraph (b) of this section and 
shall not otherwise affect any post-effective amendment. Any suspension 
under this paragraph (c)(3) shall terminate as soon as a registrant has 
submitted the Interactive Data File as required by General Instruction 
C.3.(g) of Form N-1A, General Instruction C.3.(h) of Form N-3, General 
Instruction C.3.(h) of Form N-4, or General Instruction C.3.(h) of Form 
N-6.
* * * * *

0
8. Revise Sec.  230.496 to read as follows:


Sec.  230.496  Contents of prospectus and statement of additional 
information used after nine months.

    In the case of a registration statement filed on Form N-1A 
(Sec. Sec.  239.15A and 274.11A of this chapter), Form N-2 (Sec. Sec.  
239.14 and 274.11a-1 of this chapter), Form N-3 (Sec. Sec.  239.17a and 
274.11b of this chapter), Form N-4 (Sec. Sec.  239.17b and 274.11c of 
this chapter), or Form N-6 (Sec. Sec.  239.17c and 274.11d of this 
chapter), there may be omitted from any prospectus or Statement of 
Additional Information used more than nine months after the effective 
date of the registration statement any information previously required 
to be contained in the prospectus or the Statement of Additional 
Information insofar as later information covering the same subjects, 
including the latest available certified financial statements, as of a 
date not more than 16 months prior to the use of the prospectus or the 
Statement of Additional Information is contained therein.


[[Page 26094]]


    Note 1 to Sec.  230.496:  For a discussion of the effectiveness 
of a registration statement relating to certain discontinued 
contracts subject to a Commission position as of July 1, 2020, see 
Investment Company Release No. 33814 (March 11, 2020).


0
9. Amend Sec.  230.497 by revising paragraphs (c), (e), and (k) and 
removing the parenthetical authority at the end of the section to read 
as follows:


Sec.  230.497  Filing of investment company prospectuses--number of 
copies.

* * * * *
    (c) For investment companies filing on Sec. Sec.  239.15A and 
274.11A of this chapter (Form N-1A), Sec. Sec.  239.14 and 274.11a-1 of 
this chapter (Form N-2), Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter (Form N-4), 
or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6), within 
five days after the effective date of a registration statement or the 
commencement of a public offering after the effective date of a 
registration statement, whichever occurs later, 10 copies of each form 
of prospectus and form of Statement of Additional Information used 
after the effective date in connection with such offering shall be 
filed with the Commission in the exact form in which it was used. 
Investment companies filing on Forms N-1A, N-3, N-4, or N-6 must, if 
applicable pursuant to General Instruction C.3.(g) of Form N-1A, 
General Instruction C.3.(h) of Form N-3, General Instruction C.3.(h) of 
Form N-4, or General Instruction C.3.(h) of Form N-6, submit an 
Interactive Data File (as defined in Sec.  232.11 of this chapter).
* * * * *
    (e) For investment companies filing on Sec. Sec.  239.15A and 
274.11A of this chapter (Form N-1A), Sec. Sec.  239.14 and 274.11a-1 of 
this chapter (Form N-2), Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter (Form N-4), 
or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6), after the 
effective date of a registration statement, no prospectus that purports 
to comply with Section 10 of the Act (15 U.S.C. 77j) or Statement of 
Additional Information that varies from any form of prospectus or form 
of Statement of Additional Information filed pursuant to paragraph (c) 
of this section shall be used until five copies thereof have been filed 
with, or mailed for filing to the Commission. Investment companies 
filing on Forms N-1A, N-3, N-4, or N-6 must, if applicable pursuant to 
General Instruction C.3.(g) of Form N-1A, General Instruction C.3.(h) 
of Form N-3, General Instruction C.3.(h) of Form N-4, or General 
Instruction C.3.(h) of Form N-6, submit an Interactive Data File (as 
defined in Sec.  232.11 of this chapter).
* * * * *
    (k) This paragraph (k), and not the other provisions of this 
section, shall govern the filing of summary prospectuses under 
Sec. Sec.  230.498 and 230.498A. Each definitive form of a summary 
prospectus under Sec. Sec.  230.498 and 230.498A shall be filed with 
the Commission no later than the date that it is first used.

0
10. Amend Sec.  230.498 by revising paragraph (c)(2) to read as 
follows:


Sec.  230.498  Summary Prospectuses for open-end management investment 
companies.

* * * * *
    (c) * * *
    (2) The Summary Prospectus is not bound together with any 
materials, except that a Summary Prospectus for a Fund that is 
available as an investment option in a variable annuity or variable 
life insurance contract may be bound together with the Statutory 
Prospectus for the contract (or a summary prospectus for the contract 
provided under Sec.  230.498A) and Summary Prospectuses and Statutory 
Prospectuses for other investment options available in the contract, 
provided that:
    (i) All of the Funds to which the Summary Prospectuses and 
Statutory Prospectuses that are bound together relate are available to 
the person to whom such documents are sent or given; and
    (ii) A table of contents identifying each Summary Prospectus, 
Statutory Prospectus, and summary prospectus under Sec.  230.498A that 
is bound together, and the page number on which it is found, is 
included at the beginning or immediately following a cover page of the 
bound materials;
* * * * *

0
11. Add Sec.  230.498A to read as follows:


Sec.  230.498A  Summary Prospectuses for separate accounts offering 
variable annuity and variable life insurance contracts.

    (a) Definitions. For purposes of this section:
    Class means a class of a Contract that varies principally with 
respect to distribution-related fees and expenses.
    Contract means a Variable Annuity Contract or a Variable Life 
Insurance Contract as defined in this section, respectively.
    Depositor means the person primarily responsible for the 
organization of the Registrant and the person, other than the trustee 
or custodian, who has continuing functions or responsibilities with 
respect to the administration of the affairs of the Registrant. 
``Depositor'' includes the sponsoring insurance company that 
establishes and maintains the Registrant.
    Initial Summary Prospectus means the initial summary prospectus 
described in paragraph (b) of this section.
    Investment Option means any portfolio of investments in which a 
Registrant on Form N-3 invests and which may be selected as an option 
by the investor.
    Portfolio Company means any company in which a Registrant on Form 
N-4 or Form N-6 invests and which may be selected as an option by the 
investor.
    Portfolio Company Prospectus means the Statutory Prospectus of a 
Portfolio Company and a summary prospectus of a Portfolio Company 
permitted by Sec.  230.498.
    Registrant means a separate account (as defined in section 2(a)(14) 
of the Securities Act (15 U.S.C. 77b(a)(14)) that has an effective 
registration statement on Sec. Sec.  239.17a and 274.11b of this 
chapter (Form N-3), Sec. Sec.  239.17b and 274.11c of this chapter 
(Form N-4), or Sec. Sec.  239.17c and 274.11d of this chapter (Form N-
6) and that has a current prospectus that satisfies the requirements of 
section 10(a) of the Act (15 U.S.C. 77j(a)).
    Statement of Additional Information means the statement of 
additional information required by Part B of Form N-1A, Form N-3, Form 
N-4, or Form N-6.
    Statutory Prospectus means a prospectus that satisfies the 
requirements of section 10(a) of the Act (15 U.S.C. 77j(a)).
    Summary Prospectus refers to both the Initial Summary Prospectus 
and the Updating Summary Prospectus.
    Updating Summary Prospectus means the updating summary prospectus 
described in paragraph (c) of this section.
    Variable Annuity Contract means any accumulation contract or 
annuity contract, any portion thereof, or any unit of interest or 
participation therein pursuant to which the value of the contract, 
either during an accumulation period or after annuitization, or both, 
may vary with the investment performance of any separate account.
    Variable Life Insurance Contract means a life insurance contract 
that provides for death benefits and cash values that may vary with the 
investment performance of any separate account.
    (b) General requirements for Initial Summary Prospectus. An Initial 
Summary Prospectus that complies with

[[Page 26095]]

this paragraph (b) will be deemed to be a prospectus that is authorized 
under section 10(b) of the Act (15 U.S.C. 77j(b)) and section 24(g) of 
the Investment Company Act (15 U.S.C. 80a-24(g)) for the purposes of 
section 5(b)(1) of the Act (15 U.S.C. 77e(b)(1)).
    (1) Scope of Initial Summary Prospectus. An Initial Summary 
Prospectus may only describe a single Contract (but may describe more 
than one Class of the Contract) currently offered by the Registrant 
under the Statutory Prospectus to which the Initial Summary Prospectus 
relates.
    (2) Cover page or beginning of Initial Summary Prospectus. Include 
on the front cover page or the beginning of the Initial Summary 
Prospectus:
    (i) The Depositor's name;
    (ii) The name of the Contract, and the Class or Classes if any, to 
which the Initial Summary Prospectus relates;
    (iii) A statement identifying the document as a ``Summary 
Prospectus for New Investors'';
    (iv) The approximate date of the first use of the Initial Summary 
Prospectus;
    (v) The following legend:
    This Summary Prospectus summarizes key features of the [Contract].
    Before you invest, you should also review the prospectus for the 
[Contract], which contains more information about the [Contract's] 
features, benefits, and risks. You can find this document and other 
information about the [Contract] online at [___]. You can also obtain 
this information at no cost by calling [____] or by sending an email 
request to [___].
    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 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.
    (A) A Registrant may modify the legend so long as the modified 
legend contains comparable information.
    (B) The legend must provide a website 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 materials, request other information 
about the Contract, and make investor inquiries. The website address 
must be specific enough to lead investors directly to the Statutory 
Prospectus and other materials that are required to be accessible under 
paragraph (h)(1) of this section, rather than to the home page or other 
section of the website on which the materials are posted. The website 
could be a central site with prominent links to each document. The 
legend may 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. 
If a Fund relies on Sec.  270.30e-3 of this chapter to transmit a 
report, the legend must also include the website address required by 
Sec.  270.30e-3(c)(1)(iii) of this chapter if different from the 
website address required by this paragraph (b)(2)(v)(B).
    (C) The paragraph of the legend regarding cancellation of the 
Contract may be omitted if not applicable. If this paragraph is 
included in the legend, the paragraph must be presented in a manner 
reasonably calculated to draw investor attention to that paragraph.
    (D) The legend may include instructions describing how a 
shareholder can elect to receive prospectuses or other documents and 
communications by electronic delivery.
    (E) The legend for a Contract registered on Form N-3 shall include 
a statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of [the Registrant's] 
shareholder reports will no longer be sent by mail, unless you 
specifically request paper copies of the reports from [the Registrant] 
[or from your financial intermediary, such as a broker-dealer or bank]. 
Instead, the reports will be made available on a website, and you will 
be notified by mail each time a report is posted and provided with a 
website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from [the Registrant] [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform [the Registrant] [or your financial 
intermediary] that you wish to continue receiving paper copies of your 
shareholder reports by [insert instructions]. Your election to receive 
reports in paper will apply to all [funds] held with [the fund complex/
your financial intermediary].
    (F) The legend for a Contract registered on Form N-4 or N-6 shall 
include a statement to the following effect, if applicable:
    Beginning on [date], as permitted by regulations adopted by the 
Securities and Exchange Commission, paper copies of the shareholder 
reports for [Portfolio Companies available under your Contract] will no 
longer be sent by mail, unless you specifically request paper copies of 
the reports from [the Registrant] [or from your financial intermediary, 
such as a broker-dealer or bank]. Instead, the reports will be made 
available on a website, and you will be notified by mail each time a 
report is posted and provided with a website link to access the report.
    If you already elected to receive shareholder reports 
electronically, you will not be affected by this change and you need 
not take any action. You may elect to receive shareholder reports and 
other communications from [the Portfolio Companies] [or your financial 
intermediary] electronically by [insert instructions].
    You may elect to receive all future reports in paper free of 
charge. You can inform [the Registrant] [or your financial 
intermediary] that you wish to continue receiving paper copies of your 
shareholder reports by [insert instructions]. Your election to receive 
reports in paper will apply to all portfolio companies [available under 
your Contract].
    (3) Back cover page or last page of Initial Summary Prospectus. (i) 
If a Registrant incorporates any information by reference into the 
Summary Prospectus, include a legend identifying the type of document 
(e.g., Statutory Prospectus) from which the information is incorporated 
and the date of the document. If a Registrant incorporates by reference 
a part of a document, the legend must clearly identify the part by 
page, paragraph, caption, or otherwise. If information is incorporated 
from a source other than the Statutory Prospectus, the legend must 
explain that the incorporated information may be obtained, free of 
charge, in the same manner as the Statutory Prospectus.
    (ii) Include on the bottom of the back cover page or the last page 
of the Initial Summary Prospectus the EDGAR contract identifier for the 
contract in type size smaller than that generally used in the 
prospectus (e.g., 8-point modern type).

