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

Federal RegisterNov 30, 2018

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SECURITIES AND EXCHANGE COMMISSION

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

[Release Nos. 33-10569; 34-84508; IC-33286; File No. S7-23-18]

RIN 3235-AK60

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

Agency:

Securities and Exchange Commission.

Action:

Proposed rule.

Summary:

The Securities and Exchange Commission is proposing rule and form amendments that are intended to help investors make informed investment decisions regarding variable annuity and variable life insurance contracts. The proposal would modernize disclosures by using a layered disclosure approach designed to provide investors with key information relating to the contract's terms, benefits, and risks in a concise and more reader-friendly presentation, with access to more detailed information available online and electronically or in paper format on request. The proposed new rule would permit a person to satisfy its prospectus delivery obligations under the Securities Act of 1933 for a variable annuity or variable life insurance contract by sending or giving a summary prospectus to investors and making the statutory prospectus available online. The proposed rule also would consider a person to have met its prospectus delivery obligations for any portfolio companies associated with a variable annuity or variable life insurance contract if the portfolio company prospectuses are posted online. In addition, we are proposing amendments to the registration forms for variable annuity and variable life insurance contracts to update and enhance the disclosures to investors in these contracts, and to implement the proposed summary prospectus framework. We are further proposing to require variable contracts to use the Inline eXtensible Business Reporting Language (“Inline XBRL”) format for the submission of certain required disclosures in the variable contract statutory prospectus. We are also proposing certain technical and conforming amendments to our rules and forms, including amendments to rules relating to variable life insurance contracts, as well as rescission of certain related rules and forms. Lastly, we are seeking comments regarding parallel amendments to rules governing mutual fund summary prospectuses and registration forms applicable to other types of registered investment companies.

Dates:

Comments should be submitted on or before February 15, 2019.

Addresses:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (

http://www.sec.gov/rules/proposed.shtml

); or

• Send an email to

rule-comments@sec.gov.

Please include File No. S7-23-18 on the subject line.

Paper Comments

• Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-23-18. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's website (

http://www.sec.gov/rules/proposed.shtml

). Comments are also available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information you wish to make available publicly. Investors wishing to provide comments regarding the proposed summary prospectus may wish to submit our Feedback Flier, available at Appendix C.

Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov

to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

Daniel K. Chang, James Maclean, Amy Miller, Senior Counsels; Amanda Hollander Wagner, Branch Chief; Michael C. Pawluk, Senior Special Counsel, Investment Company Regulation Office, at (202) 551-6792; Keith Carpenter or Michael Kosoff, Senior Special Counsels, Disclosure and Review Office, at (202) 551-6921, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION:

The Securities and Exchange Commission (“Commission”) is proposing new rule 498A [proposed rule 17 CFR 230.498A] under the Securities Act. The Commission is also proposing amendments to the following rules:

Commission reference

CFR citation

(17 CFR)

Regulation S-T [17 CFR 232.10 through 232.903]:

Rule 11

§ 232.11.

Rule 405

§ 232.405.

Securities Act of 1933 (“Securities Act”):

Rule 159A

§ 230.159A.

Rule 421

§ 230.421.

Rule 431

§ 230.431.

Rule 482

§ 230.482.

Rule 485

§ 230.485.

Rule 497

§ 230.497.

Rule 498

§ 230.498.

Securities Exchange Act of 1934 (“Exchange Act”):

Rule 14a-16

§ 240.14a-16.

Investment Company Act of 1940 (“Investment Company Act”):

Rule 0-1

§ 270.0-1.

Rule 6c-7

§ 270.6c-7.

Rule 6c-8

§ 270.6c-8.

Rule 6e-2

§ 270.6e-2.

Rule 6e-3(T)

§ 270.6e-3(T).

Rule 11a-2

§ 270.11a-2.

Rule 14a-2

§ 270.14a-2.

Rule 26a-1

§ 270.26a-1.

Rule 27c-1

§ 270.27c-1.

Securities Act and Investment Company Act:

Form N-3

§ 239.17a and 274.11b.

Form N-4

§ 239.17b and 274.11c.

Form N-6

§ 239.17c and 274.11d.

Finally, the

Commission is proposing to rescind:

15 U.S.C. 77a

et seq.

15 U.S.C. 78a

et seq.

15 U.S.C. 80a

et seq.

Commission reference

CFR citation

(17 CFR)

Investment Company Act:

Rule 26a-2

§ 270.26a-2.

Rule 27a-1

§ 270.27a-1.

Rule 27a-2

§ 270.27a-2.

Rule 27a-3

§ 270.27a-3.

Rule 27d-2

§ 270.27d-2.

Rule 27e-1

§ 270.27e-1.

Rule 27f-1

§ 270.27f-1.

Rule 27g-1

§ 270.27g-1.

Rule 27h-1

§ 270.27h-1.

Form N-27E-1

§ 274.127e-1.

Form N-27F-1

§ 274.127f-1.

Form N-27I-1

§ 274.302.

Form N-27I-2

§ 274.303.

Securities Act and Investment Company Act:

Form N-1

§ 239.15 and 274.11.

Table of Contents

I. Introduction and Background

A. Overview of Variable Annuities and Variable Life Insurance Products

B. Prospectus Disclosure and Delivery

1. Requirements for Variable Contract Prospectus Disclosure and Delivery

2. Evolution of Layered Disclosure and Delivery of Information to Investors

C. Rulemaking Proposal Overview

II. Discussion

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

1. Initial Summary Prospectus

2. Updating Summary Prospectus

3. Legal Effect of Use of Summary Prospectus for Variable Contracts

4. Online Accessibility of Contract Statutory Prospectus and Certain Other Documents Relating to the Contract

5. Other Requirements for Summary Prospectus and Other Contract Documents

6. Incorporation by Reference

7. Filing Requirements for the Summary Prospectus

8. Definitions in the Proposed Rule

B. Optional Method To Satisfy Portfolio Company Prospectus Delivery Requirements

1. Current Delivery Practices for Portfolio Company Prospectuses

2. New Option To Satisfy Prospectus Delivery Requirements

C. Discontinued Variable Contracts

D. Proposed Amendments to Registration Forms

1. General Instructions

2. Part A (Information Required in a Prospectus)

3. Part B (Information Required in a Statement of Additional Information)

4. Part C (Other Information)

5. Guidelines

E. Inline XBRL

F. Technical and Conforming Amendments to, and Requests for Comment on, Other Aspects of the Regulatory Framework for Variable Contracts

G. Compliance Date

III. Economic Analysis

A. Introduction

B. Economic Baseline

1. Overview of Variable Products Market

2. Statutory and Regulatory Disclosure Requirements

C. Benefits and Costs of the Proposed Rule

1. Optional Summary Prospectus Regime

2. Treatment of Discontinued Variable Contracts

3. Changes to Forms N-3, N-4, and N-6

4. Inline XBRL

D. Effects on Efficiency, Competition, and Capital Formation

E. Reasonable Alternatives

1. Mandating Summary Prospectuses

2. Summary Prospectuses Delivered With Statutory Prospectuses

3. Contract-Specific Updating Summary Prospectuses

4. Do Not Provide Updating Summary Prospectuses

5. Inline XBRL

6. Alternatives to Form N-3, N-4, and N-6 Amendments

7. Requiring All Variable Contracts (Including Currently Discontinued Contracts) To Prepare Updated Registration Statements and Deliver Statutory or Summary Prospectuses

8. Alternatives to Commission's Position on Alternative Disclosure Contracts

F. Request for Comments

IV. Paperwork Reduction Act

A. Form N-3

B. Form N-4

C. Form N-6

D. Registered Investment Company Interactive Data

E. Proposed Rule 498A

F. Request for Comments

V. Regulatory Flexibility Certification

VI. Consideration of Impact on the Economy

VII. Statutory Authority and Text of Proposed Amendments

Appendices

Appendix A: Hypothetical Initial Summary Prospectus

Appendix B: Hypothetical Updating Summary Prospectus

Appendix C: Feedback Flier—Variable Annuity Summary Prospectus

I. Introduction and Background

To meet life insurance needs and other financial goals, investors may consider variable annuity and variable life insurance contracts (together, “variable contracts” or “contracts”) as a way of combining insurance guarantees with the potential for long-term investment appreciation.

Variable contracts are generally more complex than other retail investment products, such as mutual funds, in a variety of ways. These investment products combine both investment and insurance features. They frequently offer a menu of optional benefits that an investor may select to customize the contract to meet his or her individual needs. In addition, most have two-level fee structures, where fees are assessed at both the contract level by the issuer (including any additional charges for optional benefits selected by the investor) and at the underlying investment option level. Further transactional charges may also apply, some of which could be substantial, for example, in the case of withdrawals made from a contract prior to a specified number of years.

Special tax rules also apply to variable products, with both tax advantages and potential

adverse tax impacts in certain circumstances.

For an overview of variable annuities and variable life insurance contracts,

see infra

section I.A.

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.

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.

Investors should understand the features, risks, and charges associated with any potential investment. Providing investors with key information is particularly important in the context of variable contracts, since their structure is typically more complex than other types of investment products. The operation and terminology associated with these products can be difficult for investors to understand. Moreover, variable contract prospectuses are often quite lengthy (frequently more than a hundred pages), particularly in the case of products that include optional benefits. It is also common for insurers to describe different versions of the contract in one prospectus, some of which may no longer be available to new investors, leaving investors to wade through a lengthy document to find disclosures relevant to the particular contract that they purchased or are considering purchasing.

In addition, variable contract investors generally allocate their purchase payments to a range of investment options. For most variable contracts, these investment options typically are mutual funds, which are separately registered and have their own prospectuses.

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.

For purposes of this release, we refer to these entities as “portfolio companies.”

For example, variable annuity contracts offer an average of 59 investment options, with some contracts offering more than 250 investment options.

See

Insured Retirement Institute,

IRI Fact Book 2018

(“IRI Fact Book”), at 170. Furthermore, variable life insurance contracts offer an average of 64 investment options, with some contracts offering more than 300 investment options. These variable life figures are based on June 2018 data obtained from Morningstar Direct.