[[Page 26096]]

    (4) Table of contents. An Initial Summary Prospectus may include a 
table of contents meeting the requirements of Sec.  230.481(c).
    (5) Contents of Initial Summary Prospectus. An Initial Summary 
Prospectus must contain the information required by this paragraph 
(b)(5) with respect to the applicable registration form, and only the 
information required by this paragraph (b)(5), in the order provided in 
paragraphs (b)(5)(i) through (ix) of this section.
    (i) Under the heading ``Important Information You Should Consider 
About the [Contract],'' the information required by Item 2 of Form N-3, 
Item 2 of Form N-4, or Item 2 of Form N-6.
    (ii) Under the heading ``Overview of the [Contract],'' the 
information required by Item 3 of Form N-3, Item 3 of Form N-4, or Item 
3 of Form N-6.
    (iii) Under the heading ``Standard Death Benefits,'' the 
information required by Item 10(a) of Form N-6.
    (iv) Under the heading ``Benefits Available Under the [Contract],'' 
the information required by Item 11(a) of Form N-3 or Item 10(a) of 
Form N-4. Under the heading ``Other Benefits Available Under the 
[Contract],'' the information required by Item 11(a) of Form N-6.
    (v) Under the heading ``Buying the [Contract],'' the information 
required by Item 12(a) of Form N-3, Item 11(a) of Form N-4, or Item 
9(a) through (c) of Form N-6.
    (vi) Under the heading ``How Your [Contract] Can Lapse,'' the 
information required by Item 14(a) through (c) of Form N-6.
    (vii) Under the heading ``Making Withdrawals: Accessing the Money 
in Your [Contract],'' the information required by Item 13(a) of Form N-
3, Item 12(a) of Form N-4, or Item 12(a) of Form N-6.
    (viii) Under the heading ``Additional Information About Fees,'' the 
information required by Item 4 of Form N-3, Item 4 of Form N-4, or Item 
4 of Form N-6.
    (ix) Under the heading ``Appendix: [Portfolio Companies] Available 
Under the Contract,'' include as an appendix the information required 
by Item 18 of Form N-3, Item 17 of Form N-4, or Item 18 of Form N-6. 
Alternatively, an Initial Summary Prospectus for a Contract registered 
on Form N-3 may include the information required by Item 19 of Form N-3 
under the heading ``Additional Information About Investment Options 
Available Under the Contract.''
    (c) General requirements for Updating Summary Prospectus. An 
Updating Summary Prospectus that complies with this paragraph (c) will 
be deemed to be a prospectus that is authorized under section 10(b) of 
the Act (15 U.S.C. 77j(b)) and section 24(g) of the Investment Company 
Act (15 U.S.C. 80a-24(g)) for the purposes of section 5(b)(1) of the 
Act (15 U.S.C. 77e(b)(1)).
    (1) Use of Updating Summary Prospectus. A Registrant may only use 
an Updating Summary Prospectus if the Registrant uses an Initial 
Summary Prospectus for each currently offered Contract described under 
the Statutory Prospectus to which the Updating Summary Prospectus 
relates.
    (2) Scope of Updating Summary Prospectus. An Updating Summary 
Prospectus may describe one or more Contracts (and more than one Class) 
described under the Statutory Prospectus to which the Updating Summary 
Prospectus relates.
    (3) Cover page or beginning of Updating Summary Prospectus. Include 
on the front cover page or at the beginning of the Updating Summary 
Prospectus:
    (i) The Depositor's name;
    (ii) The name of the Contract(s) and the Class or Classes, if any, 
to which the Updating Summary Prospectus relates;
    (iii) A statement identifying the document as an ``Updating Summary 
Prospectus'';
    (iv) The approximate date of the first use of the Updating Summary 
Prospectus; and
    (v)(A) The following legend, which must meet the requirements of 
paragraphs (b)(2)(v)(A), (B), and (D) of this section, as applicable:
    The prospectus for the [Contract] contains more information about 
the [Contract], including its features, benefits, and risks. You can 
find the current prospectus and other information about the [Contract] 
online at [___]. You can also obtain this information at no cost by 
calling [____] or by sending an email request to [___].
    Additional 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.
    (B) The legend required by paragraphs (b)(2)(v)(E) and (F) of this 
section, as applicable.
    (4) Back cover page or last page of Updating Summary Prospectus. 
Include on the bottom of the back cover page or the last page of the 
Updating Summary Prospectus:
    (i) The legend required by paragraph (b)(3)(i) of this section; and
    (ii) The EDGAR contract identifier(s) for each contract in type 
size smaller than that generally used in the prospectus (e.g., 8-point 
modern type).
    (5) Table of contents. An Updating Summary Prospectus may include a 
table of contents meeting the requirements of Sec.  230.481(c).
    (6) Contents of Updating Summary Prospectus. An Updating Summary 
Prospectus must contain the information required by this paragraph 
(c)(6) with respect to the applicable registration form, in the order 
provided in paragraphs (c)(6)(i) through (iv) of this section.
    (i) If any changes have been made with respect to the Contract 
after the date of the most recent Updating Summary Prospectus or 
Statutory Prospectus that was sent or given to investors with respect 
to the availability of Investment Options (for Registrants on Form N-3) 
or Portfolio Companies (for Registrants on Forms N-4 and N-6) under the 
Contract, or the disclosure that the Registrant included in response to 
Item 2 (Key Information), Item 3 (Overview of the Contract), Item 4 
(Fee Table), Item 11 (Benefits Available Under the Contract), Item 12 
(Purchases and Contract Value), or Item 13 (Surrenders and Withdrawals) 
of Form N-3; Item 2 (Key Information), Item 3 (Overview of the 
Contract), Item 4 (Fee Table), Item 10 (Benefits Available Under the 
Contract), Item 11 (Purchases and Contract Value), or Item 12 
(Surrenders and Withdrawals) of Form N-4; and Item 2 (Key Information), 
Item 3 (Overview of the Contract), Item 4 (Fee Table), Item 9 
(Premiums), Item 10 (Standard Death Benefits), Item 11 (Other Benefits 
Available Under the Contract), Item 12 (Surrenders and Withdrawals), or 
Item 14 (Lapse and Reinstatement) of Form N-6, include the following as 
applicable, under the heading ``Updated Information About Your 
[Contract]'':
    (A) The following legend: ``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].''
    (B) As applicable, provide a concise description of each change 
specified in paragraph (c)(6)(i) of this section. Provide enough detail 
to allow investors to understand the change and how it will affect 
investors, including indicating whether the change only applies to 
certain Contracts described in the Updating Summary Prospectus.
    (ii) In addition to the changes specified in paragraph (c)(6)(i) of 
this

[[Page 26097]]

section, a Registrant may provide a concise description of any other 
information relevant to the Contract within the time period that 
paragraph (c)(6)(i) of this section specifies, under the heading 
``Updated Information About Your [Contract].'' Any additional 
information included pursuant to this paragraph (c)(6)(ii) should not, 
by its nature, quantity, or manner of presentation, obscure or impede 
understanding of the information that paragraph (c)(6)(i) of this 
section requires.
    (iii) Under the heading ``Important Information You Should Consider 
About the [Contract],'' provide the information required by Item 2 of 
Form N-3, Item 2 of Form N-4, or Item 2 of Form N-6.
    (iv) Under the heading ``Appendix: [Portfolio Companies/Investment 
Options] Available Under the [Contract],'' include as an appendix the 
information required by Item 18 of Form N-3, Item 17 of Form N-4, or 
Item 18 of Form N-6. Alternatively, an Updating Summary Prospectus for 
a Contract registered on Form N-3 may include, under the heading 
``Additional Information About [Investment Options] Available Under the 
[Contract],'' the information required by Item 19 of Form N-3.
    (d) Incorporation by reference into a Summary Prospectus. (1) 
Except as provided by paragraph (d)(2) of this section, information may 
not be incorporated by reference into a Summary Prospectus. Information 
that is incorporated by reference into a Summary Prospectus in 
accordance with paragraph (d)(2) of this section need not be sent or 
given with the Summary Prospectus.
    (2) A Registrant may incorporate by reference into a Summary 
Prospectus any or all of the information contained in the Registrant's 
Statutory Prospectus and Statement of Additional Information, and any 
information from the Registrant's reports under Sec.  270.30e-1 of this 
chapter that the Registrant has incorporated by reference into the 
Registrant's Statutory Prospectus, provided that:
    (i) The conditions of paragraphs (b)(2)(v)(B), (c)(3)(v), and (h) 
of this section are met;
    (ii) A Registrant may not incorporate by reference into a Summary 
Prospectus information that paragraphs (b) and (c) of this section 
require to be included in an Initial Summary Prospectus or Updating 
Summary Prospectus, respectively; and
    (iii) Information that is permitted to be incorporated by reference 
into the Summary Prospectus may be incorporated by reference into the 
Summary Prospectus only by reference to the specific document that 
contains the information, not by reference to another document that 
incorporates such information by reference.
    (3) For purposes of Sec.  230.159 of this chapter, information is 
conveyed to a person not later than the time that a Summary Prospectus 
is received by the person if the information is incorporated by 
reference into the Summary Prospectus in accordance with paragraph 
(d)(2) of this section.
    (e) Terms used in the Summary Prospectus. Define special terms used 
in the Initial Summary Prospectus and Updating Summary Prospectus using 
any presentation style that clearly conveys their meaning to investors, 
such as the use of a glossary or list of definitions.
    (f) Transfer of the Contract security. Any obligation under section 
5(b)(2) of the Act (15 U.S.C. 77e(b)(2)) to have a Statutory Prospectus 
precede or accompany the carrying or delivery of a Contract security in 
an offering registered on Form N-3, Form N-4, or Form N-6 is satisfied 
if:
    (1) A Summary Prospectus is sent or given no later than the time of 
the carrying or delivery of the Contract security (an Initial Summary 
Prospectus in the case of a purchase of a new Contract, or an Updating 
Summary Prospectus in the case of additional purchase payments in an 
existing Contract);
    (2) The Summary Prospectus is not bound together with any materials 
except Portfolio Company Prospectuses for Portfolio Companies available 
as investment options under the Contract, provided that:
    (i) All of the Portfolio Companies are available as investment 
options to the person to whom such documents are sent or given; and
    (ii) A table of contents identifying each Portfolio Company 
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.
    (3) The Summary Prospectus that is sent or given satisfies the 
requirements of paragraph (b) or (c) of this section, as applicable, at 
the time of the carrying or delivery of the Contract security; and
    (4) The conditions set forth in paragraph (h) of this section are 
satisfied.
    (g) Sending communications. A communication relating to an offering 
registered on Form N-3, Form N-4, or Form N-6 sent or given after the 
effective date of a Contract's registration statement (other than a 
prospectus permitted or required under section 10 of the Act) shall not 
be deemed a prospectus under section 2(a)(10) of the Act (15 U.S.C. 
77b(a)(10)) 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 is not bound together with any 
materials, except as permitted by paragraph (f)(2) of this section;
    (3) The Summary Prospectus that was sent or given satisfies the 
requirements of paragraph (b) or (c) of this section, as applicable, at 
the time of such communication; and
    (4) The conditions set forth in paragraph (h) of this section are 
satisfied.
    (h) Availability of the Statutory Prospectus and certain other 
documents. (1) The current Initial Summary Prospectus, Updating Summary 
Prospectus, Statutory Prospectus, Statement of Additional Information, 
and in the case of a Registrant on Form N-3, the Registrant's most 
recent annual and semi-annual reports to shareholders under Sec.  
270.30e-1, are publicly accessible, free of charge, at the website 
address specified on the cover page or beginning of the Summary 
Prospectuses, on or before the time that the Summary Prospectuses are 
sent or given and current versions of those documents remain on the 
website through the date that is at least 90 days after:
    (i) In the case of reliance on paragraph (f) of this section, the 
date that the Contract security is carried or delivered; or
    (ii) In the case of reliance on paragraph (g) of this section, the 
date that the communication is sent or given.
    (2) The materials that are accessible in accordance with paragraph 
(h)(1) of this section must be presented on the website in a format, or 
formats, that:
    (i) Are human-readable and capable of being printed on paper in 
human-readable format;
    (ii) Permit persons accessing the Statutory Prospectus or Statement 
of Additional Information for the Contract to move directly back and 
forth between each section heading in a table of contents of such 
document and the section of the document referenced in that section 
heading; provided that, in the case of the Statutory Prospectus, the 
table of contents is either required by Sec.  230.481(c) or contains 
the same section headings as the table of contents required by Sec.  
230.481(c); and

[[Page 26098]]

    (iii) Permit persons accessing a Summary Prospectus to move 
directly back and forth between:
    (A) Each section of the Summary Prospectus and any section of the 
Statutory Prospectus and Contract Statement of Additional Information 
that provides additional detail concerning that section of the Summary 
Prospectus; or
    (B) Links located at both the beginning and end of the Summary 
Prospectus, or that remain continuously visible to persons accessing 
the Summary Prospectus, and tables of contents of both the Statutory 
Prospectus and the Contract Statement of Additional Information that 
meet the requirements of paragraph (h)(2)(ii) of this section.
    (iv) Permit persons accessing the Summary Prospectus to view the 
definition of each special term used in the Summary Prospectus (as 
required by paragraph (e) of this section) 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); or permits persons accessing 
the Contract Summary Prospectus to move directly back and forth between 
each special term and the corresponding entry in any glossary or list 
of definitions in the Contract Summary Prospectus (as described in 
paragraph (e) of this section).
    (3) Persons accessing the materials specified in paragraph (h)(1) 
of this section must be able to permanently retain, free of charge, an 
electronic version of such materials in a format, or formats, that meet 
each of the requirements of paragraphs (h)(2)(i) and (ii) of this 
section.
    (4) The conditions set forth in paragraphs (h)(1) through (3) of 
this section shall be deemed to be met, notwithstanding the fact that 
the materials specified in paragraph (h)(1) of this section are not 
available for a time in the manner required by paragraphs (h)(1) 
through (3) of this section, provided that:
    (i) The Registrant has reasonable procedures in place to ensure 
that the specified materials are available in the manner required by 
paragraphs (h)(1) through (3) of this section; and
    (ii) The Registrant takes prompt action to ensure that the 
specified documents become available in the manner required by 
paragraphs (h) through (3) of this section, as soon as practicable 
following the earlier of the time at which it knows or reasonably 
should have known that the documents are not available in the manner 
required by paragraphs (h)(1) through (3) of this section.
    (i) Other requirements--(1) Delivery upon request. If paragraph (f) 
or (g) of this section is relied on with respect to a Contract, the 
Registrant (or a financial intermediary through which the Contract may 
be purchased) must send, at no cost to the requestor and by U.S. first 
class mail or other reasonably prompt means, a paper copy of the 
Contract Statutory Prospectus, Contract Statement of Additional 
Information, and in the case of a Registrant on Form N-3, the 
Registrant's most recent annual and semi-annual reports to shareholders 
under Sec.  270.30e-1 of this chapter, to any person requesting such a 
copy within three business days after receiving a request for a paper 
copy. If paragraph (f) or (g) of this section is relied on with respect 
to a Contract, the Registrant (or a financial intermediary through 
which Contract may be purchased) must send, at no cost to the 
requestor, and by email, an electronic copy of any of the documents 
listed in this paragraph (i)(1) to any person requesting a copy of such 
document within three business days after receiving a request for an 
electronic copy. 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.
    (2) Greater prominence. If paragraph (f) or (g) of this section is 
relied on with respect to a Contract, the Summary Prospectus shall be 
given greater prominence than any materials that accompany the Summary 
Prospectus.
    (3) Convenient for reading and printing. If paragraph (f) or (g) of 
this section is relied on with respect to a Contract:
    (i) The materials that are accessible in accordance with paragraph 
(h)(1) of this section must be presented on the website in a format, or 
formats, that are convenient for both reading online and printing on 
paper; and
    (ii) Persons accessing the materials that are accessible in 
accordance with paragraph (h)(1) of this section must be able to 
permanently retain, free of charge, an electronic version of such 
materials in a format, or formats, that are convenient for both reading 
online and printing on paper.
    (4) Website addresses. If paragraph (f) or (g) of this section is 
relied on with respect to a Contract, any website address that is 
included in an electronic version of the Summary Prospectus must 
include an active hyperlink or provide another means of facilitating 
access through equivalent methods or technologies that lead directly to 
the relevant website address. This paragraph (i)(4) does not apply to 
electronic versions of a Summary Prospectus that are filed on the EDGAR 
system.
    (5) Compliance with this paragraph (i) not a condition to reliance 
on paragraph (f) or (g) of this section. Compliance with this paragraph 
(i) is not a condition to the ability to rely on paragraph (f) or (g) 
of this section with respect to a Contract, and failure to comply with 
this paragraph (i) does not negate the ability to rely on paragraph (f) 
or (g) of this section.
    (j) Portfolio Company Prospectuses--(1) Transfer of the Portfolio 
Company security. Any obligation under section 5(b)(2) of the Act to 
have a Statutory Prospectus precede or accompany the carrying or 
delivery of a Portfolio Company security is satisfied if, and 
information contained in the documents referenced in paragraph 
(j)(1)(ii) of this section is conveyed for purposes of Sec.  230.159 
when:
    (i) An Initial Summary Prospectus is used for each currently 
offered Contract described under the related registration statement;
    (ii) A summary prospectus is used for the Portfolio Company (if the 
Portfolio Company is registered on Form N-1A); and
    (iii) The current summary prospectus, Statutory Prospectus, 
Statement of Additional Information, and most recent annual and semi-
annual reports to shareholders under Sec.  270.30e-1 of this chapter 
for the Portfolio Company are publicly accessible, free of charge, at 
the same website address referenced in paragraph (h)(1) of this 
section, and are accessible under the conditions set forth in 
paragraphs (h)(1), (h)(2)(i) and (ii), and (h)(3) and (4) of this 
section, with respect to the availability of documents relating to the 
Contract.
    (2) Communications. Any communication relating to a Portfolio 
Company (other than a prospectus permitted or required under section 10 
of the Act) shall not be deemed a prospectus under section 2(a)(10) of 
the Act (15 U.S.C. 77b(a)(10)) if the conditions set forth in paragraph 
(j)(1) of this section are satisfied.
    (3) Other requirements. The materials referenced in paragraph 
(j)(1)(iii) of this section must be delivered upon request,

[[Page 26099]]

presented, and able to be retained under the conditions set forth in 
paragraphs (i)(1) and (3) of this section. Compliance with this 
paragraph (j)(3) is not a condition to the ability to rely on paragraph 
(j)(1) or (2) of this section, and failure to comply with this 
paragraph (j)(3) does not negate the ability to rely on paragraph 
(j)(1) or (2) of this section.


Sec.  230.498A  [Amended]

0
12. Effective January 1, 2022, Sec.  230.498A is further amended by:
0
a. Removing paragraphs (b)(2)(v)(E) and (F); and
0
b. Removing and reserving paragraph (c)(3)(v)(B).

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
13. The authority citation for part 232 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq., and 18 U.S.C. 1350, 
unless otherwise noted.
* * * * *

0
14. Amend Sec.  232.11 by revising the definition of ``Related Official 
Filing'' to read as follows:


Sec.  232.11   Definition of terms used in part 232.

* * * * *
    Related Official Filing. The term Related Official Filing means the 
ASCII or HTML format part of the official filing with which all or part 
of an Interactive Data File appears as an exhibit or, in the case of a 
filing on Sec. Sec.  239.15A and 274.11A of this chapter (Form N-1A), 
General Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this 
chapter (Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b 
and 274.11c of this chapter (Form N-4), and General Instruction C.3.(h) 
of Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6), the ASCII 
or HTML format part of an official filing that contains the information 
to which an Interactive Data File corresponds.
* * * * *

0
15. Amend Sec.  232.405 by:
0
a. Revising the introductory text and paragraphs (a)(2), (a)(3)(i) 
introductory text, (a)(3)(ii), and (a)(4);
0
b. Adding a heading for paragraph (b);
0
c. Revising paragraphs (b)(1) introductory text and (b)(2); and
0
d. Redesignating the Note to Sec.  232.405 as Note 2 to Sec.  232.405 
and revising the newly redesignated note.
    The revisions and addition read as follows:


Sec.  232.405   Interactive Data File submissions.

    This section applies to electronic filers that submit Interactive 
Data Files. Section 229.601(b)(101) of this chapter (Item 601(b)(101) 
of Regulation S-K), paragraph (101) of Part II--Information Not 
Required to be Delivered to Offerees or Purchasers of Sec.  239.40 of 
this chapter (Form F-10), paragraph 101 of the Instructions as to 
Exhibits of Sec.  249.220f of this chapter (Form F-20), paragraph 
B.(15) of the General Instructions to Sec.  249.240f of this chapter 
(Form 40-F), paragraph C.(6) of the General Instructions to Sec.  
249.306 of this chapter (Form 6-K), General Instruction C.3.(g) of 
Sec. Sec.  239.15A and 274.11A of this chapter (Form N-1A), General 
Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), and General Instruction C.3.(h) of 
Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6) specify when 
electronic filers are required or permitted to submit an Interactive 
Data File (as defined in Sec.  232.11), as further described in the 
note to this section. This section imposes content, format, and 
submission requirements for an Interactive Data File, but does not 
change the substantive content requirements for the financial and other 
disclosures in the Related Official Filing (as defined in Sec.  
232.11).
    (a) * * *
    (2) Be submitted only by an electronic filer either required or 
permitted to submit an Interactive Data File as specified by Sec.  
229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), 
paragraph (101) of Part II--Information Not Required to be Delivered to 
Offerees or Purchasers of Sec.  239.40 of this chapter (Form F-10), 
paragraph 101 of the Instructions as to Exhibits of Sec.  249.220f of 
this chapter (Form 20-F), paragraph B.(15) of the General Instructions 
to Sec.  249.240f of this chapter (Form 40-F), paragraph C.(6) of the 
General Instructions to Sec.  249.306 of this chapter (Form 6-K), 
General Instruction C.3.(g) of Sec. Sec.  239.15A and 274.11A of this 
chapter (Form N-1A), General Instruction C.3.(h) of Sec. Sec.  239.17a 
and 274.11b of this chapter (Form N-3), General Instruction C.3.(h) of 
Sec. Sec.  239.17b and 274.11c of this chapter (Form N-4), or General 
Instruction C.3.(h) of Sec. Sec.  239.17c and 274.11d of this chapter 
(Form N-6), as applicable;
    (3) * * *
    (i) If the electronic filer is neither an open-end management 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a et seq.) nor a separate account (as defined in section 
2(a)(14) of the Securities Act) (15 U.S.C. 77b(a)(14)) registered under 
the Investment Company Act of 1940 (15 U.S.C. 80a et seq.), and is not 
within one of the categories specified in paragraph (f)(1)(i) of this 
section, as partly embedded into a filing with the remainder 
simultaneously submitted as an exhibit to:
* * * * *
    (ii) If the electronic filer is either an open-end management 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a et seq.) or a separate account (as defined in section 
2(a)(14) of the Securities Act) registered under the Investment Company 
Act of 1940 (15 U.S.C. 80a et seq.), and is not within one of the 
categories specified in paragraph (f)(1)(ii) of this section, as partly 
embedded into a filing with the remainder simultaneously submitted as 
an exhibit to a filing that contains the disclosure this section 
requires to be tagged; and
    (4) Be submitted in accordance with the EDGAR Filer Manual and, as 
applicable, either Sec.  229.601(b)(101) of this chapter (Item 
601(b)(101) of Regulation S-K), paragraph (101) of Part II--Information 
Not Required to be Delivered to Offerees or Purchasers of Sec.  239.40 
of this chapter (Form F-10), paragraph 101 of the Instructions as to 
Exhibits of Sec.  249.220f of this chapter (Form 20-F), paragraph 
B.(15) of the General Instructions to Sec.  249.240f of this chapter 
(Form 40-F), paragraph C.(6) of the General Instructions to Sec.  
249.306 of this chapter (Form 6-K), General Instruction C.3.(g) of 
Sec. Sec.  239.15A and 274.11A of this chapter (Form N-1A), General 
Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), or General Instruction C.3.(h) of 
Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6).
    (b) Content--categories of information presented. (1) If the 
electronic filer is neither an open-end management investment company 
registered under the Investment Company Act of 1940 nor a separate 
account (as defined in section 2(a)(14) of the Securities Act) 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a et 
seq.), an Interactive Data File must consist of only a complete set of 
information for all periods required to be presented in the 
corresponding data in the Related Official Filing, no more and no less, 
from all of the following categories:
* * * * *