We are concerned that the volume, format, and content of disclosures in the variable contract context may make it difficult for some investors to find and understand key information that they need to make an informed investment decision. To improve the current disclosure framework and update the manner in which variable contract investors receive and review prospectuses and related information, we are proposing new rule 498A under the Securities Act that permits the use of a summary prospectus to satisfy statutory prospectus delivery obligations, along with other rule and form amendments intended to implement the summary prospectus framework. Investors would continue to have access to the contract statutory prospectus and other information about the contract online (and could receive paper or electronic copies upon request), which would continue to provide more-detailed information about the contract.

Specifically, the approach under the proposed new rule contemplates the use of two types of summary prospectuses: An “initial summary prospectus” to be provided to new investors, and an “updating summary prospectus” to be provided to existing investors. To help investors make an informed investment decision, each type of summary prospectus uses a layered disclosure approach designed to provide investors with key information relating to the contract's terms, benefits, and risks in a concise and more reader-friendly presentation, with website addresses or hyperlinks to more detailed information posted online and delivered electronically or in paper format on request. In proposing new rule 498A, we are considering approaches that could affect, and raise the possibility of future amendments to, certain parallel provisions of rule 498 and certain of our registration forms applicable to other types of registered investment companies.

A. Overview of Variable Annuities and Variable Life Insurance Products

Variable contracts are contracts between an investor and an insurance company that provide investors with exposure to the securities markets while also offering certain insurance protections, such as protection against market losses, protection against outliving their assets, or assurances that their beneficiaries will receive a certain amount upon death.

Unlike traditional annuities and life insurance contracts, variable contracts have an investment component that allows investors the possibility of increasing their potential benefits.

Variable contracts also offer tax benefits such as tax-deferral on investment earnings until distribution. This combination of insurance guarantees and tax-deferred investment may be appealing to investors.

The average contract value for individual variable annuities is approximately $106,187.

See

IRI Fact Book,

supra

note 8, at 170. Americans who own annuities have a median annual household income of $64,000 (80% have total annual household incomes below $100,000). Most individual annuity owners are retired. Although the average age of an annuity owner is 70, the average age at which owners purchased their first annuity is 51.

See

The Gallup Organization and Mathew Greenwald & Associates for The Committee of Annuity Insurers,

Survey of Owners of Individual Annuity Contracts

(2013) (“Gallup Survey”), at 8-9. There is limited data available regarding variable life insurance contracts, but based upon the data that is available, the Commission believes that the demographics of investors for those products are likely comparable.

Variable contracts generally are treated as annuity or insurance contracts under state insurance laws and securities under the federal securities laws. Although section 3(a)(8) of the Securities Act exempts from the Act any insurance or endowment policy or annuity contract issued by a corporation subject to the supervision of the insurance commissioner of any State or Territory of the United States or the District of Columbia, we have determined, and the courts have held, that variable annuities are securities under the federal securities laws and are not, therefore, entitled to this exemption.

See, e.g., SEC

Variable Annuity Life Ins. Co. of Am.,

359 U.S. 65 (1959) (variable annuity contracts are securities, and not insurance policies or annuity contracts within the meaning of the Act's exemption because the issuer of a variable annuity contract has no element of fixed return and does not assume any investment risk, which is inherent in the concepts of insurance and annuity contracts);

see also

Adoption of Rule 3c-4 Under the Investment Company Act of 1940, Investment Company Act Release No. 7644, 1 SEC Docket 17 (Jan. 31, 1973) (because the contract holder participates directly in the investment experience of the separate account and bears an investment risk, a variable life insurance contract is a security, not entitled to the exemption set forth in section 3(a)(8) of the Securities Act).

When an investor purchases a variable contract, he or she makes a purchase payment (in either a lump sum or a series of payments), and in return, the insurance company promises to pay a stream of periodic income payments, either immediately or at some future date. Variable annuities allow investors to receive periodic payments for either a definite period (

e.g.,

20 years), or for an indefinite period (

e.g.,

the life of the investor), and also provide a basic death benefit to protect the investor's beneficiaries. The investor may allocate the cash value of the purchase payments to a range of investment options available under the contract, including to portfolio companies and, in some cases, to a fixed account option that pays a fixed or minimum rate of interest. The investor's account value changes depending on the performance of the investment options the investor has selected.

Similar to variable annuities, variable life insurance contracts offer a death benefit to the investor, as well as the ability to accumulate cash value.

Also

like variable annuities, a variable life insurance contract permits the investor to allocate insurance premiums to a variety of portfolio companies, and may also offer a fixed account investment option. Because an investor will generally allocate the insurance premiums to portfolio companies, the cash value (and in some cases, the death benefit

) will vary with the performance of these investments.

Unlike other types of life insurance, variable life insurance exposes the investor to greater market risk (the cash value can decrease), but also offers

the potential for long-term returns that can grow the cash value. An investor may access the cash value of his or her contract by taking out loans (or withdrawals), which may be subject to surrender charges and are taxable under certain circumstances. Taking a loan or withdrawal reduces the policy's cash value and death benefit, and may require additional premium payments to keep the policy in force.

The death benefit can vary based on optional benefit features that the contract investor selects.

See infra

paragraph accompanying note 17.

Investors bear a number of ongoing fees, expenses, and other charges when investing in a variable contract, including mortality and expense risk charges,

administrative fees, fees for optional benefits selected by the investor, and portfolio company fees and expenses.

Investors may also bear certain transaction-based charges, including surrender charges.

Variable life insurance contracts also impose an additional insurance charge to cover the cost of the death benefit.

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 the insurance company's costs to sell the contract (

e.g.,

commissions). Typical M&E charges are approximately 1.25% of account value per year for variable annuities, and 0.90% for variable life insurance.

See

IRI Fact Book,

supra

note 8, at 55.

Investors indirectly bear the operating fees and expenses of the portfolio companies they select as the underlying investments in their variable contracts.

See supra

note 5.

These additional insurance charges are determined at the time of the contract is written and vary based on the insured's personal characteristics, such as age and health. These charges are in addition to the M&E risk charge discussed above.

See supra

note 13.

Variable contracts commonly offer optional benefit features as riders to the contract with their own terms and conditions. Riders commonly provide enhanced death benefits, as well as “living benefits” that may be designed to provide protection against investment losses or longevity risk, or to cover financial losses that result from illness, incapacity, or injury. These optional riders have become increasingly popular with variable contract investors.

Typically, there is a separate charge for each rider.

See, e.g.,

IRI Fact Book,

supra

note 8, at 83 (“Just under $2 trillion of VA assets were held by insurance companies as of the fourth quarter of 2017, with an estimated $800 billion having a living benefit.”); Gallup Survey,

supra

note 9, at 21 (stating that “[n]early eight in ten annuity owners (79%) who own a variable annuity report that their contract has a guaranteed lifetime withdrawal benefit.”).

B. Prospectus Disclosure and Delivery

1. Requirements for Variable Contract Prospectus Disclosure and Delivery

The prospectus delivery requirements for variable contracts arise from the legal structure of these products. The “separate account”

established by the sponsoring insurance company is the legal entity that registers its securities. The separate account is an account that is owned by the insurance company.

Separate accounts are typically registered as investment companies under the Investment Company Act

and also register their securities under the Securities Act by filing a registration statement with the Commission.

See

section 2(a)(37) of the Investment Company Act (defining “separate account” to mean an account established and maintained by an insurance company pursuant to state law under which income, gains and losses from assets allocated to that account are credited against the account without regard to other income, gains or losses of the insurance company). In addition to directing all or part of their purchase payments to the investment options (typically mutual funds) available under the separate account, investors may also direct their purchase payments to a fixed account that pays a fixed, or minimum, rate of interest. The fixed account is part of the insurance company's general account, which, unlike the separate account, is subject to the insurance company's claims-paying ability and creditor reach.

The assets of the separate account are segregated from the other assets of the insurance company (such as the insurance company's general account) and are therefore insulated from the claims of the insurance company's creditors.

See

rule 26a-2 under the Investment Company Act (providing exemptions from certain provisions of the Act to permit the insurance company that sponsors a separate account to hold the assets of the separate account).

In general, an insurance company's separate account is an investment company under the Investment Company Act.

See Prudential Ins. Co.

SEC,

326 F.2d 383, 388 (3d Cir. 1964) (concluding that the insurer's separate account, which was a completely segregated account devoted to investing in securities, the cash for which was derived from payments made by the purchaser of the variable annuity contract, and the proceeds from which were held for the sole benefit of the annuitant, was separable from the insurance company and should be deemed the “investment company” for purposes of the Act). Not all variable contract separate accounts are investment companies; exclusions may apply to certain separate accounts that rely, for example, on sections 3(c)(1), (7), or (11) of the Investment Company Act.

Separate accounts may be organized either as management companies

or unit investment trusts (“UITs”).

Variable annuity separate accounts that are management companies file registration statements on Form N-3,

while those that are UITs file registration statements on Form N-4. Most variable annuity contracts sold today are offered by Form N-4 registrants.

Variable life separate accounts, which also are typically organized as UITs, file registration statements on Form N-6.

See

section 4(3) of the Investment Company Act (defining “management company” to mean any investment company other than a face-amount certificate company or a unit investment trust).

See

section 4(2) of the Investment Company Act (defining “unit investment trust” to include an investment company that is organized under a trust indenture, does not have a board of directors, and only issues redeemable securities, each of which represents an undivided interest in a unit of specified securities).

Form N-3 filers register as management investment companies because the active management of the investment portfolio occurs at the separate account level. During the early years of variable product history, this was the predominant type of separate account. However, by 2017, only five variable annuity separate accounts were registered as management investment companies on Form N-3.

In 2017, 435 variable annuity separate accounts registered as UITs on Form N-4.

In 2017, 238 variable life insurance separate accounts registered as UITs on Form N-6.

Form N-4 (variable annuity) and N-6 (variable life) registrants are sometimes referred to as “two-tier” investment company structures. The top tier, which is the separate account established by the insurer and registered with the Commission as a UIT, is itself divided into “subaccounts,” each of which invests in the shares of an underlying portfolio company (

e.g.,

a mutual fund or exchange-traded fund (“ETF”)) that serves as an investment option under the variable contract. In this structure, the insurer's separate account, not the variable contract investor, is the legal owner of the underlying fund shares.

Variable contract investors do not hold legal title to the assets of the insurance company's separate account.