[[Page 26100]]

    (2) If the electronic filer is either an open-end management 
investment company registered under the Investment Company Act of 1940 
or a separate account (as defined in section 2(a)(14) of the Securities 
Act) registered under the Investment Company Act of 1940 (15 U.S.C. 80a 
et seq.), an Interactive Data File must consist of only a complete set 
of information for all periods required to be presented in the 
corresponding data in the Related Official Filing, no more and no less, 
from the information set forth in:
    (i) Items 2, 3, and 4 of Sec. Sec.  239.15A and 274.11A of this 
chapter (Form N-1A);
    (ii) Items 2, 4, 5, 11, 18 and 19 of Sec. Sec.  239.17a and 274.11b 
of this chapter (Form N-3);
    (iii) Items 2, 4, 5, 10, and 17 of Sec. Sec.  239.17b and 274.11c 
of this chapter (Form N-4); or
    (iv) Items 2, 4, 5, 10, 11 and 18 Sec. Sec.  239.17c and 274.11d of 
this chapter (Form N-6) as applicable.
* * * * *

    Note 2 to Sec.  232.405: Section 229.601(b)(101) of this chapter 
(Item 601(b)(101) of Regulation S-K) specifies the circumstances 
under which an Interactive Data File must be submitted and the 
circumstances under which it is permitted to be submitted, with 
respect to Sec.  239.11 of this chapter (Form S-1), Sec.  239.13 of 
this chapter (Form S-3), Sec.  239.25 of this chapter (Form S-4), 
Sec.  239.18 of this chapter (Form S-11), Sec.  239.31 of this 
chapter (Form F-1), Sec.  239.33 of this chapter (Form F-3), Sec.  
239.34 of this chapter (Form F-4), Sec.  249.310 of this chapter 
(Form 10-K), Sec.  249.308a of this chapter (Form 10-Q), and Sec.  
249.308 of this chapter (Form 8-K). Paragraph (101) of Part II--
Information not Required to be Delivered to Offerees or Purchasers 
of Sec.  239.40 of this chapter (Form F-10) specifies the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, 
with respect to Form F-10. Paragraph 101 of the Instructions as to 
Exhibits of Sec.  249.220f of this chapter (Form 20-F) specifies the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, 
with respect to Form 20-F. Paragraph B.(15) of the General 
Instructions to Sec.  249.240f of this chapter (Form 40-F) and 
Paragraph C.(6) of the General Instructions to Sec.  249.306 of this 
chapter (Form 6-K) specify the circumstances under which an 
Interactive Data File must be submitted and the circumstances under 
which it is permitted to be submitted, with respect to Sec.  
249.240f of this chapter (Form 40-F) and Sec.  249.306 of this 
chapter (Form 6-K). Section 229.601(b)(101) (Item 601(b)(101) of 
Regulation S-K), paragraph (101) of Part II--Information not 
Required to be Delivered to Offerees or Purchasers of Form F-10, 
paragraph 101 of the Instructions as to Exhibits of Form 20-F, 
paragraph B.(15) of the General Instructions to Form 40-F, and 
paragraph C.(6) of the General Instructions to Form 6-K all prohibit 
submission of an Interactive Data File by an issuer that prepares 
its financial statements in accordance with 17 CFR 210.6-01 through 
210.6-10 (Article 6 of Regulation S-X). For an issuer that is an 
open-end management investment company or separate account 
registered under the Investment Company Act of 1940 (15 U.S.C. 80a 
et seq.), General Instruction C.3.(g) Sec. Sec.  239.15A and 274.11A 
of this chapter (Form N-1A), General Instruction C.3.(h) of 
Sec. Sec.  239.17a and 274.11b of this chapter (Form N-3), General 
Instruction C.3.(h) of Sec. Sec.  239.17b and 274.11c of this 
chapter (Form N-4), or General Instruction C.3.(h) of Sec. Sec.  
239.17c and 274.11d of this chapter (Form N-6), as applicable, 
specifies the circumstances under which an Interactive Data File 
must be submitted.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
16. The authority citation for part 239 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 
80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 
312, unless otherwise noted.
* * * * *


Sec.  239.15  [Removed and Reserved]

0
17. Remove and reserve Sec.  239.15.

0
18. Amend Form N-14 (referenced in Sec.  239.23) by:
0
a. In General Instruction G, revising the second sentence;
0
b. In Item 3, replacing the phrase ``Items 2, 4(a) through (c), and 5 
through 14 of Form N-3'' with ``Items 2 through 3, 5 through 16, and 18 
of Form N-3'';
0
c. In Item 12(a), replacing the phrase ``Items 15 through 23 of Form N-
3'' with ``Items 20 through 26 of Form N-3''; and
0
d. In Item 13(a), replacing the phrase ``Items 15 through 23 of Form N-
3'' with ``Items 20 through 26 of Form N-3''.
    The revisions to General Instruction G read as follows:

    Note:  The text of Form N-14 does not, and this amendment will 
not, appear in the Code of Federal Regulations.


[[Page 26101]]


[GRAPHIC] [TIFF OMITTED] TR01MY20.015

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
19. The general authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
Public Law 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, secs. 503 and 602, 126 Stat. 326 (2012), unless otherwise 
noted.
* * * * *

0
20. Amend Sec.  240.14a-16 by revising paragraph (f)(2)(iii) to read as 
follows:


Sec.  240.14a-16  Internet availability of proxy materials.

* * * * *
    (f) * * *
    (2) * * *
    (iii) In the case of an investment company registered under the 
Investment Company Act of 1940, the company's prospectus, a summary 
prospectus that satisfies the requirements of Sec.  230.498(b) or Sec.  
230.498A(b) or (c) of this chapter, a Notice under Sec.  270.30e-3 of 
this chapter, or a report that is required to be transmitted to 
stockholders by section 30(e) of the Investment Company Act (15 U.S.C. 
80a-29(e)) and its implementing regulations (e.g., Sec. Sec.  270.30e-1 
and 270.30e-2 of this chapter); and
* * * * *


Sec.  240.14a-101  [Amended]

0
21. Amend Sec.  240.14a-101 by removing the phrase ``Item 3 of Form N-
3'' and adding in its place ``Item 4 of Form N-3'' in paragraph 
(a)(3)(iv) of Item 22.

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
22. The authority citation for part 270 is amended by removing the 
sectional authority for Sec.  270.6e-3(T) and adding a sectional 
authority for Sec.  270.6e-3 in numerical order to read, in part, as 
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless 
otherwise noted.
* * * * *
    Section 270.6e-3 is also issued under 15 U.S.C. 80a-5(e).
* * * * *

0
23. Amend Sec.  270.0-1 by revising paragraph (e) introductory text and 
paragraph (e)(2) to read as follows:


Sec.  270.0-1  Definition of terms used in this part.

* * * * *

[[Page 26102]]

    (e) Definition of separate account and conditions for availability 
of exemption under Sec. Sec.  270.6c-6, 270.6c-7, 270.6c-8, 270.11a-2, 
270.14a-2, 270.15a-3, 270.16a-1, 270.22c-1, 270.22d-2, 270.22e-1, 
270.26a-1, 270.27i-1, and 270.32a-2 (Rules 6c-6, 6c-7, 6c-8, 11a-2, 
14a-2, 15a-3, 16a-1, 22c-1, 22d-2, 22e-1, 26a-1, 27i-1, and 32a-2).
* * * * *
    (2) As conditions to the availability of exemptive Rules 6c-6, 6c-
7, 6c-8, 11a-2, 14a-2, 15a-3, 16a-1, 22c-1, 22d-2, 22e-1, 26a-1, 27i-1, 
and 32a-2, the separate account shall be legally segregated, the assets 
of the separate account shall, at the time during the year that 
adjustments in the reserves are made, have a value at least equal to 
the reserves and other contract liabilities with respect to such 
account, and at all other times, shall have a value approximately equal 
to or in excess of such reserves and liabilities; and that portion of 
such assets having a value equal to, or approximately equal to, such 
reserves and contract liabilities shall not be chargeable with 
liabilities arising out of any other business which the insurance 
company may conduct.

0
24. Amend Sec.  270.6c-7 by revising the introductory text and removing 
the parenthetical authority at the end of the section to read as 
follows:


Sec.  270.6c-7  Exemptions from certain provisions of sections 22(e) 
and 27 for registered separate accounts offering variable annuity 
contracts to participants in the Texas Optional Retirement Program.

    A registered separate account, and any depositor of or underwriter 
for such account, shall be exempt from the provisions of sections 
22(e), 27(i)(2)(A), and 27(d) of the Act (15 U.S.C. 80a-22(e), 80a-
27(i)(2)(A), and 80a-27(d), respectively) with respect to any variable 
annuity contract participating in such account to the extent necessary 
to permit compliance with the Texas Optional Retirement Program 
(``Program''), Provided, That the separate, account, depositor, or 
underwriter for such account:
* * * * *

0
25. Amend Sec.  270.6c-8 by revising paragraphs (b) and (c) and 
removing the parenthetical authority at the end of the section to read 
as follows:


Sec.  270.6c-8  Exemptions for registered separate accounts to impose a 
deferred sales load and to deduct certain administrative charges.

* * * * *
    (b) A registered separate account, and any depositor of or 
principal underwriter for such account, shall be exempt from the 
provisions of sections 22(c) and 27(i)(2)(A) of the Act (15 U.S.C. 80a-
22(c) and 80a-27(i)(2)(A), respectively) and Sec.  270.22c-1 (Rule 22c-
1) to the extent necessary to permit them to impose a deferred sales 
load on any variable annuity contract participating in such account; 
provided that the terms of any offer to exchange another contract for 
the contract are in compliance with the requirements of paragraph (d) 
or (e) of Sec.  270.11a-2 (Rule 11a-2).
    (c) A registered separate account, and any depositor of or 
principal underwriter for such account, shall be exempt from sections 
22(c) and 27(i)(2)(A) of the Act (15 U.S.C. 80a-22(c) and 80a-
27(i)(2)(A), respectively) and Sec.  270.22c-1 (Rule 22c-1) to the 
extent necessary to permit them to deduct from the value of any 
variable annuity contract participating in such account, upon total 
redemption of the contract prior to the last day of the year, the full 
annual fee for administrative services that otherwise would have been 
deducted on that date.