See supra

note 19. However, certain legal rights, such as voting rights, generally pass through to variable contract investors.

Section 5(b)(2) of the Securities Act makes it unlawful to carry or cause to be carried a security for purposes of sale or for delivery after sale “unless accompanied or preceded” by a prospectus that meets the requirements of section 10(a) of the Act.

For purposes of section 5 of the Securities Act, each additional purchase payment under a variable contract is considered a “sale” requiring delivery of a current prospectus.

See

section 10(a) of the Securities Act (generally requiring a prospectus relating to a security to contain the information contained in the registration statement). For purposes of this release, a prospectus meeting the requirements of a section 10(a) prospectus is referred to as a “statutory prospectus.”

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”) at n.14 and accompanying text.

Variable contract issuers generally maintain current prospectuses for their products through the filing of annual post-effective amendments to their registration statement and, as necessary, supplementing or “stickering” the contract prospectus or statement of additional information (“SAI”).

Rather than bearing the expense of sending a prospectus with each confirmation of an investor's purchase of additional shares, which often occurs on a periodic basis (

e.g.,

monthly), most registrants instead send copies of the new prospectus to all investors each time it is updated. It is our understanding that this practice is similar to that followed by most mutual funds.

In addition to updating the registration statement for the variable contract annually to include updated financial statements, variable contract issuers also make amendments to the contract registration statement (generally as part of this annual update process), as necessary to reflect material or other changes to the information disclosed.

See

section 10(a)(3) of the Securities Act (requiring, among other things, that a prospectus used more than nine months after the effective date of a registration statement be updated so that the information contained therein shall not be more than 16 months old).

But see infra

section II.C (discussing circumstances in which certain variable contract issuers provide alternative disclosures instead of the contract statutory prospectus, as described in certain staff no-action letters).

see also

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.”).

Because variable contracts typically include a number of optional benefits and underlying investment options, a summary could not, by its nature, include all relevant aspects and details regarding each of these contract features. The variable contract summary prospectus is designed to be a succinct summary of the contract's key terms and benefits and most significant risks, making it easier to read and more understandable for investors. This summary prospectus would serve as the cornerstone of a layered disclosure framework that would alert investors to the availability of more detailed information in the statutory prospectus and in other locations, and would be tailored to the unique aspects of these products. As a result, investors would have ready access to key information in connection with an investment decision.

The main elements of the new disclosure framework include:

•

Option to use summary prospectus.

Proposed new rule 498A would permit the use of two distinct types of contract summary prospectuses: (1) Initial summary prospectuses covering variable contracts currently offered to new investors; and (2) updating summary prospectuses for existing investors. The initial summary prospectus would include certain key information about the contract's most salient features, benefits, and risks, presented in plain English in a standardized order. The updating summary prospectus would include a brief description of certain changes to the contract that occurred during the previous year, as well as a subset of the information required to be in the initial summary prospectus. Certain key information about the portfolio companies would be provided in both the initial summary prospectus and updating summary prospectus.

See infra

section II.A.

•

Availability of variable contract statutory prospectus and other materials.

The proposed rule would require the variable contract statutory prospectus, as well as the contract's SAI, to be publicly accessible, free of charge, at a website address specified on or hyperlinked in the cover of the summary prospectus. An investor who receives a contract summary prospectus would be able to request the contract statutory prospectus and SAI to be sent in paper or electronically, at no cost to the investor.

See infra

section II.A.4.

•

Optional method to satisfy portfolio company prospectus delivery requirements.

The proposed rule would provide an optional method for satisfying portfolio company prospectus delivery obligations by making portfolio company summary and statutory prospectuses available online at the website address specified on or hyperlinked in the variable contract summary prospectus, with certain key information about the portfolio companies provided in the variable contract's summary prospectus.

Investors would also be able to request and receive those disclosures in paper or electronically at no cost. This new option for satisfying portfolio company prospectus delivery requirements would only be available for portfolio companies available as investment options through variable contracts that use contract summary prospectuses.

See infra

section II.B.

This option would not apply to Form N-3 registrants, which do not have underlying portfolio companies due to a single-tier investment company structure.

•

Discontinued Variable Contracts.

In proposing the new variable contract summary prospectus disclosure framework, we acknowledge the industry practice of providing alternative disclosures under the specific circumstances described in certain staff no-action letters. In light of this proposal, we believe that it is useful to consider the appropriate disclosure framework for the types of contracts that were the subject of the staff no-action letters.

See infra

section II.C.

•

Form amendments.

We are also proposing to amend Forms N-3, N-4, and N-6—the registration forms for variable contracts—to update and enhance the disclosure regime for these investment products.

The proposed amendments are intended to consolidate certain summary information in a condensed presentation, reflect industry developments (

e.g.,

the prevalence of optional benefits in today's variable contracts), and otherwise improve disclosures provided to variable contract investors.

See infra

section II.D.

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

Forms N-3 and N-4 Adopting Release,

supra

note 28; Registration Form for Insurance Company Separate Accounts Registered as Unit Investment Trusts That Offer Variable Life Insurance Policies, Investment Company Act Release No. 25522 (Apr. 12, 2002) [67 FR 19848 (Apr. 23, 2002)] (“Separate Accounts Offering Variable Life Release”).

•

Inline XBRL.

Registrants would be required to use the Inline XBRL format for the submission of certain variable contract information. This requirement is intended to harness technology to provide a mechanism for allowing investors, their investment professionals, data aggregators, and other data users to efficiently analyze and compare the available information about variable contracts, as required by their particular needs and circumstances.

See infra

section II.E.

•

Other Amendments.

We are proposing certain technical and conforming amendments to our rules to reflect the proposed new regime for variable contract summary prospectuses. We are also proposing certain technical amendments to rules relating to variable life insurance contracts, as well as rescission of certain rules and forms.

See infra

section II.F.

Table 1 summarizes the various requirements—under the current prospectus delivery regime, and under the proposed summary prospectus regime—for information to either be (1) delivered to all investors, (2) made available online, or (3) delivered to those investors who so request:

Table 1—Information Available to Variable Contract Investors

Current prospectus delivery regime

Optional proposed summary prospectus regime

Contract Statutory Prospectus

Delivered to all investors

Required to be available online and delivered (in paper or electronic format) upon request.

Contract SAI

Available upon request

Required to be available online and delivered (in paper or electronic format) upon request.

Contract Part C Information

Not delivered to investors or required to be available online, but is filed with registration statement (available on EDGAR)

Not delivered to investors or required to be available online, but is filed with registration statement (available on EDGAR).

Initial Summary Prospectus

N/A

Delivered to new investors.

Updating Summary Prospectus

N/A

Delivered to existing investors.

Portfolio Company Prospectuses

Delivered to all investors

Delivered to investors, or, if the new option to satisfy portfolio company prospectus delivery is relied-upon,

required to be available online and delivered (in paper or electronic format) upon request.

Under proposed rule

498A, use of the summary prospectus to satisfy a registrant's section 5(b)(2) obligation would be voluntary. We have

designed the proposal to permit, but not require, registrants to use a summary prospectus coupled with the internet availability of variable contract disclosures to make the delivery process more convenient and efficient. While we believe the summary prospectus regime will benefit investors, we are proposing that the approach be optional in light of the novel nature of this disclosure approach for variable contracts (including its use of layered disclosure), and because of the diversity of variable contracts (and corresponding diversity of disclosure for variable contracts).

This column assumes that the contract at issue is not providing alternative disclosures to investors in lieu of the statutory prospectus, as described in certain staff no-action letters discussed below in section II.C.

See infra

section II.B.2.

Additionally, summary information about portfolio companies would be available in the initial summary prospectus and updating summary prospectus.

See infra

sections II.A.1.c.ii(

) and II.A.2.c.ii(c).

We believe that optionality not only would give market participants time to adjust to the new layered disclosure approach, but also give the Commission and its staff the opportunity to assess the benefits to investors and insurers. While approximately 95% of mutual funds currently use a summary prospectus,

it took nearly eight years after the adoption of the mutual fund summary prospectus framework for the industry to reach that threshold.

See supra

note 44.

Estimates are based on EDGAR filings.

Given the current widespread use of summary prospectuses by mutual funds, we believe investors and other market participants have generally become comfortable with the use of a summary prospectus. However, the proposed variable contract summary prospectus regime would differ from the mutual fund summary prospectus framework in several key ways (

e.g.,

the use of an initial and an updating summary prospectus, and the new layered disclosure approach to satisfying portfolio company prospectus delivery obligations). Therefore, we intend to review the use of the summary prospectus by investors in variable contracts that voluntarily adopt the summary prospectus and then reconsider whether use of the summary prospectus for variable contracts should be mandated in the future.

See

2009 Summary Prospectus Adopting Release,

supra

note 33, at 66-67 (similarly noting the Commission's intent to review the use of the mutual fund summary prospectus by investors in funds that voluntarily adopt the summary prospectus).

We believe that the diversity of variable contracts (and the corresponding diversity regarding variable contracts' approach to prospectus disclosure) also supports permitting, but not requiring, insurers to use the variable contract summary prospectus regime. We have observed that some variable contracts are fairly basic, offering few (or no) optional benefits and few investment options. Because these contracts have fairly straightforward disclosure documents, the summary prospectus regime may be less compelling for these products, as compared to more complex variable products with numerous optional benefits and investment options (which tend to have longer and more complicated prospectuses). Registrants will likely assess the relative benefit of using a summary prospectus based on the types of products they offer and the length of their current prospectuses—as well as the benefit of more concise disclosure to investors—when evaluating whether to opt into the new layered disclosure regime.

An optional approach would also preserve flexibility for registrants that may not wish to undertake the costs of the transition to a summary prospectus regime.

See infra

section III.C.1.

II. Discussion

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

We are proposing new rule 498A, which would provide a new option for a person to satisfy its prospectus delivery obligations for variable contracts under section 5(b)(2) of the Securities Act by: (1) Sending or giving to new investors key information contained in a variable contract statutory prospectus in the form of an initial summary prospectus; (2) sending or giving to existing investors each year a brief description of certain changes to the contract, and a subset of the information in the initial summary prospectus, in the form of an updating summary prospectus; and (3) providing the statutory prospectus and other materials online. In addition, the new rule would require a registrant (or the financial intermediary distributing the variable contact) to send the variable contract statutory prospectus and other materials to the investor in paper or electronic format upon request.

1. Initial Summary Prospectus

a. Overview

The proposed rule would require a person relying on the rule to send or give an initial summary prospectus in connection with sales of variable contracts to new investors.

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

Proposed rule 498A(f)(1). For an initial purchase of a variable contract, the initial summary prospectus must be “sent or given no later than the time of the carrying or delivery of the contract security.”

See infra

section II.A.3.

State insurance law requirements typically require that variable contracts have free look provisions that permit investors to return the contract for a refund within a stated number of days of receiving it (usually between ten and twenty days). The amount of the refund may differ between variable annuity contracts and variable life

insurance contracts and also may vary among the states.

see also infra

section II.D.1 (discussing our proposed form instructions that would incorporate this existing staff guidance).

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. Therefore, the proposed rule limits the initial summary prospectus to describing only a single contract that the registrant offers under the statutory prospectus to which the initial summary prospectus relates. While the initial summary prospectus could only describe one contract, the proposed rule nonetheless would permit it to describe more than one class of a currently-offered contract.

Proposed rule 498A(b)(1). Similarly, a mutual fund summary prospectus “may describe only one Fund, but may describe more than one Class of a Fund.”

See

rule 498(b)(4).

Although the content requirements for the initial summary prospectus cross-reference items of Forms N-3, N-4, and N-6, we anticipate that the proposed rule's scope provisions may cause registrants to vary certain disclosures that appear in the statutory prospectus when the same disclosure topics appear in the initial summary prospectus. This may occur even if both disclosures respond to the same form item requirement.

For example, a registrant that describes several currently- and previously-offered optional benefits in response to Item 11 of Form N-4 in its statutory prospectus would not be permitted to describe optional benefits that it no longer currently offers in its initial summary prospectus.

See infra

section II.A.7.c. (discussing potential section 11 liability considerations to the extent that the language in the summary prospectus is not identical in substance to the same sections of the statutory prospectus).

We request comment generally on the proposed scope requirements for the initial summary prospectus, and specifically on the following issues:

• Should the initial summary prospectus be limited to describing a single contract that the registrant currently offers for sale? Would this reduce the initial summary prospectus' complexity and minimize confusion to investors? Would this requirement be burdensome in any way for registrants to interpret, administer, or manage operationally, and if so, how? Should the proposed rule instead frame this requirement of one summary prospectus-per-contract in another manner, for clarity or for any other reason?

• Should we allow an initial summary prospectus to describe multiple contracts if the registrant currently offers multiple contracts through the related registration statement? Would the answer change if the multiple contracts were offered on a single prospectus versus multiple separate prospectuses? Would this make the initial summary prospectus substantially longer or confusing to investors, and would it decrease the likelihood that investors would read an initial summary prospectus?

• Should we restrict the number of contract classes that may be included in an initial summary prospectus?

c. Preparation of the Initial Summary Prospectus

The following chart outlines the information that the proposed rule would require to appear in an initial summary prospectus. Along with specifying required introductory disclosures on the outside front cover page or the beginning of the initial

summary prospectus, the proposed rule references particular disclosure items from Forms N-3, N-4, and N-6 (as proposed to be amended).

The information would be required to appear in the same order, and under the relevant corresponding headings, as the proposed rule specifies.

We propose a standardized presentation to require certain disclosure items that we believe would be most relevant to investors (such as the proposed contract overview section and proposed table that includes key information about the contract), to appear at the beginning of the initial summary prospectus, with supplemental information appearing further in. The required presentation could also facilitate comparison of different variable contracts.

To the extent we have proposed amendments to Forms N-3, N-4, and N-6 that would facilitate the proposed summary prospectus content requirements, as well as amend the content requirements for the statutory prospectus, we generally discuss these amendments in more detail in section II.D below. However, in order to better explain the initial summary prospectus, we have elected to discuss new or amended items that we propose to include in the statutory prospectus, to the extent they would also appear in the initial summary prospectus, in this section II.A.1.

Proposed rule 498A(b)(5).

We understand that many investors purchase variable contracts through an intermediary and often do not directly compare competing products. A standardized order may nonetheless be useful for investment professionals to compare the products they ultimately recommend to investors with other products, as well as investors considering whether to purchase a new annuity contract to replace an existing one.

See infra

note 160 and accompanying text. Having a more comparable document may ultimately promote greater comparability across products, registrants, and insurance institutions, which could lead to better investor understanding and increased competition.

As discussed below in Section II.E, we are also proposing to require the use of Inline XBRL format for the submission of certain required disclosures in the variable contract statutory prospectus. The structured data format would allow investors, financial intermediaries, third-party analysts, and others to more efficiently analyze and compare these products.

Table 2—Outline of the Initial Summary Prospectus

Heading in initial summary prospectus

Proposed

item of

Form N-3

Proposed

item of

Form N-4

Proposed

item of

Form N-6

Cover Page:

Identifying Information.

Legends.

EDGAR Contract Identifier.

Table of Contents (optional).

Content:

Overview of the [Variable Annuity/Life Insurance] Contract

Important Information You Should Consider About the [Contract]

Standard Death Benefit

11(a)

10(a)

10(a).

Other Benefits Available Under the Contract

12(a)

11(a)

11(a).

Buying the Contract

13(a)

12(a)

9(a)-9(e).

How Your Contract Can Lapse

14.

Surrendering Your Contract or Making Withdrawals: Accessing the Money in Your Contract

14(a)

13(a)

12(a).

Additional Information About Fees

Appendix: Portfolio Companies Available Under the Contract

19 or 20

18.

i. Cover Page and Table of Contents

Registrants on Form N-3 could omit the appendix specified by proposed Item 19 of Form N-3, and instead provide the more detailed disclosures about the investment options offered under the contract required by proposed Item 20 of Form N-3.

See infra

note 517 and accompanying text.

Identifying Information.

Under the proposed rule, the following information would be required to appear on the front cover page or the beginning of the initial summary prospectus:

• The depositor's name;

• the registrant's name;

• the name of the contract, and the class or classes if any, to which the initial summary prospectus relates;

• a statement identifying the initial summary prospectus as a “Summary Prospectus for New Investors”; and

• the approximate date of the first use of the initial summary prospectus.

Proposed rule 498A(b)(2)(i) through (v).

Legends.

The cover page or beginning of the initial summary prospectus would also be required to include the following legends:

This Summary Prospectus summarizes key features of the [name of Contract]. You should read this Summary Prospectus carefully, particularly the section titled Important Information You Should Consider About the [Contract].

Before you invest, you should review the prospectus for the [name of Contract], which contains more information about the [Contract], including its features, benefits, and risks. You can find the prospectus and other information about the [Contract] online at [__]. You can also obtain this information at no cost by calling [__] or by sending an email request to [__].

The legend would be required to provide an internet address, other than the address of the Commission's electronic filing system, toll-free telephone number, and email address that investors can use to obtain the statutory prospectus and other information, request other information about the variable contract, and to make investor inquiries. Proposed rule 498A(b)(2)(vi)(B).

The website address would be required to be specific enough to lead investors to a direct link to the statutory prospectus and other required information, rather than to the home page or another part of the website. The website could host other relevant disclosure documents with prominent links to each required document.

Id.

The legend could indicate, if applicable, that the statutory prospectus and other information are available from a financial intermediary (such as a broker-dealer) through which the contract may be purchased or sold.

Id.

For purposes of this proposed requirement, documents available on the website address would be required to be publicly accessible and free of charge.

See

proposed rule 498A(h)(1);

see also infra

section II.A.4.

You may cancel your [Contract] within 10 days of receiving it without paying fees or penalties. In some states, this cancellation period may be longer. Upon cancellation, you will receive either a full refund of the amount you paid with your application or your total contract value. You should review the prospectus, or consult with your investment professional, for additional information about the specific cancellation terms that apply.

Additional general information about certain investment products, including [variable annuities/variable life insurance contracts], has been prepared by the Securities and Exchange Commission's staff and is available at

Investor.gov.

Proposed rule 498A(b)(2)(vi).

These proposed legends are designed to provide identifying information about the variable contract to which the initial

summary prospectus relates, as well as certain general information that would be applicable to all variable contracts.

While the proposed legend describing how to obtain further information about the contract generally parallels the legend on the cover page of mutual fund summary prospectuses,

we have proposed several additional legends that we believe are appropriate in the context of variable contracts. These additional legends notify investors that: (1) The initial summary prospectus is a summary that should be read carefully (and that investors should particularly focus on the “Important Information You Should Consider About the [Contract]” section of the summary prospectus); (2) they may cancel the variable contract within a limited amount of time after receiving it (that is, alerting investors to the existence of the free look period);

and (3) additional general information about certain investment products, including variable contracts, is available at

Investor.gov.

A registrant would be able to modify the proposed legends so long as the modified statements contain comparable information. Proposed rule 498A(b)(2)(vi)(A).

See

rule 498(b)(1)(v).

Many investors may not be familiar with the free look period, and the proposed legend is intended to alert them of its existence and explain where they may obtain additional information about its operation. This is particularly important because the free look period may be the only time the investor may cancel the contract without paying significant surrender fees or tax penalties.

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 investment bulletins, alerts, guidance and tools designed to assist investors, including those considering variable contracts, in obtaining additional information and resources on understanding and managing their investments.

See, e.g.,

Updated Investor Bulletin: Variable Annuities (Oct. 30, 2018),

available at https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/updated-investor-bulletin-variable-annuities;

Investor Bulletin: Variable Life Insurance; Investor Bulletin: Variable Life Insurance (Oct. 30, 2018),

available at https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-variable-life-insurance.

If any information is incorporated by reference into the initial summary prospectus, the proposed rule would require that the legend include certain disclosures related to that information.

These requirements are described below in section II.A.6. The cover page would also be required to include a legend indicating that the Securities and Exchange Commission has not approved or disapproved of the contract or passed upon the accuracy or adequacy of the disclosure in the summary prospectus and that any contrary representation is a criminal offense.

Proposed rule 498A(b)(2)(vi)(C).

Proposed rule 498A(b)(2)(vii);

cf.

rule 481(b)(1) under the Securities Act.

EDGAR Contract Identifier.