0
26. Revise Sec.  270.6e-2 to read as follows:


Sec.  270.6e-2  Exemptions for certain variable life insurance separate 
accounts.

    (a) A separate account, and the investment adviser, principal 
underwriter and depositor of such separate account, shall, except for 
the exemptions provided in paragraph (b) of this section, be subject to 
all provisions of the Act and this part as though such separate account 
were a registered investment company issuing periodic payment plan 
certificates if:
    (1) Such separate account is established and maintained by a life 
insurance company pursuant to the insurance laws or code of:
    (i) Any state or territory of the United States or the District of 
Columbia; or
    (ii) Canada or any province thereof, if it complies to the extent 
necessary with Sec.  270.7d-1 (Rule 7d-1) under the Act;
    (2) The assets of the separate account are derived solely from the 
sale of variable life insurance contracts as defined in paragraph (c) 
of this section, and advances made by the life insurance company which 
established and maintains the separate account (``life insurer'') in 
connection with the operation of such separate account;
    (3) The separate account is not used for variable annuity contracts 
or for funds corresponding to dividend accumulations or other contract 
liabilities not involving life contingencies;
    (4) The income, gains and losses, whether or not realized, from 
assets allocated to such separate account, are, in accordance with the 
applicable variable life insurance contract, credited to or charged 
against such account without regard to other income, gains or losses of 
the life insurer;
    (5) The separate account is legally segregated, and that portion of 
its assets having a value equal to, or approximately equal to, the 
reserves and other contract liabilities with respect to such separate 
account are not chargeable with liabilities arising out of any other 
business that the life insurer may conduct;
    (6) The assets of the separate account have, at each time during 
the year that adjustments in the reserves are made, a value at least 
equal to the reserves and other contract liabilities with respect to 
such separate account, and at all other times, except pursuant to an 
order of the Commission, have a value approximately equal to or in 
excess of such reserves and liabilities; and
    (7) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940.
    (b) If a separate account meets the requirements of paragraph (a) 
of this section, then such separate account and the other persons 
described in paragraph (a) of this section shall be exempt from the 
provisions of the Act as follows:
    (1) Section 7 (15 U.S.C. 80a-7).
    (2) Section 8 (15 U.S.C. 80a-8) to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate 
account shall file with the Commission a notification on Sec.  274.301 
of this chapter (Form N-6EI-1) which identifies such separate account; 
and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission a form to be designated by the 
Commission within 90 days after filing the notification on Form N-6EI-
1; provided, however, that if the fiscal year of the separate account 
ends within this 90 day period the form may be filed within ninety days 
after the end of such fiscal year.
    (3) Section 9 (15 U.S.C. 80a-9) to the extent that:
    (i) The eligibility restrictions of section 9(a) shall not be 
applicable to those persons who are officers, directors and employees 
of the life insurer or its affiliates who do not participate directly 
in the management or administration of the separate account or in the 
sale of variable life insurance contracts funded by such separate 
account; and
    (ii) A life insurer shall be ineligible pursuant to paragraph (3) 
of section 9(a) to serve as investment adviser, depositor of or 
principal underwriter for a variable life insurance separate account 
only if

[[Page 26103]]

an affiliated person of such life insurer, ineligible by reason of 
paragraph (1) or (2) of section 9(a), participates directly in the 
management or administration of the separate account or in the sale of 
variable life insurance contracts funded by such separate account.
    (4) Section 13(a) (15 U.S.C. 80a-13(a)) to the extent that:
    (i) An insurance regulatory authority may require pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
subclassification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer, provided that such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (A) Such change would be contrary to state law; or
    (B) Such change would be inconsistent with the investment 
objectives of the separate account or would result in the purchase of 
securities for the separate account which vary from the general quality 
and nature of investments and investment techniques utilized by other 
separate accounts of the life insurer or of an affiliated life 
insurance company, which separate accounts have investment objectives 
similar to the separate account; and
    (iii) Any action taken in accordance with paragraph (b)(4)(i) or 
(ii) of this section and the reasons therefor shall be disclosed in the 
proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (5) Section 14(a) (15 U.S.C. 80a-14(a)).
    (6)(i) Section 15(a) (15 U.S.C. 80a-15(a)) to the extent this 
section requires that the initial written contract pursuant to which 
the investment adviser serves or acts shall have been approved by the 
vote of a majority of the outstanding voting securities of the 
registered company; provided that:
    (A) Such investment adviser is selected and a written contract is 
entered into before the effective date of the registration statement 
under the Securities Act of 1933, as amended, for variable life 
insurance contracts which are funded by the separate account, and that 
the terms of the contract are fully disclosed in such registration 
statement; and
    (B) A written contract is submitted to a vote of variable life 
insurance contractholders at their first meeting after the effective 
date of the registration statement under the Securities Act of 1933, as 
amended, on condition that such meeting shall take place within one 
year after such effective date, unless the time for the holding of such 
meeting shall be extended by the Commission upon written request for 
good cause shown; and
    (ii) Sections 15(a), (b) and (c) (15 U.S.C. 80a-15(a), (b), and 
(c)) to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer; provided that such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer; provided that such 
disapproval is reasonable and is based upon a determination by the life 
insurer in good faith that:
    (1) The rate of the proposed investment advisory fee will exceed 
the maximum rate that is permitted to be charged against the assets of 
the separate account for such services as specified by any variable 
life insurance contract funded by such separate account; or
    (2) The proposed investment adviser may be expected to employ 
investment techniques which vary from the general techniques utilized 
by the current investment adviser to the separate account, or advise 
the purchase or sale of securities which would be inconsistent with the 
investment objectives of the separate account, or which would vary from 
the quality and nature of investments made by other separate accounts 
of the life insurer or of an affiliated life insurance company, which 
separate accounts have investment objectives similar to the separate 
account; and
    (D) Any action taken in accordance with paragraph (b)(6)(ii)(A), 
(B), or (C) of this section and the reasons therefor shall be disclosed 
in the proxy statement for the next meeting of variable life insurance 
contractholders of the separate account.
    (7) Section 16(a) (15 U.S.C. 80a-16(a)) to the extent that:
    (i) Persons serving as directors of the separate account prior to 
the first meeting of such account's variable life insurance 
contractholders are exempt from the requirement of section 16(a) that 
such persons be elected by the holders of outstanding voting securities 
of such account at an annual or special meeting called for that 
purpose; provided that:
    (A) Such persons have been appointed directors of such account by 
the life insurer before the effective date of the registration 
statement under the Securities Act of 1933, as amended, for variable 
life insurance contracts which are funded by the separate account and 
are identified in such registration statement (or are replacements 
appointed by the life insurer for any such persons who have become 
unable to serve as directors); and
    (B) An election of directors for such account shall be held at the 
first meeting of variable life insurance contractholders after the 
effective date of the registration statement under the Securities Act 
of 1933, as amended, relating to contracts funded by such account, 
which meeting shall take place within one year after such effective 
date, unless the time for holding such meeting shall be extended by the 
Commission upon written request for good cause shown; and
    (ii) A member of the board of directors of such separate account 
may be disapproved or removed by the appropriate insurance regulatory 
authority if such person is ineligible to serve as a director of the 
separate account pursuant to insurance law or regulation of the 
jurisdiction in which the life insurer is domiciled.
    (8) Section 17(f) (15 U.S.C. 80a-17(f)) to the extent that the 
securities and similar investments of the separate account may be 
maintained in the custody of the life insurer or an insurance company 
which is an affiliated person of such life insurer; provided that:
    (i) The securities and similar investments allocated to such 
separate account are clearly identified as to ownership by such 
account, and such securities and similar investments are maintained in 
the vault of an insurance company which meets the qualifications set 
forth in paragraph (b)(8)(ii) of this section, and whose procedures and 
activities with respect to such safekeeping function are supervised by 
the insurance regulatory authorities of the jurisdiction in which the 
securities and similar investments will be held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a State or territory of the 
United States or the District of Columbia an

[[Page 26104]]

annual statement of its financial condition in the form prescribed by 
the National Association of Insurance Commissioners, must be subject to 
supervision and inspection by such authority and must be examined 
periodically as to its financial condition and other affairs by such 
authority, must hold the securities and similar investments of the 
separate account in its vault, which vault must be equivalent to that 
of a bank which is a member of the Federal Reserve System, and must 
have a combined capital and surplus, if a stock company, or an 
unassigned surplus, if a mutual company, of not less than $1,000,000 as 
set forth in its most recent annual statement filed with such 
authority;
    (iii) Access to such securities and similar investments shall be 
limited to employees of or agents authorized by the Commission, 
representatives of insurance regulatory authorities, independent public 
accountants for the separate account, accountants for the life insurer 
and to no more than 20 persons authorized pursuant to a resolution of 
the board of directors of the separate account, which persons shall be 
directors of the separate account, officers and responsible employees 
of the life insurer or officers and responsible employees of the 
affiliated insurance company in whose vault such investments are 
maintained (if applicable), and access to such securities and similar 
investments shall be had only by two or more such persons jointly, at 
least one of whom shall be a director of the separate account or 
officer of the life insurer;
    (iv) The requirement in paragraph (b)(8)(i) of this section that 
the securities and similar investments of the separate account be 
maintained in the vault of a qualified insurance company shall not 
apply to securities deposited with insurance regulatory authorities or 
deposited in a system for the central handling of securities 
established by a national securities exchange or national securities 
association registered with the Commission under the Securities 
Exchange Act of 1934, as amended, or such person as may be permitted by 
the Commission, or to securities on loan which are collateralized to 
the extent of their full market value, or to securities hypothecated, 
pledged, or placed in escrow for the account of such separate account 
in connection with a loan or other transaction authorized by specific 
resolution of the board of directors of the separate account, or to 
securities in transit in connection with the sale, exchange, 
redemption, maturity or conversion, the exercise of warrants or rights, 
assents to changes in terms of the securities, or to other transactions 
necessary or appropriate in the ordinary course of business relating to 
the management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated insurance company, shall sign a notation in respect of such 
deposit, withdrawal or order which shall show:
    (A) The date and time of the deposit, withdrawal, or order;
    (B) The title and amount of the securities or other investments 
deposited, withdrawn or ordered to be withdrawn, and an identification 
thereof by certificate numbers or otherwise;
    (C) The manner of acquisition of the securities or similar 
investments deposited or the purpose for which they have been 
withdrawn, or ordered to be withdrawn; and
    (D) If withdrawn and delivered to another person the name of such 
person. Such notation shall be transmitted promptly to an officer or 
director of the separate account or the life insurer designated by the 
board of directors of the separate account who shall not be a person 
designated for the purpose of paragraph (b)(8)(iii) of this section. 
Such notation shall be on serially numbered forms and shall be 
preserved for at least one year;
    (vi) Such securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by 
the separate account at least three times during each fiscal year, at 
least two of which shall be chosen by such accountant without prior 
notice to such separate account. A certificate of such accountant 
stating that he has made an examination of such securities and 
investments and describing the nature and extent of the examination 
shall be transmitted to the Commission by the accountant promptly after 
each examination; and
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by Federal or state authorities pursuant to 
any arrangement whereby the directors, officers, employees or agents of 
the separate account or the life insurer are authorized or permitted to 
withdraw such investments upon their mere receipt are deemed to be in 
the custody of the life insurer and shall be exempt from the 
requirements of section 17(f) so long as the arrangement complies with 
all provisions of paragraph (b)(8) of this section, except that such 
securities will be maintained in the vault of a bank or other company 
rather than the vault of an insurance company.
    (9) Section 18(i) (15 U.S.C. 80a-18(i)) to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Variable life insurance contractholders shall have one vote for 
each $100 of cash value funded by the separate account, with fractional 
votes allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders 
pursuant to paragraph (b)(9)(i)(A) of this section, with fractional 
votes allocated for amounts less than $100; provided that after the 
commencement of sales of variable life insurance contracts funded by 
the separate account, the life insurer shall cast its votes for and 
against each matter which may be voted upon by contractholders in the 
same proportion as the votes cast by contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days prior to any meeting at which such 
vote is held; provided that if a quorum is not present at the meeting, 
the meeting may be adjourned for up to 60 days without fixing a new 
record date; and
    (ii) The requirement of this section that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(c)) shall be a 
voting stock and have equal voting rights with every other outstanding 
voting stock shall not be deemed to be violated by actions specifically 
permitted by any provision of this section.
    (10) Section 19 (15 U.S.C. 80a-19) to the extent that the 
provisions of this section shall not be applicable to any dividend or 
similar distribution paid or payable pursuant to provisions of 
participating variable life insurance contracts.
    (11) Sections 22(d), 22(e), and 27(i)(2)(A) (15 U.S.C. 80a-22(d), 
80a-22(e), and 80a-27(i)(2)(A), respectively) and Sec.  270.22c-1 (Rule 
22c-1) promulgated under section 22(c) to the extent:
    (i) That the amount payable on death and the cash surrender value 
of each variable life insurance contract shall be determined on each 
day during which the New York Stock Exchange is open for trading, not 
less frequently than once daily as of the time of the close of