We are also proposing to require that the contract's EDGAR contract identifier be included on the bottom of the back cover page or last page of the initial summary prospectus in a type size smaller than that generally used in the prospectus (

e.g.,

8-point modern type).

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.

Proposed rule 498A(b)(3). An EDGAR contract identifier is issued by the Commission, is ten characters in length (nine numbers preceded by a “C”), and uniquely, and persistently, identifies each contract. These identifiers are available to the public. Information filed with the Commission containing these identifiers is searchable by the public and our staff using the contract identifiers and also using the contract names without the need to reference the registrant issuing the contract.

See

Rulemaking for EDGAR System, Investment Company Act Release No. 26990 (July 18, 2005) [70 FR 43558 (July 27, 2005)] at text following n.29.

Table of Contents.

The proposed rule would permit an initial summary prospectus to include a table of contents.

A table of contents must show the page number of the various sections or subdivisions of the summary prospectus, and immediately follow the cover page in any prospectus delivered electronically.

Proposed rule 498A(b)(4).

Rule 481(c).

We request comment generally on the proposed requirements for the cover page and table of contents of the initial summary prospectus, and specifically on the following issues:

• Should we include any additional information or eliminate any of the information that we have proposed to include in these parts of the initial summary prospectus? For example, for prospectuses filed on Form S-11, which is used for registration under the Securities Act of securities of certain real estate companies, the cover page must include a prominent cross-reference to the risk factors section of the prospectus, including the page number where it appears, as well as certain disclosures, if applicable, regarding limitations on transferability of the securities being registered and the absence of a market for securities of the same class as those being registered.

Would it be helpful for the cover page of the initial summary prospectus to contain similar disclosures relevant to variable contracts? For example, in addition to stating that investors should particularly focus on the “Important Information You Should Consider About the [Contract]” section of the initial summary prospectus, should the cover page include disclosures regarding surrender charges or other items relating to the contract, a cross-reference to the risk factors section or other sections of the statutory prospectus, or other disclosures?

See

Item 1 of Form S-11 (requiring certain disclosures and also referencing Item 501 of Regulation S-K);

see also

Item 501 of Regulation S-K [17 CFR 229.501].

• Are the proposed legends sufficient to notify investors of the availability and significance of the contract statutory prospectus and other information about the variable contract and how to obtain this information? Should the legends include greater detail about the information that is available?

• Will the proposed legends adequately inform investors of the various means for obtaining additional information about a variable contract? Are the proposed requirements for the website address where additional information is available adequate to ensure that the website and the additional information will be easy to locate?

• Would the proposed legend on the cover page or beginning of the initial summary prospectus with information on the free look period help alert investors that they may cancel their contracts without fees or penalties within a limited time after the sale? Should this legend be more prominently displayed (

e.g.,

larger font size, boxed, or bolded) relative to the other legends?

• As proposed, should registrants be permitted to modify the required legends, provided the modified legends provide comparable information?

• Should the legends include a reference to the

Investor.gov

website? Why or why not? If so, what specific information about variable contracts would be most helpful to investors for the staff to provide on this website?

• Should the proposed requirement to include the contract's EDGAR contract identifier on the bottom of the back cover page or last page of the initial summary prospectus instead require that another identifier be provided? If so, what identifier should be listed, and why?

• Should registrants be permitted to include a table of contents in the initial summary prospectus? Instead, should a table of contents be required? Does rule 481(c) under the Securities Act provide appropriate requirements for a table of contents included in an initial summary prospectus?

ii. Content of the Initial Summary Prospectus

Proposed rule 498A specifies the content and order thereof required in an initial summary prospectus.

An initial summary prospectus must contain the information required by the proposed rule, and only that information, in the order specified by the rule.

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.

To aid market participants in understanding the types of disclosures we propose to require, Appendix A to this release contains a hypothetical initial summary prospectus for a variable annuity separate account with a registration statement filed on Form N-4. This hypothetical initial summary prospectus is provided solely for illustrative purposes and is not intended to imply that it would reflect a “typical” initial summary prospectus.

Proposed rule 498A(b)(5).

Id.

Proposed rule 498A(b);

see also infra

section II.A.3.

Section 10(b) of the Securities Act authorizes the Commission to adopt rules deemed necessary or appropriate in the public interest or for the protection of investors that permit the use of an “omitting prospectus” for the purposes of section 5(b)(1) that omits or summarizes information contained in the statutory prospectus. Section 24(g) of the Investment Company Act authorizes the Commission to permit the use of a prospectus under section 10(b) of the Securities Act to include information the substance of which is not included in the statutory prospectus. 15 U.S.C. 77j(b); 15 U.S.C. 77e(b)(1); 15 U.S.C. 80a-24(g);

see also

2009 Summary Prospectus Adopting Release,

supra

note 33, at n.70.

(a) Overview of the Contract

The initial summary prospectus would begin with a section including certain basic and introductory information about the contract and its benefits, under the heading “Overview of the [Variable Annuity/Life Insurance] Contract.”

This section would appear at the beginning of the initial summary prospectus because it is designed to provide basic information about how the variable contract functions. We believe that investors of different levels of financial sophistication may benefit from receiving this information early in the initial summary prospectus. This would provide a contextual baseline to help inform investors' understanding of disclosure about more detailed aspects of the variable contract that are described later in the initial summary prospectus.

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2 of Forms N-3, N-4, and N-6;

infra

section II.D.2.b.

Specifically, this section would be required to include a concise description of the following:

Purpose of Contract.

The proposed requirement to briefly describe the purpose(s) of the contract in general terms

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.

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2(a) of Forms N-3, N-4, and N-6.

Phases of Contract (for Variable Annuity Contracts).

The proposed requirement to include a brief description of the accumulation (savings) phase and annuity (income) phases of the contract

is meant to provide basic information about how the variable annuity contract functions, which in turn would help highlight how the contract differs from other types of investment products. It also is designed to address common areas of confusion among variable annuity investors. For example, it would highlight the effect of annuitization on the ability to make withdrawals and the continuation of contract benefits.

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2(b) of Forms N-3 and N-4.

This discussion would require a brief overview of the investment options available under the contract (that is, portfolio companies and any general or fixed account option).

The registrant also would be required to prominently disclose that additional information on the portfolio companies is provided in an appendix to the summary prospectus (or elsewhere in the case of registrants on Form N-3 that chose to omit the appendix from the initial summary prospectus in favor of more detailed information about investment options as required by proposed Item 20 of Form N-3),

and provide a cross-reference or link to the relevant appendix.

Finally, the registrant would be required to state, if applicable, that if an investor annuitizes, he or she will receive a stream of income payments, but he or she will be unable to make withdrawals, and death benefits and living benefits will terminate.

100

However, a detailed explanation of the separate account, sub-accounts, and portfolio companies is not required.

See

Instruction 2 to proposed Item 2(b)(1) of Forms N-3 and N-4.

The registrant thus would not list the names of each portfolio company available under the contract, as this would be duplicative of information available in the appendix that would accompany the summary prospectus.

See infra

section II.A.1.c.ii(

See infra

note 517 and accompanying text.

See

proposed rule 498A(b)(5)(i);

see also

Instruction 1 to proposed Item 2(b)(1) of Forms N-3 and N-4.

100

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2(b)(2) of Forms N-3 and N-4.

Premiums (for Variable Life Insurance Contracts).

Instead of requiring a description of the phases of the contract as with variable annuities, Form N-6 would require the “Overview” section to briefly describe the payment of premiums under the variable life insurance contract. This description of premiums would include: (1) Whether premiums may vary in timing and amount (

e.g.,

flexible premiums); (2) whether restrictions may be imposed on premium payments (

e.g.,

by age of insured, or by amount); (3) how premiums may be allocated (this discussion would include a brief overview of the investment options available under the contract, as well as any general (fixed) account options); and (4) a statement that payment of insufficient premiums may result in a lapse of the contract.

101

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2(b) of Form N-6. The proposed instructions to this requirement would require the registrant to disclose that additional information on the portfolio companies is provided in an appendix to the summary prospectus, and provide a cross-reference to the relevant appendix.

See

proposed rule 498A(b)(5)(i);

see also

Instruction 1 to proposed Item 2(b)(3) of Form N-6.

Unlike variable annuities, variable life insurance requires the investor to make continuous premium payments in order to avoid a lapse of the contract. We therefore believe the “Overview” section should prominently explain the role of premium payments in the contract, and highlight for investors a key risk that non-payment (or insufficient payment) of premiums could result in contract lapse.

Contract Features.

Finally, this section would include a summary of the contract's primary features, including death benefits, withdrawal options, loan provisions, and any available optional benefits.

102

If applicable, the registrant would be required to state that the investor will incur an additional fee for selecting a particular benefit.

103

Because registrants would discuss many of these subjects in other sections of the initial summary prospectus in greater detail (and would discuss each of these subjects in more detail in the contract statutory prospectus), this paragraph is intended to be summary in nature.

102

See

proposed rule 498A(b)(5)(i);

see also

proposed Item 2(c) of Forms N-3, N-4, and N-6.

103

Id.

We request comment generally on the “Overview” section that we propose would appear in the initial summary prospectus, and specifically on the following issues:

• Are the requirements of the proposed section clear and appropriate in light of the goals of the initial summary prospectus, and would the information disclosed to investors be helpful to investors in light of these goals? Is this the most useful information for the beginning of the initial summary prospectus? Would it provide investors with context to better understand the remainder of the initial summary prospectus? Why or why not? Would the information provided in the proposed section be unnecessarily duplicative with other information that would appear in the initial summary prospectus?

• Should we impose word or page limits on the proposed section? If so, what should the word or page limits be (

e.g.,

no more than one page)?

• Are there additional disclosure topics that should be required to be included in the proposed “Overview” section? Instead, should we provide flexibility to registrants in preparing this section as to topics, etc.?

(b) Key Information

The initial summary prospectus would next include a table (the “Key Information Table”) that would provide a brief description of key facts about the variable contract in a specific sequence and in a standardized presentation that is designed to be easy to read and navigate.

104

Specifically, it would include a summary of five topic areas: (1) Fees and expenses; (2) risks; (3) restrictions; (4) taxes; and (5) conflicts of interest. This is intended to highlight, in a consolidated location, important considerations related to these products, including certain unique aspects of the variable contract that might be unfamiliar to investors who have experience with mutual funds or other types of investment products.

105

104

See

proposed rule 498A(b)(5)(ii); proposed Item 3 of Forms N-3, N-4, and N-6.

105

In determining these proposed topic areas, we considered investor complaints received by the Commission's Office of Investor Education and Advocacy and the results of the 2012 Financial Literacy Study.

See

text accompanying note 667 (regarding investor complaints); 2012 Financial Literacy Study,

supra

note 39. We also considered various regulatory and industry sources.

See, e.g.,

FINRA Rule 2330(b)(1)(A)(i) (variable annuity investors must be informed, “in general terms, of various features of deferred variable annuities, such as the potential surrender period and surrender charge; potential tax penalty if consumers sell or redeem deferred variable annuities before reaching the age of 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”).

The Key Information Table includes a number of prescribed disclosures and is designed to complement the “Overview” section. We have proposed placing these two disclosure sections at the beginning of the initial summary prospectus because we believe they contain certain basic information that is critical for variable contract investors to read. We are also proposing that this information be provided in a standardized tabular presentation because we believe that, as compared to the narrative-type presentation of corresponding disclosures in the statutory prospectus, a summary tabular presentation would be easier to read and better convey the importance of the information to investors.

106

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

106

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, and Michael Pagano,

The Effects of Summary Information on Consumer Perceptions of Mutual Fund Characteristics,

The Journal of Consumer Affairs 42, 37-59 (2008) (concluding that summary information, particularly using graphical presentation, is an effective way to facilitate the processing of information for investors evaluating mutual funds).

Experts in disclosure effectiveness for 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 propose requiring that a registrant provide the Key Information Table under the heading “Important Information You Should Consider About the [Contract].”

107

There would be specified headings for each of the five topic areas that the table would include, and under each heading would be two columns. The left column would list the required disclosure line-items for each of the five topic areas, and the right column would provide a brief description for each corresponding line-item, according to the respective instructions for each proposed line-item.

108

107

Immediately following this heading would be the statement: “An investment in the Contract is subject to fees, risks, and other important considerations, some of which are briefly summarized in the following table. You should review the prospectus for additional information about these topics.”

108

The table also could include a third column, which would include cross-references to the locations in the statutory prospectus where the subject matter that each line-item requires is described in greater detail, or would otherwise cross-reference that information.

See infra

note 162 and accompanying text.

(i) Fees and Expenses

Variable contracts typically have multiple layers of fees, expenses, and charges that can be confusing to investors. While the Fee Table currently required in variable contract prospectuses provides comprehensive fee and expense information,

109

that information is frequently presented over a span of two or more pages when a prospectus is printed on paper. We believe that investors may benefit from a shorter, more tailored discussion in the Key Information Table that is intended to convey the importance of a contract's fee and expense structure. As discussed below, we are proposing to require that the initial summary prospectus also include the Fee Table from the statutory prospectus.

110

This framework would allow an investor to determine the level of fee information that best suits his or her informational needs.

109

See

Item 3 of current Forms N-3, N-4, and N-6 (“Fee Table”).

110

See infra

section II.A.1.c.ii(h).

Surrender Charges.

We believe that it is important that investors understand that if they make a withdrawal in the first several years of their contract, they may pay a significant charge that will reduce the value of their investment. We believe, however, that investors frequently do not understand, or may be surprised by, surrender charges associated with early withdrawals.

111

The 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.

The proposed Key Information Table would require certain information intended to alert investors about the potential impact of surrender charges imposed on early withdrawals. The first line-item in the proposed table, “Surrender Charge (charges for early withdrawals),” would require a statement that if the investor withdraws money from the contract within [x] years following his or her last premium payment, he or she will be assessed a surrender charge. This statement would include the maximum surrender charge, and the maximum number of years that a surrender charge may be assessed since the last payment was made under the contract.

112

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(a) to proposed Item 3 of Forms N-3, N-4, and N-6. The maximum surrender charge would be expressed as a percentage of the contribution or premium or the amount surrendered, whichever is applicable.

In addition, we are proposing to require an example of the maximum surrender charge an investor could pay (in dollars) under the contract assuming a $100,000 investment (

e.g.,

“[i]f you make an early withdrawal, you could pay a surrender charge of up to $9,000 on a $100,000 investment.”).

113

believe that for purposes of the Key Information Table, providing a dollar figure may better communicate to investors the impact of surrender charges than a surrender charge schedule that shows the applicable surrender charge per year as a percentage.

114

113

We propose to use $100,000 as the basis for the surrender charge example because the value of the average variable annuity contract has recently exceeded $100,000.

See

IRI Fact Book,

supra

note

8, at 170. Using this figure would result in cost estimates that more closely mirror the actual experience of many variable contract investors.

See infra

note 130 and accompanying text.

114

Registrants would continue to disclose the surrender fee in the Fee Table as a line-item in the “Transaction Expenses” table. They also would continue to reflect the consequence of any surrender fee in the “Example” to the Fee Table that would show the investor's contract costs if he or she were to surrender the contract after 1 year, 3 years, 5 years, and 10 years.

See

Item 3 of Forms N-3, N-4, and N-6.

Transaction Charges.

The second line-item in the “Fees and Expenses” section of the proposed table, “Transaction Charges (charges for certain transactions),” would require a statement that, in addition to surrender charges, the investor may also be charged for other transactions. This statement would be required to include a brief description of the types of such charges (

e.g.,

front-end loads, charges for transferring cash value between investment options, charges for wire transfers, etc.).

115

We are not proposing to require registrants to disclose the amount of each transaction charge in the Key Information Table because we understand the costs associated with most transaction charges to be relatively small, as a percentage of average account size (unlike surrender charges). Moreover, the Fee Table would require more detailed information about each of these charges (including the amount of each charge).

116

The line-item for Transaction Charges in the Key Information Table is designed to provide a simple narrative description to alert investors that surrender charges are not the only transaction charges they could pay.

115

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(b) to proposed Item 3 of Forms N-3, N-4, and N-6. Although surrender charges are a type of transaction charge, we are proposing to require surrender charges be separately disclosed in the Key Information Table to highlight to investors the significant costs associated with early withdrawals.

116

See

proposed Item 4 of Forms N-3, N-4, and N-6 (requiring disclosure of transaction expenses).

Ongoing Fees and Expenses.

The third line-item in the “Fees and Expenses” section, “Ongoing Fees and Expenses (annual expenses),” is designed to alert investors that they also will bear recurring fees on an annual basis.

117

In Form N-3 and N-4, the disclosure in this line-item would begin with the legend “The table below describes the fees and expenses that you may pay

each year,

depending on the options you choose.”

118

117

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c) to proposed Item 3 of Forms N-3, N-4, and N-6.

118

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(i)(A) to proposed Item 3 of Forms N-3 and N-4.

Form N-4 registrants would disclose, in a tabular presentation in the order specified, the minimum and maximum annual fees for: (1) Base contract expenses;

119

(2) investment options (

e.g.,

portfolio company fees and expenses);

120

and (3) optional benefits.

121

Since Form N-3 registrants have a single-tier structure and consolidate fees and expenses for investment options into base contract expenses, Form N-3 registrants would disclose the same information as Form N-4 registrants except fees for base contract expenses and investment options would be consolidated into a single entry labeled “annual contract expenses.”

122

The minimum annual fee column would show the lowest available current fee for each annual fee category (

i.e.,

the least expensive contract class, the lowest total annual portfolio company operating expense, lowest annual contract expenses, and the least expensive optional benefit available for an additional charge).

123

The maximum annual fee column would show the highest fees for these categories. Additionally, a legend preceding the minimum and maximum annual fee table would refer investors to their contract specifications page for information about the specific fees they would pay each year based on the options elected.

124

119

Minimum and maximum annual fees for base contract expenses would not be required on Form N-6 because life insurance charges are based on underwriting and can vary significantly from one insured person to another depending on various demographic characteristics. This could lead to significant variations between these amounts, which we do not expect would be helpful, and may be confusing, to investors.

120

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(i)(D) to proposed Item 3 of Form N-4. Registrants would use the gross expense ratio disclosed in the Fee Table of a portfolio company's current prospectus, which is the same basis for calculating portfolio company expense ratios as Items 4 (Fee Table) and 18 ([Portfolio Companies] Available Under the Contract) of Form N-4.

121

The disclosure would also require, in a parenthetical or footnote to the table or each caption, an explanation of the basis for each percentage (

e.g.,

as a percentage of separate account value or benefit base, or % of net asset value).

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(i)(C) to proposed Item 3 of Form N-4 (% of net asset value).

122

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(i)(B) to proposed Item 3 of Form N-3.

123

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(i) to proposed Item 3 of Form N-3; Instruction 2(c)(i) to proposed Item 3 of Form N-4.

Because the table showing minimum and maximum annual fees is intended to inform investors about the types and ranges of fees associated with a variable contract, we are excluding certain assumptions from the calculations. For example, although we know that some registrants do not charge extra for certain optional benefits, we want to alert investors to the costs associated with optional benefits that are available for an additional charge. Accordingly, the disclosure should reflect the minimum cost associated with an optional benefit that has a fee.

124

Instruction 2(c)(i)(A) to proposed Item 3 of Forms N-3 and N-4. Many states require a contract specifications page that contains information about the premiums, fees, annuitization date and other information specific to an investor's variable annuity contract.

See, e.g.,

the Insurance Compact's Individual Deferred Variable Annuity Contract Standards,

available at https://www.insurancecompact.org/rulemaking_records/080911_stds_annuity_individual_deferred_variable.pdf.

This presentation would consolidate the more detailed information in the Fee Table, in an effort to minimize the need for investors to perform complex calculations to understand the fees they will pay.

125

For example, like the proposed “Ongoing Fees and Expenses” line-item in the Key Information Table, the Fee Table would also include information about the contract's base contract fee, portfolio company fees and expenses, and optional benefits.

126

However, the Fee Table would be required to include a separate response for each contract form that the prospectus offers that has different fees, and also a separate response for each contract class.

127

In order to condense this information, the parallel disclosure in the Key Information Table would be presented as fee ranges.

125

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 106.

126

See

proposed Item 4 of Forms N-3 and N-4.

127

See

Instructions 6 and 7 to proposed Item 4 of Forms N-3 and N-4.