[[Page 26105]]

trading on such exchange; provided that the amount payable on death 
need not be determined more than once each contract month if such 
determination does not reduce the participation of the contract in the 
investment experience of the separate account; provided further, 
however, that if the net valuation premium for such contract is 
transferred at least annually, then the amount payable on death need be 
determined only when such net premium is transferred; and
    (ii) Necessary for compliance with this section or with insurance 
laws and regulations and established administrative procedures of the 
life insurer with respect to issuance, transfer and redemption 
procedures for variable life insurance contracts funded by the separate 
account including, but not limited to, premium rate structure and 
premium processing, insurance underwriting standards, and the 
particular benefit afforded by the contract; provided, however, that 
any procedure or action shall be reasonable, fair and not 
discriminatory to the interests of the affected contractholder and to 
all other holders of contracts of the same class or series funded by 
the separate account; and, further provided that any such action shall 
be disclosed in the form required to be filed by the separate account 
with the Commission pursuant to paragraph (b)(2)(ii) of this section.
    (12) Section 27(i)(2)(A) (15 U.S.C. 80a-27(i)(A)), to the extent 
that such sections require that the variable life insurance contract be 
redeemable or provide for a refund in cash; provided that such contract 
provides for election by the contractholder of a cash surrender value 
or certain non-forfeiture and settlement options which are required or 
permitted by the insurance law or regulation of the jurisdiction in 
which the contract is offered; and further provided that unless 
required by the insurance law or regulation of the jurisdiction in 
which the contract is offered or unless elected by the contractholder, 
such contract shall not provide for the automatic imposition of any 
option, including, but not limited to, an automatic premium loan, which 
would involve the accrual or payment of an interest or similar charge;
    (13) Section 32(a)(2) (15 U.S.C. 80a-31(a)(2)); provided that:
    (i) The independent public accountant is selected before the 
effective date of the registration statement under the Securities Act 
of 1933, as amended, for variable life insurance contracts which are 
funded by the separate account, and the identity of such accountant is 
disclosed in such registration statement; and
    (ii) The selection of such accountant is submitted for ratification 
or rejection to variable life insurance contractholders at their first 
meeting after the effective date of the registration statement under 
the Securities Act of 1933, as amended, on condition that such meeting 
shall take place within one year after such effective date, unless the 
time for the holding of such meeting shall be extended by the 
Commission upon written request for good cause shown.
    (14) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to variable life insurance separate accounts of the life 
insurer or of any affiliated life insurance company:
    (i) The eligibility restrictions of section 9(a) (15 U.S.C. 80a-
9(a)) shall not be applicable to those persons who are officers, 
directors, and employees of the life insurer or its affiliates who do 
not participate directly in the management or administration of any 
registered management investment company described in paragraph (b)(14) 
introductory text;
    (ii) The life insurer shall be ineligible pursuant to paragraph (3) 
of section 9(a) to serve as investment adviser of or principal 
underwriter for any registered management investment company described 
in paragraph (b)(14) of this section only if an affiliated person of 
such life insurer, ineligible by reason of paragraph (1) or (2) of 
section 9(a), participates in the management or administration of such 
company;
    (iii) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (A) To cause such companies to make (or refrain from making) 
certain investments which would result in changes in the sub-
classification or investment objectives of such companies or to approve 
or disapprove any contract between such companies and an investment 
adviser when required to do so by an insurance regulatory authority 
subject to the provisions of paragraphs (b)(4)(i) and (b)(6)(ii)(A) of 
this section; or
    (B) In favor of changes in investment objectives, investment 
adviser of or principal underwriter for such companies subject to the 
provisions of paragraphs (b)(4)(ii) and (b)(6)(ii)(B) and (C) of this 
section;
    (iv) Any action taken in accordance with paragraph (b)(14)(iii)(A) 
or (B) of this section and the reasons therefor shall be disclosed in 
the next report to contractholders made pursuant to section 30(e) (15 
U.S.C. 80a-29(e)) and Sec.  270.30e-2 (Rule 30e-2);
    (v) Any registered management investment company established by the 
insurer and described in paragraph (b)(14) of this section shall be 
exempt from section 14(a); and
    (vi) Any registered management investment company established by 
the insurer and described in paragraph (b)(14) of this section shall be 
exempt from sections 15(a), 16(a), and 32(a)(2) (15 U.S.C. 80a-15(a), 
80-16(a), and 80-31(a)(2), respectively), to the extent prescribed by 
paragraphs (b)(6)(i), (b)(7)(i), and (b)(13) of this section, provided 
that such company complies with the conditions set forth in those 
paragraphs as if it were a separate account.
    (c) When used in this section, variable life insurance contract 
means a contract of life insurance, subject to regulation under the 
insurance laws or code of every jurisdiction in which it is offered, 
funded by a separate account of a life insurer, which contract, so long 
as premium payments are duly paid in accordance with its terms, 
provides for:
    (1) A death benefit and cash surrender value which vary to reflect 
the investment experience of the separate account;
    (2) An initial stated dollar amount of death benefit, and payment 
of a death benefit guaranteed by the life insurer to be at least equal 
to such stated amount; and
    (3) Assumption of the mortality and expense risks thereunder by the 
life insurer for which a charge against the assets of the separate 
account may be assessed. Such charge shall be disclosed in the 
prospectus and shall not be less than fifty per centum of the maximum 
charge for risk assumption as disclosed in the prospectus and as 
provided for in the contract.


Sec.  270.6e-3(T)   [Redesignated as Sec.  270.6e-3 and Amended]

0
27. Redesignate Sec.  270.6e-3(T) as Sec.  270.6e-3 and revise newly 
redesignated Sec.  270.6e-3 to read as follows:


Sec.  270.6e-3  Exemptions for flexible premium variable life insurance 
separate accounts.

    (a) A separate account, and its investment adviser, principal 
underwriter and depositor, shall, except

[[Page 26106]]

as provided in paragraph (b) of this section, comply with all 
provisions of the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.) and this part that apply to a registered investment company 
issuing periodic payment plan certificates if:
    (1) It is a separate account within the meaning of section 2(a)(37) 
of the Act (15 U.S.C. 80a-2(a)(37)) and is established and maintained 
by a life insurance company pursuant to the insurance laws or code of:
    (i) Any state or territory of the United States or the District of 
Columbia; or
    (ii) Canada or any province thereof, if it complies with Sec.  
270.7d-1 (Rule 7d-1) under the Act (the ``life insurer'');
    (2) The assets of the separate account are derived solely from:
    (i) The sale of flexible premium variable life insurance contracts 
(``flexible contracts'') as defined in paragraph (c)(1) of this 
section;
    (ii) The sale of scheduled premium variable life insurance 
contracts (``scheduled contracts'') as defined in paragraph (c) of 
Sec.  270.6e-2 (Rule 6e-2) under the Act;
    (iii) Funds corresponding to dividend accumulations with respect to 
such contracts; and
    (iv) Advances made by the life insurer in connection with the 
operation of such separate account;
    (3) The separate account is not used for variable annuity contracts 
or other contract liabilities not involving life contingencies;
    (4) The separate account is legally segregated, and that part of 
its assets with a value approximately equal to the reserves and other 
contract liabilities for such separate account are not chargeable with 
liabilities arising from any other business of the life insurer;
    (5) The value of the assets of the separate account, each time 
adjustments in the reserves are made, is at least equal to the reserves 
and other contract liabilities of the separate account, and at all 
other times approximately equals or exceeds the reserves and 
liabilities; and
    (6) The investment adviser of the separate account is registered 
under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
    (b) A separate account that meets the requirements of paragraph (a) 
of this section, and its investment adviser, principal underwriter and 
depositor shall be exempt with respect to flexible contracts funded by 
the separate account from the following provisions of the Act:
    (1) Subject to section 26(f) of the Act, in connection with any 
sales charge deducted under the flexible contract, the separate account 
and other persons shall be exempt from sections 12(b), 22(c), and 
27(i)(2)(A) (15 U.S.C. 80a-12(b), 80-22(c), and 80a-27(i)(2)(A), 
respectively) of the Act, and Sec. Sec.  270.12b-1 (Rule 12b-1) and 
270.22c-1 (Rule 22c-1) under the Act.
    (2) Section 7 (15 U.S.C. 80a-7).
    (3) Section 8 (15 U.S.C. 80a-8), to the extent that:
    (i) For purposes of paragraph (a) of section 8, the separate 
account filed with the Commission a notification on Sec.  274.301 of 
this chapter (Form N-6EI-1) which identifies the separate account; and
    (ii) For purposes of paragraph (b) of section 8, the separate 
account shall file with the Commission the form designated by the 
Commission within ninety days after filing the notification on Form N-
6EI-1; provided, however, that if the fiscal year of the separate 
account end within this ninety day period, the form may be filed within 
ninety days after the end of such fiscal year.
    (4) Section 9 (15 U.S.C. 80a-9), to the extent that:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
persons who are officers, directors or employees of the life insurer or 
its affiliates and who do not participate directly in the management or 
administration of the separate account or in the sale of flexible 
contracts; and
    (ii) A life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser, depositor of or principal 
underwriter for the separate account only if an affiliated person of 
such life insurer, ineligible by reason of paragraphs (1) or (2) of 
section 9(a), participates directly in the management or administration 
of the separate account or in the sale of flexible contracts.
    (5) Section 13(a) (15 U.S.C. 80a-13(a)), to the extent that:
    (i) An insurance regulatory authority may require pursuant to 
insurance law or regulation that the separate account make (or refrain 
from making) certain investments which would result in changes in the 
subclassification or investment policies of the separate account;
    (ii) Changes in the investment policy of the separate account 
initiated by its contractholders or board of directors may be 
disapproved by the life insurer, if the disapproval is reasonable and 
is based on a good faith determination by the life insurer that:
    (A) The change would violate state law; or
    (B) The change would not be consistent with the investment 
objectives of the separate account or would result in the purchase of 
securities for the separate account which vary from the general quality 
and nature of investments and investment techniques used by other 
separate accounts of the life insurer or of an affiliated life 
insurance company with similar investment objectives; and
    (iii) Any action described in paragraph (b)(5)(i) or (ii) of this 
section and the reasons for it shall be disclosed in the next 
communication to contractholders, but in no case, later than twelve 
months from the date of such action.
    (6) Section 14(a) (15 U.S.C. 80a-14(a)).
    (7)(i) Section 15(a) (15 U.S.C. 80a-15(a)), to the extent it 
requires that the initial written contract with the investment adviser 
shall have been approved by the vote of a majority of the outstanding 
voting securities of the registered investment company; provided that:
    (A) The investment adviser is selected and a written contract is 
entered into before the effective date of the 1933 Act registration 
statement for flexible contracts, and that the terms of the contract 
are fully disclosed in the registration statement; and
    (B) A written contract is submitted to a vote of contractholders at 
their first meeting and within one year after the effective date of the 
1933 Act registration statement, unless the Commission upon written 
request and for good cause shown extends the time for the holding of 
such meeting; and
    (ii) Sections 15(a), (b), and (c), to the extent that:
    (A) An insurance regulatory authority may disapprove pursuant to 
insurance law or regulation any contract between the separate account 
and an investment adviser or principal underwriter;
    (B) Changes in the principal underwriter for the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer; provided that such 
disapproval is reasonable;
    (C) Changes in the investment adviser of the separate account 
initiated by contractholders or the board of directors of the separate 
account may be disapproved by the life insurer; provided that such 
disapproval is reasonable and is based on a good faith determination by 
the life insurer that:
    (1) The proposed investment advisory fee will exceed the maximum 
rate specified in any flexible contract that may be charged against the 
assets of the separate account for such services; or
    (2) The proposed investment adviser may be expected to employ 
investment

[[Page 26107]]

techniques which vary from the general techniques used by the current 
investment adviser to the separate account, or advise the purchase or 
sale of securities which would not be consistent with the investment 
objectives of the separate account, or which would vary from the 
quality and nature of investments made by other separate accounts with 
similar investment objectives of the life insurer or an affiliated life 
insurance company; and
    (D) Any action described in paragraph (b)(7)(ii)(A), (B), or (C) of 
this section and the reasons for it shall be disclosed in the next 
communication to contractholders, but in no case, later than twelve 
months from the date of such action.
    (8) Section 16(a) (15 U.S.C. 80a-16(a)), to the extent that:
    (i) Directors of the separate account serving before the first 
meeting of the account's contractholders are exempt from the 
requirement of section 16(a) that they be elected by the holders of 
outstanding voting securities of the account at an annual or special 
meeting called for that purpose; provided that:
    (A) Such persons were appointed directors of the account by the 
life insurer before the effective date of the 1933 Act registration 
statement for flexible contracts and are identified in the registration 
statement (or are replacements appointed by the life insurer for any 
such persons who have become unable to serve as directors); and
    (B) An election of directors for the account is held at the first 
meeting of contractholders and within one year after the effective date 
of the 1933 Act registration statement for flexible contracts, unless 
the time for holding the meeting is extended by the Commission upon 
written request and for good cause shown; and
    (ii) A member of the board of directors of the separate account may 
be disapproved or removed by an insurance regulatory authority if the 
person is not eligible to be a director of the separate account under 
the law of the life insurer's domicile.
    (9) Section 17(f) (15 U.S.C. 80a-17(f)), to the extent that the 
securities and similar investments of a separate account organized as a 
management investment company may be maintained in the custody of the 
life insurer or of an affiliated life insurance company; provided that:
    (i) The securities and similar investments allocated to the 
separate account are clearly identified as owned by the account, and 
the securities and similar investments are kept in the vault of an 
insurance company which meets the qualifications in paragraph 
(b)(9)(ii) of this section, and whose safekeeping function is 
supervised by the insurance regulatory authorities of the jurisdiction 
in which the securities and similar investments will be held;
    (ii) The insurance company maintaining such investments must file 
with an insurance regulatory authority of a state or territory of the 
United States or the District of Columbia an annual statement of its 
financial condition in the form prescribed by the National Association 
of Insurance Commissioners, must be subject to supervision and 
inspection by such authority and must be examined periodically as to 
its financial condition and other affairs by such authority, must hold 
the securities and similar investments of the separate account in its 
vault, which vault must be equivalent to that of a bank which is a 
member of the Federal Reserve System, and must have a combined capital 
and surplus, if a stock company, or an unassigned surplus, if a mutual 
company, of not less than $1,000,000 as set forth in its most recent 
annual statement filed with such authority;
    (iii) Access to such securities and similar investments shall be 
limited to employees of the Commission, representatives of insurance 
regulatory authorities, independent public accountants retained by the 
separate account (or on its behalf by the life insurer), accountants 
for the life insurer, and to no more than 20 persons authorized by a 
resolution of the board of directors of the separate account, which 
persons shall be directors of the separate account, officers and 
responsible employees of the life insurer or officers and responsible 
employees of the affiliated life insurance company in whose vault the 
investments are kept (if applicable), and access to such securities and 
similar investments shall be had only by two or more such persons 
jointly, at least one of whom shall be a director of the separate 
account or officer of the life insurer;
    (iv) The requirement in paragraph (b)(9)(i) of this section that 
the securities and similar investments of the separate account be 
maintained in the vault of a qualified insurance company shall not 
apply to securities deposited with insurance regulatory authorities or 
deposited in accordance with any rule under section 17(f), or to 
securities on loan which are collateralized to the extent of their full 
market value, or to securities hypothecated, pledged, or placed in 
escrow for the account of such separate account in connection with a 
loan or other transaction authorized by specific resolution of the 
board of directors of the separate account, or to securities in transit 
in connection with the sale, exchange, redemption, maturity or 
conversion, the exercise of warrants or rights, assents to changes in 
terms of the securities, or to other transactions necessary or 
appropriate in the ordinary course of business relating to the 
management of securities;
    (v) Each person when depositing such securities or similar 
investments in or withdrawing them from the depository or when ordering 
their withdrawal and delivery from the custody of the life insurer or 
affiliated life insurance company, shall sign a notation showing:
    (A) The date and time of the deposit, withdrawal or order;
    (B) The title and amount of the securities or other investments 
deposited, withdrawn or ordered to be withdrawn, and an identification 
thereof by certificate numbers or otherwise;
    (C) The manner of acquisition of the securities or similar 
investments deposited or the purpose for which they have been 
withdrawn, or ordered to be withdrawn; and
    (D) If withdrawn and delivered to another person, the name of such 
person. The notation shall be sent promptly to an officer or director 
of the separate account or the life insurer designated by the board of 
directors of the separate account who is not himself permitted to have 
access to the securities or investments under paragraph (b)(9)(iii) of 
this section. The notation shall be on serially numbered forms and 
shall be kept for at least one year;
    (vi) The securities and similar investments shall be verified by 
complete examination by an independent public accountant retained by 
the separate account (or on its behalf by the life insurer) at least 
three times each fiscal year, at least two of which shall be chosen by 
the accountant without prior notice to the separate account. A 
certificate of the accountant stating that he has made an examination 
of such securities and investments and describing the nature and extent 
of the examination shall be sent to the Commission by the accountant 
promptly after each examination; and
    (vii) Securities and similar investments of a separate account 
maintained with a bank or other company whose functions and physical 
facilities are supervised by Federal or state authorities under any 
arrangement whereby the directors, officers, employees or agents of the 
separate account or the life insurer are authorized or permitted to 
withdraw

[[Page 26108]]

such investments upon their mere receipt are deemed to be in the 
custody of the life insurer and shall be exempt from the requirements 
of section 17(f) so long as the arrangement complies with all 
provisions of paragraph (b)(9) of this section, except that such 
securities will be maintained in the vault of a bank or other company 
rather than the vault of an insurance company.
    (10) Section 18(i) (15 U.S.C. 80a-18(i)), to the extent that:
    (i) For the purposes of any section of the Act which provides for 
the vote of securityholders on matters relating to the investment 
company:
    (A) Flexible contractholders shall have one vote for each $100 of 
cash value funded by the separate account, with fractional votes 
allocated for amounts less than $100;
    (B) The life insurer shall have one vote for each $100 of assets of 
the separate account not otherwise attributable to contractholders 
under paragraph (b)(10)(i)(A) of this section, with fractional votes 
allocated for amounts less than $100; provided that after the 
commencement of sales of flexible contracts, the life insurer shall 
cast its votes for and against each matter which may be voted upon by 
contractholders in the same proportion as the votes cast by 
contractholders; and
    (C) The number of votes to be allocated shall be determined as of a 
record date not more than 90 days before any meeting at which such vote 
is held; provided that if a quorum is not present at the meeting, the 
meeting may be adjourned for up to 60 days without fixing a new record 
date; and
    (ii) The requirement of section 18(i) that every share of stock 
issued by a registered management investment company (except a common-
law trust of the character described in section 16(c) (15 U.S.C. 80a-
16(c))) shall be a voting stock and have equal voting rights with every 
other outstanding voting stock shall not be deemed to be violated by 
actions specifically permitted by any provisions of this section.
    (11) Section 19 (15 U.S.C. 80a-19), to the extent that the 
provisions of this section shall not apply to any dividend or similar 
distribution paid or payable under provisions of participating flexible 
contracts.
    (12) Sections 22(c), 22(d), 22(e) and 27(i)(2)(A) (15 U.S.C. 80a-
22(c)), 80a-22(d), 80a-22(e), and 80a-27(i)(2)(A), respectively) and 
Sec.  270.22c-1 (Rule 22c-1) to the extent:
    (i) The cash value of each flexible contract shall be computed in 
accordance with Rule 22c-1(b); provided, however, that where actual 
computation is not necessary for the operation of a particular 
contract, then the cash value of that contract must only be capable of 
computation; and provided further that to the extent the calculation of 
the cash value reflects deductions for the cost of insurance and other 
insurance benefits or administrative expenses and fees or sales 
charges, such deductions need only be made at such times as specified 
in the contract or as necessary for compliance with insurance laws and 
regulations;
    (ii) The death benefit, unless required by insurance laws and 
regulations, shall be computed on any day that the investment 
experience of the separate account would affect the death benefit under 
the terms of the contract provided that such terms are reasonable, 
fair, and nondiscriminatory; and
    (iii) Necessary to comply with this section or with insurance laws 
and regulations and established administrative procedures of the life 
insurer for issuance, increases in or additions of insurance benefits, 
transfer and redemption of flexible contracts, including, but not 
limited to, premium rate structure and premium processing, insurance 
underwriting standards, and the particular benefit afforded by the 
contract; provided, however, that any procedure or action shall be 
reasonable, fair, and not discriminatory to the interests of the 
affected contractholders and to all other holders of contracts of the 
same class or series funded by the separate account; and provided 
further that any such action shall be disclosed in the form filed by 
the separate account with the Commission under paragraph (b)(3)(ii) of 
this section.
    (13) Sections 27(i)(2)(A) and 22(c) (15 U.S.C. 80a-27(i)(2)(A) and 
80a-22(c)) and Sec.  270.22c-1 (Rule 22c-1), to the extent that:
    (i) Such sections require that the flexible contract be redeemable 
or provide for a refund in cash; provided that the contract provides 
for election by the contractholder of a cash surrender value or certain 
non-forfeiture and settlement options which are required or permitted 
by the insurance law or regulation of the jurisdiction in which the 
contract is offered; and provided further that unless required by the 
insurance law or regulation of the jurisdiction in which the contract 
is offered or unless elected by the contractholder, the contract shall 
not provide for the automatic imposition of any option, including, but 
not limited to, an automatic premium loan, which would involve the 
accrual or payment of an interest or similar charge.
    (ii) Notwithstanding the provisions of paragraph (b)(13)(i) of this 
section, if the amounts available under the contract to pay the charges 
due under the contract on any contract processing day are less than 
such charges due, the contract may provide that the cash surrender 
value shall be applied to purchase a non-forfeiture option specified by 
the life insurer in such contract; provided that the contract also 
provides that Contract processing days occur not less frequently than 
monthly.
    (iii) Subject to section 26(f) (15 U.S.C. 80a-26(f)), sales charges 
and administrative expenses or fees may be deducted upon redemption.
    (14) Section 32(a)(2) (15 U.S.C. 80a-31(a)(2)); provided that:
    (i) The independent public accountant is selected before the 
effective date of the 1933 Act registration statement for flexible 
contracts, and the identity of the accountant is disclosed in the 
registration statement; and
    (ii) The selection of the accountant is submitted for ratification 
or rejection to flexible contractholders at their first meeting and 
within one year after the effective date of the 1933 Act registration 
statement for flexible contracts, unless the time for holding the 
meeting is extended by order of the Commission.
    (15) If the separate account is organized as a unit investment 
trust, all the assets of which consist of the shares of one or more 
registered management investment companies which offer their shares 
exclusively to separate accounts of the life insurer, or of any 
affiliated life insurance company, offering either scheduled contracts 
or flexible contracts, or both; or which also offer their shares to 
variable annuity separate accounts of the life insurer or of an 
affiliated life insurance company, or which offer their shares to any 
such life insurance company in consideration solely for advances made 
by the life insurer in connection with the operation of the separate 
account; provided that the board of directors of each investment 
company, constituted with a majority of disinterested directors, will 
monitor such company for the existence of any material irreconcilable 
conflict between the interests of variable annuity contractholders and 
scheduled or flexible contractholders investing in such company; the 
life insurer agrees that it will be responsible for reporting any 
potential or existing conflicts to the directors; and if a conflict 
arises, the life insurer will, at its own cost, remedy such conflict up 
to and including establishing a new registered management investment 
company and segregating the assets underlying the