We have also designed an example in Forms N-3 and N-4 to provide a high-level cost illustration that would give an investor a tool to understand the basic cost framework of the contract. To emphasize that an investor's choices have a significant impact on the costs associated with his or her investment, we propose to require a two-column tabular presentation in the order specified reflecting the lowest and highest current annual cost estimates for the variable contract.

128

The following legend would precede this table: “Because your contract is customizable, the choices you make affect how much you will pay. To help you understand the cost of owning your contract, the

following table shows the lowest and highest cost you could pay

each year.

This estimate assumes that you do not take withdrawals from the contract, which could add surrender charges that substantially increase costs.”

129

128

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(ii) to proposed Item 3 of Forms N-3 and N-4.

129

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(ii)(A) to proposed Item 3 of Forms N-3 and N-4.

The lowest and highest annual dollar costs in this table would be based on certain prescribed assumptions (

i.e.,

a $100,000 investment)

130

with no additional contributions, transfers, or withdrawals, no sales charges, and a 5% annual return over a hypothetical 10-year period.

131

The lowest annual cost estimate would be based on the least expensive combination of contract classes and portfolio company charges, excluding optional benefits, and the highest annual cost estimate would reflect the most expensive combination of these items.

132

Excluding optional benefits from the lowest annual cost estimate, and including them in the highest annual cost estimate, would illustrate the cost impact of adding optional benefits to a contract.

133

With this information, the investor would be able to roughly estimate further costs,

134

and could obtain additional information about costs in the statutory prospectus if needed.

135

130

While the example in the Fee Table in current Forms N-3 and N-4 uses $10,000 as the basis for calculating assumptions relating to the costs of investing in a contract, we propose to use $100,000 as the basis for the cost assumption in the “Key Information” table because the value of the average variable annuity contract has recently exceeded $100,000.

See

IRI Fact Book,

supra

note 8, at 170. Using this figure would result in costs estimates that more closely mirror the actual experience of many variable contract investors. For that reason, we are also proposing to amend the Forms to use $100,000 as the base assumption for similar examples used in the Forms, as discussed below.

131

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N-3 and N-4.

The prescribed assumptions largely mirror the Fee Table, with the exception of the sales load, which is not reflected because we are seeking to highlight the contract's ongoing expenses. Because registrants may charge different fees in different years (which may have the effect of making fees appear small under certain circumstances), we propose to base the cost estimate on the average cost of a contract over a 10-year period to level-set the calculation.

See

Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N-3 and N-4.

132

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 2(c)(ii)(C)(a) to proposed Item 3 of Forms N-3 and N-4. Instruction 2(c)(ii)(C)(e) to proposed Item 3 of Forms N-3 and N-4 would direct that, unless otherwise stated, the least and most expensive combination of annual contract expenses and optional benefits available for an additional charge should be based on the disclosures provided in the Example in Item 4 (Fee Table), and that if a different combination of these items would result in different maximum or minimum fees in different years, the registrant must use the least or most expensive combination of these items each year.

133

While the example in the Fee Table would include a similar cost estimate, it would reflect the most expensive combination of portfolio company operating expenses and optional benefits available for each contract class available under the contract. The Fee Table example also includes estimated costs for 1-, 3-, 5- and 10-year periods (not just for one year), and reflects different scenarios based on whether the contract is surrendered or annuitized.

See

proposed Item 4 of Forms N-3 and N-4.

134

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.

135

We would also encourage registrants to use design features (

e.g.,

multiple colors or shading patterns) that visually distinguish minimum and maximum fees, and lowest and highest annual cost estimates.

In Form N-6, we have proposed that registrants provide disclosure in the “Ongoing Fees and Expenses” section of the table that primarily uses a narrative presentation, rather than the approach taken in Forms N-3 and N-4, due to the fact that maximum expenses could potentially exceed 100% of contract value based on the underwriting of the variable life insurance contract and therefore potentially be misleading to investors. This section of the table would require: (1) A brief statement that investment in a variable life insurance contract is subject to certain ongoing fees and expenses that are set based on characteristics of the insured; and (2) the minimum and maximum annual fees for the investment options in a tabular presentation.

136

Instruction 2(c) to proposed Item 3 of Form N-6.

(ii) Risks

The proposed Key Information Table also would include a condensed discussion of contract risks. Current risk disclosures in variable contract statutory prospectuses typically span multiple pages. While this level of disclosure may be appropriate for a statutory prospectus, we believe that a more-concise overview presentation of contract risks is better suited for the Key Information Table in light of the goals of the summary prospectus. Like the summary of fee and expense information that would appear in the proposed Key Information Table, these risk summaries are intended to provide a concise overview, with additional information available for an investor who desires or requires additional details.

Specifically, the table would include four line-items under the heading “Risks,” each of which would include disclosure about a risk that we believe investors should be alerted to: (1) Risk of loss; (2) risks that could occur if an investor believes a variable annuity is a short-term investment; (3) risks associated with the contract's investment options; and (4) insurance company risks.

137

Each of these line-items would include succinct descriptions of the respective risk.

137

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3 to proposed Item 3 of Forms N-3, N-4, and N-6.

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

138

This could help prevent any misunderstanding if, for example, an investor confused a variable annuity contract and a fixed annuity contract and did not understand that the contract value in a variable annuity could decline.

138

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(a) to proposed Item 3 of Forms N-3, N-4, and N-6 (“State that a contractowner can lose money by investing in the Contract.”).

The second line-item is intended to emphasize to investors that variable contracts are generally long-term investments and not appropriate for an investor who needs ready access to cash, particularly in view of the impact of surrender charges and/or tax penalties for early withdrawals.

139

The third line-item is intended to focus on the general risk of poor investment performance (as opposed to the details of the specific risks associated with each of the particular investment options available under the contract).

140

139

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(b) to proposed Item 3 of Forms N-3, N-4, and N-6 (“State that a Contract is not a short-term investment vehicle and is not appropriate for an investor who needs ready access to cash, accompanied by a brief explanation.”).

140

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(c) to proposed Item 3 of Forms N-3, N-4, and N-6 (

e.g.,

from Form N-4, “State that an investment in the Contract is subject to the risk of poor investment performance and can vary depending on the performance of the investment options available under the Contract (

e.g.,

Portfolio Companies and any fixed account investment options), that each investment option will have its own unique risks, and that the contractowner should review a Portfolio Company's prospectus before making an investment decision.”).

Because most variable annuity contracts typically offer fifty or more portfolio companies to which investors can allocate their purchase payments, we are not requiring that the Key Information Table include risk information specific to each portfolio company, as to do so would undermine the goal of brevity for this disclosure item.

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.

141

As part of these disclosures, the registrant would be required to state, if applicable, that additional information about the insurance company, including its financial strength ratings, may be obtained from the registrant.

142

In lieu of providing this statement, a registrant could include the insurance company's financial strength rating(s).

143

141

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(d) to proposed Item 3 of Forms N-3, N-4, and N-6 (

e.g.,

from Form N-4, “State that an investment in the Contract is subject to the risks related to the Depositor, including the extent to which any obligations, guarantees, or benefits are subject to the claims-paying ability of the Depositor.”).

142

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(d) to proposed Item 3 of Forms N-3, N-4, and N-6 (

e.g.,

from Form N-4, “If applicable, further state that more information about the Depositor, including its financial strength ratings, is available upon request from the Registrant”).

143

See

Instruction to Instruction 3(d) to proposed Item 3 of Forms N-3, N-4, and N-6.

A fifth line-item, which would only appear in the “Risks” section for variable life insurance contracts, is meant to focus on contract lapse, which is a key risk for variable life insurance investors (but not relevant to variable annuity contracts).

144

For example, a variable life insurance contract may lapse when sufficient premium payments are not made by the investor. Since inadvertent contract lapse could negate the insurance benefit of the variable life insurance contract, we believe this risk should be included in the Key Information Table.

144

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 3(e) to proposed Item 3 of Form N-6 (“Briefly state (1) the circumstances under which the Contract may lapse (

e.g.,

insufficient premium payments, poor investment performance, withdrawals, unpaid loans or loan interest), (2) whether there is a cost associated with reinstating a lapsed Contract, and (3) that death benefits will not be paid if the Contract has lapsed.”).

Because the registrant may provide additional details about these and other risks in the statutory prospectus, we are also proposing a new requirement in Forms N-3 and N-4 that, like the current parallel requirement in Form N-6, would require the registrant to summarize the principal risks of purchasing a contract in a consolidated risk section within the statutory prospectus.

145

Registrants would have the flexibility to discuss any principal risks, and would not be limited to the risk topics, or the level of disclosure, when responding to this requirement.

145

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 1(c) to proposed Item 3; proposed Item 5 of Forms N-3, N-4, and N-6. While we understand that variable annuity statutory prospectuses today commonly discuss contract risks (although Form N-3 and Form N-4 do not currently require them to do so), this discussion can be dispersed throughout the prospectus.

(iii) Restrictions

The proposed Key Information Table also would require registrants to briefly disclose those features of a variable contract that commonly include restrictions or limitations, namely the investment options and optional benefits that the contract offers. We have designed this section of the table to include separate line-items for each of these topics under the heading “Restrictions.”

146

For example, many variable annuity contracts have optional benefits that restrict the percentage of assets that investors can allocate to certain investment options, such as more volatile categories of equity funds, in order to facilitate the insurance company's ability to reserve for the guarantees under the benefit.

146

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 4 to proposed Item 3 of Forms N-3, N-4, and N-6. We recognize that there may be overlap between the proposed line-items for “Investment Options” and “Optional Benefits,” since many optional benefits limit the investment options available to investors.

The “Investment Options” line-item would require registrants to disclose whether there are any restrictions that may limit the investment options that an investor may choose and/or limitations on the transfer of contract value among portfolio companies, and if applicable, that the insurer reserves the right to remove or substitute portfolio companies as investment options.

147

The “Optional Benefits” line-item would require registrants to disclose whether there are any restrictions or limitations relating to optional benefits, as well as whether the registrant may modify or terminate an optional benefit.

148

147

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 4(a) to proposed Item 3 of Forms N-3, N-4, and N-6 (“State whether there are any restrictions that may limit the investment options that a contractowner may choose, and/or whether there are any limitations on the transfer of Contract value among Portfolio Companies. If applicable, state that the insurer reserves the right to remove or substitute Portfolio Companies as investment options”).