[[Page 26109]]

variable annuity contracts and the scheduled or flexible contracts; 
then:
    (i) The eligibility restrictions of section 9(a) shall not apply to 
those persons who are officers, directors or employees of the life 
insurer or its affiliates who do not participate directly in the 
management or administration of any registered management investment 
company described in paragraph (b)(15) of this section;
    (ii) The life insurer shall be ineligible under paragraph (3) of 
section 9(a) to serve as investment adviser of or principal underwriter 
for any registered management investment company described in paragraph 
(b)(15) of this section only if an affiliated person of such life 
insurer, ineligible by reason of paragraphs (1) or (2) of section 9(a), 
participates in the management or administration of such company;
    (iii) For purposes of any section of the Act which provides for the 
vote of securityholders on matters relating to the separate account or 
the underlying registered investment company, the voting provisions of 
paragraphs (b)(10)(i) and (ii) of this section apply; provided that:
    (A) The life insurer may vote shares of the registered management 
investment companies held by the separate account without regard to 
instructions from contractholders of the separate account if such 
instructions would require such shares to be voted:
    (1) To cause such companies to make (or refrain from making) 
certain investments which would result in changes in the sub-
classification or investment objectives of such companies or to approve 
or disapprove any contract between such companies and an investment 
adviser when required to do so by an insurance regulatory authority 
subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of 
this section; or
    (2) In favor of changes in investment objectives, investment 
adviser of or principal underwriter for such companies subject to the 
provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of this 
section;
    (B) Any action taken in accordance with paragraph 
(b)(15)(iii)(A)(1) or (2) of this section and the reasons therefor 
shall be disclosed in the next report contractholders made under 
section 30(e) (15 U.S.C. 80a-29(e)) and Sec.  270.30e-2 (Rule 30e-2);
    (iv) Any registered management investment company established by 
the life insurer and described in paragraph (b)(15) of this section 
shall be exempt from section 14(a); and
    (v) Any registered management investment company established by the 
life insurer and described in paragraph (b)(14) of this section shall 
be exempt from sections 15(a), 16(a), and 32(a)(2) (15 U.S.C. 80a-
15(a), 80-16(a), and 80-31(a)(2), respectively), to the extent 
prescribed by paragraphs (b)(7)(i), (b)(8)(i), and (b)(14) of this 
section; provided that the company complies with the conditions set 
forth in paragraphs (b)(7)(i), (b)(8)(i), and (b)(14) of this section 
as if it were a separate account.
    (c) When used in this section:
    (1) Flexible premium variable life insurance contract means a 
contract of life insurance, subject to regulation under the insurance 
laws or code of every jurisdiction in which it is offered, funded by a 
separate account of a life insurer, which contract provides for:
    (i) Premium payments which are not fixed by the life insurer as to 
both timing and amount; provided, however, that the life insurer may 
fix the timing and minimum amount of premium payments for the first two 
contract periods following issuance of the contract or of an increase 
in or addition of insurance benefits, and may prescribe a reasonable 
minimum amount for any additional premium payment;
    (ii) A death benefit the amount or duration of which may vary to 
reflect the investment experience of the separate account;
    (iii) A cash value which varies to reflect the investment 
experience of the separate account; and
    (iv) There is a reasonable expectation that subsequent premium 
payments will be made.
    (2) Contract period means the period from a contract issue or 
anniversary date to the earlier of the next following anniversary date 
(or, if later, the last day of any grace period commencing before such 
next following anniversary date) or the termination date of the 
contract.
    (3) Cash value means the amount that would be available in cash 
upon voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, without regard to any charges that may be 
assessed upon such termination and before deduction of any outstanding 
contract loan.
    (4) Cash surrender value means the amount available in cash upon 
voluntary termination of a contract by its owner before it becomes 
payable by death or maturity, after any charges assessed in connection 
with the termination have been deducted and before deduction of any 
outstanding contract loan.
    (5) Contract processing day means any day on which charges under 
the contract are deducted from the separate account.


Sec.  270.8b-1  [Amended]

0
28. Amend Sec.  270.8b-1 by removing ``270.8b-32'' everywhere it 
appears and adding ``270.8b-31'' in its place.

0
29. Amend Sec.  270.11a-2 by revising paragraphs (c) and (d) and 
removing the parenthetical authority at the end of the section to read 
as follows:


Sec.  270.11a-2  Offers of exchange by certain registered separate 
accounts or others the terms of which do not require prior Commission 
approval.

* * * * *
    (c) If the offering account imposes a front-end sales load on the 
acquired security, then such sales load shall be a percentage that is 
no greater than the excess of the rate of the front-end sales load 
otherwise applicable to that security over the rate of any front-end 
sales load previously paid on the exchanged security.
    (d) If the offering account imposes a deferred sales load on the 
acquired security and the exchanged security was also subject to a 
deferred sales load, then any deferred sales load imposed on the 
acquired security shall be calculated as if:
    (1) The holder of the acquired security had been the holder of that 
security from the date on which he became the holder of the exchanged 
security; and
    (2) Purchase payments made for the exchanged security had been made 
for the acquired security on the date on which they were made for the 
exchanged security.
* * * * *

0
30. Revise Sec.  270.14a-2 to read as follows:


Sec.  270.14a-2  Exemption from section 14(a) of the Act for certain 
registered separate accounts and their principal underwriters.

    (a) A registered separate account, and any principal underwriter 
for such account, shall be exempt from section 14(a) of the Act (15 
U.S.C. 80a-14(a)) with respect to a public offering of variable annuity 
contracts participating in such account.
    (b) Any registered management investment company which has as a 
promoter an insurance company and which offers its securities to 
separate accounts of such insurance company that offer variable annuity 
contracts and are registered under the Act as unit investment trusts 
(``trust accounts''), and any principal underwriter for such investment 
company, shall be exempt from section 14(a) with respect to such 
offering and to the offering of such securities to trust accounts of 
other insurance companies.
    (c) Any registered management investment company exempt from

[[Page 26110]]

section 14(a) of the Act pursuant to paragraph (b) of this section 
shall be exempt from sections 15(a), 16(a), and 32(a)(2) of the Act (15 
U.S.C. 80a-15(a), 80a-16(a), and 80a-31(a)(2)), to the extent 
prescribed in Sec. Sec.  270.15a-3, 270.16a-1, and 270.32a-2 (Rules 
15a-3, 16a-1, and 32a-2 under the Act), provided that such investment 
company complies with the conditions set forth in Rules 15a-3, 16a-1, 
and 32a-2 as if it were a separate account.

0
31. Revise Sec.  270.26a-1 to read as follows:


Sec.  270.26a-1  Payment of administrative fees to the depositor or 
principal underwriter of a unit investment trust; exemptive relief for 
separate accounts.

    For purposes of section 26(a)(2)(C) of the Act, payment of a fee to 
the depositor of or a principal underwriter for a registered unit 
investment trust, or to any affiliated person or agent of such 
depositor or underwriter (collectively, ``depositor''), for bookkeeping 
or other administrative services provided to the trust shall be allowed 
the custodian or trustee (``trustee'') as an expense, provided that 
such fee is an amount not greater than the expenses, without profit:
    (a) Actually paid by such depositor directly attributable to the 
services provided; and
    (b) Increased by the services provided directly by such depositor, 
as determined in accordance with generally accepted accounting 
principles consistently applied.


Sec.  270.26a-2   [Removed]

0
32. Remove Sec.  270.26a-2.


Sec.  270.27a-1   [Removed]

0
33. Remove Sec.  270.27a-1.


Sec.  270.27a-2   [Removed]

0
34. Remove Sec.  270.27a-2.


Sec.  270.27a-3   [Removed]

0
35. Remove Sec.  270.27a-3.


Sec.  270.27c-1  [Removed and Reserved]

0
36. Remove and reserve Sec.  270.27c-1.


Sec.  270.27d-2  [Removed and Reserved]

0
37. Remove and reserve Sec.  270.27d-2.


Sec.  270.27e-1  [Removed and Reserved]

0
38. Remove and reserve Sec.  270.27e-1.


Sec.  270.27f-1   [Removed and Reserved]

0
39. Remove and reserve Sec.  270.27f-1.


Sec.  270.27g-1   [Removed and Reserved]

0
40. Remove and reserve Sec.  270.27g-1.


Sec.  270.27h-1  [Removed and Reserved]

0
41. Remove and reserve Sec.  270.27h-1.

0
42. Add Sec.  270.27i-1 to read as follows:


Sec.  270.27i-1  Exemption from Section 27(i)(2)(A) of the Act during 
annuity payment period of variable annuity contracts participating in 
certain registered separate accounts.

    A registered separate account, and any depositor of or underwriter 
for such account, shall, during the annuity payment period of variable 
annuity contracts participating in such account, be exempt from the 
requirement of paragraph (1) of section 27(i)(2)(A) of the Act that a 
periodic payment plan certificate be a redeemable security.

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
43. The general authority citation for part 274 continues to read as 
follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, 
sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
* * * * *


Sec.  274.11  [Removed and Reserved]

0
44. Remove and reserve Sec.  274.11.

0
45. Revise Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) to 
read as follows:

    Note: The text of Form N-3 will not appear in the Code of 
Federal Regulations.


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0
46. Effective January 1, 2022, Form N-3 (referenced in Sec. Sec.  
239.17a and 274.11b) is further amended by:
0
 a. In Item 1, removing paragraph (a)(11); and
0
 b. In Item 31(a), removing Instruction 4(f).

0
47. Revise Form N-4 (referenced in Sec. Sec.  239.17b and 274.11c) to 
read as follows:

    Note: The text of Form N-4 will not appear in the Code of 
Federal Regulations.


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0
50. Effective January 1, 2022, Form N-6 (referenced in Sec. Sec.  
239.17c and 274.11d) is amended by removing paragraph (a)(9) of Item 1.


Sec.  274.127e-1  [Removed]

0
51. Remove Sec.  274.127e-1.


Sec.  274.127f-1  [Removed]

0
52. Remove Sec.  274.127f-1.


Sec.  274.302  [Removed]

0
53. Remove Sec.  274.302.


Sec.  274.303  [Removed]

0
54. Remove Sec.  274.303.

    By the Commission.

    Dated: March 11, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-05526 Filed 4-30-20; 8:45 am]
 BILLING CODE 8011-01-P