148

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 4(b) to proposed Item 3 of Forms N-3, N-4, and N-6 (“State whether there are any restrictions or limitations relating to optional benefits, and/or whether an optional benefit may be modified or terminated by the Registrant. If applicable, state that withdrawals may affect the availability of optional benefits by reducing the benefit by an amount greater than the value withdrawn, and/or could terminate a benefit.”).

We are proposing to include these line-items in the Key Information Table to put investors on notice of restrictions and limitations associated with different options that are available under the contract. We are not proposing to require a description of the specific restrictions and limitations associated with each of the available investment options and optional benefits. Doing so would likely add significant length to the table. Instead, this information will be provided in other parts of the initial summary prospectus, as well as the statutory prospectus.

149

See, e.g.,

proposed rule 498A(b)(5)(iv), proposed Item 12(a) of Form N-3, and proposed Item 11(a) of Forms N-4 and N-6 (all referencing the requirement that the table summarizing certain benefits available under the contract, which would appear in both the initial summary prospectus and the statutory prospectus, would be required to include a brief description of restrictions/limitations associated with each benefit);

see also

proposed rule 498A(b)(5)(ix), proposed Item 19 of Form N-3, and proposed Item 18 of Forms N-4 and N-6 (all referencing the requirement that, if the availability of one or more portfolio company varies by benefit offered under the contract, the appendix that would appear in the initial summary prospectus, updating summary prospectus, and statutory prospectus would be required to include a separate table indicating which portfolio companies are available under each of the benefits offered under the contract).

(iv) Taxes

Because variable contracts are subject to a special tax regime, with both tax advantages and potential tax impacts in certain circumstances, we are proposing to require that the Key Information Table include tax-related disclosures. The “Tax Implications” line-item of the table, which would appear under the heading “Taxes,” would require a statement that investors should consult with a tax professional to determine the tax implications of an investment in, and payments received under, the variable contract.

150

A registrant also would be required to state that there is no additional tax benefit to the investor if the contract is purchased through a tax-qualified plan or individual retirement account (IRA), and that withdrawals will be subject to ordinary income tax and may be subject to tax penalties.

151

150

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 5 to proposed Item 3 of Forms N-3, N-4, and N-6.

151

Id.

The tax disclosure in the proposed Key Information Table is meant to alert investors to tax implications of their investment in a location and using a presentation we believe investors are most likely to see and understand. Similar to the other line-items in the proposed Key Information Table, additional detail about the tax implications of an investment in a variable contract would also be available in the statutory prospectus.

152

See, e.g.,

proposed Item 16 of Form N-3, proposed Item 15 of Forms N-4 and N-6.

(v) Conflicts of Interest

The proposed Key Information Table would also include, if applicable,

153

line-items regarding conflicts of interest that may arise in the context of variable contracts, specifically with regards to investment professional compensation and exchanges. The “Investment Professional Compensation” line-item would require registrants to disclose, if applicable, that an investment professional may be paid for selling the contract to investors.

154

A registrant would be required to describe the basis upon which such compensation is typically paid (

e.g.,

commissions, revenue sharing, compensation from affiliates and third parties).

155

A registrant providing the required disclosure would be required to further state that investment professionals may have a financial incentive to offer or recommend the contract over another investment for which the investment professional is not compensated (or compensated less).

156

This proposed requirement reflects analogous disclosure that appears in mutual fund summary prospectuses

157

and is designed to address similar concerns, namely to alert investors to the existence of compensation arrangements for investment professionals and the potential conflicts of interest arising from these arrangements.

153

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 proposed Item 3 of Forms N-3, N-4, and N-6.

154

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 6(a) to proposed Item 3 of Forms N-3, N-4, and N-6.

155

Id.

156

Id.

157

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 would require the registrant to state, if applicable, that some investment professionals may have a financial incentive to offer a new contract in place of the one owned by the investor.

158

A registrant would further be required to state that investors should only exchange their contract if they determine, after comparing the features, fees, and risks of both contracts, that it is preferable for them to purchase the new contract rather than continue to own the existing contract.

159

When a contract owner purchases a new annuity contract to replace an existing one, the new contract is referred to as a replacement contract.

160

We understand that a significant proportion of variable contract sales stem from exchanges, and these disclosures are intended to alert investors to potential conflicts of interest that may arise in that context.

158

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 6(b) to proposed Item 3 of Forms N-3, N-4, and N-6.

159

Id.

160

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.

(vi) General Instructions

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

161

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 1(a) to proposed Item 3 of Forms N-3, N-4, and N-6.

The proposed general instructions would also require registrants to provide cross-references or links to the location in the statutory prospectus where the subject matter required by the line-item is described in greater detail.

162

The cross-reference or link would not necessarily need to be a page number or page range; instead, a registrant could cross-reference or link a particular section or sub-section, or heading or sub-heading, in the statutory prospectus. As discussed below, we are separately proposing that any cross-reference that is included in an electronic version of a summary prospectus must be an active hyperlink.

163

162

See

proposed rule 498A(b)(5)(ii);

see also

General Instruction 1(b) to proposed Item 3 of Forms N-3, N-4, and N-6. The proposed instruction specifies that the cross-reference should be adjacent to the relevant disclosure, either within the table row, or presented in an additional table column.

163

See

proposed rule 498A(a)(i)(4);

see also infra

section II.A.5.

We believe that providing cross-references and links would help investors who seek additional information quickly find more detailed information that may be important to them. We recognize that certain line-items in the Key Information Table may more readily lend themselves to the inclusion of a single cross-reference or link because the information may be found in one location in the statutory prospectus.

164

On the other hand, other line-items may aggregate information that appears in multiple locations in the statutory prospectus, and therefore a registrant would need to include multiple cross-references or links as appropriate.

165

164

For example, a more detailed description of the contract's fees and expenses would appear in the Fee Table section of the contract statutory prospectus.

See infra

section II.D.2.d.

165

For example, it may not always be possible to provide a single cross-reference for the “Restrictions” line-items as they may be discussed in multiple sections of the statutory prospectus.

See supra

note 149.

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

166

See

proposed rule 498A(b)(5)(ii);

see also

Instruction 1(c) to proposed Item 3 of Forms N-3, N-4, and N-6.

(vii) Requests for Comment on Key Information Table

We request comment generally on the Key Information Table that we propose would appear in the initial summary prospectus, and specifically on the following issues. We request specific comment about the table as it would appear in the updating summary prospectus and the statutory prospectus later in this release.

• Should we require the proposed Key Information Table to be included in the initial summary prospectus? Would this table provide a succinct summary of the contract's key terms and benefits and most significant risks, in a presentation that would improve readability and increase readership?

• Would the topics of the line-items that we propose to include in the Key Information Table be appropriate or useful for investors making an initial purchase of a variable contract? If not, why not? Should we require the table to include additional or different topics? Should we limit the topics and related disclosures to those that are required, or should we permit registrants to include additional topics at their discretion? Could this open the door to lengthy disclosure that might undermine the goal of a succinct presentation?

• Is the proposed tabular presentation useful and likely to facilitate investor

understanding of key information about variable contracts? Would another presentation be better? If so, why, and what would a better alternate presentation be? Would the two-column presentation be effective for investors reading an electronic version of the initial summary prospectus? Should the form of presentation be required, or should it be left to the discretion of registrants? Would a standardized presentation facilitate comparison of different variable contracts?

• Should we require cross-references to the location (section or sub-section, or heading or sub-heading) in the statutory prospectus where the information provided in response to each line-item of the Key Information Table is discussed in greater detail? Instead of cross-referencing to the relevant location in the statutory prospectus, should we instead require the cross-reference to include a specific page number in the statutory prospectus where an investor could find the information? Would it confuse investors who receive the summary prospectus to see cross-references to the statutory prospectus? If so, should the table in the summary prospectus not include cross-references, or should we consider some other approach?

• If we require cross-references, should electronic versions of the summary prospectus be required to link directly to the relevant location in the statutory prospectus, as would be required by proposed rule 498A? If not, why not? Would requiring a cross-reference (or link) pose any particular technical, legal, or other challenges for registrants? If so, what would these challenges be, and how could we modify the proposed rule or provide guidance to mitigate these challenges? Instead of hyperlinks, are there other technological tools that would better help an investor find information that is cross-referenced in the Key Information Table, such as QR codes or similar technological tools?

167

A QR code is a two-dimensional barcode capable of encoding information such as a website address, text information, or contact information. For example, when included on print materials, these codes can be read using the camera on a smartphone to take the user directly to a specific website address.

• Is the level of detail of the disclosure that we propose in each line-item of the Key Information Table appropriate, and does it strike the right balance between providing enough information to alert an investor to the most salient facts (including fees, expenses, and risks) of the variable annuity contract, but not too much, or too detailed information? If not, how should we modify the table?

• Should we impose a word or page limit on the proposed Key Information Table (

e.g.,

no more than two or three pages)? If so, what should the word limit or page limit be?

• Would the disclosure that a registrant would provide in response to the proposed “Fees and Expenses” line-items convey the appropriate amount of information to investors and concisely alert investors to the most important fees and expenses associated with the variable annuity contract? Are there any additional charges that should be included in these line-items? For example, we understand that in some instances an investment professional may charge fees for providing additional services that are directly deducted from the value of the investor's contract and which may be treated as a withdrawal from the contract, reduce the contract's benefits, and be subject to surrender charges. How common are such arrangements, and what disclosures, if any, would be appropriate to be included in the Key Information Table or elsewhere, such as in the fee table?

• Would the “Surrender Charge” line-item, as proposed, convey sufficient information for investors to understand the dollar amount that they could pay as a surrender charge if they make withdrawals in the first several years of their contract, and if not, how should we modify this line-item?

• Would the Minimum and Maximum Annual Fee and Lowest and Highest Cost tables convey information in a way that investors are likely to easily understand? Would these tables assist investors in understanding the costs of their investment and helping them compare the costs of investing in the variable annuity with the costs of investing in another product? Are the assumptions underpinning those tables appropriate? If not, why not? Are there any revisions that we should consider? Is $100,000 an appropriate figure to use as the basis for the cost example in the proposed table? Should we require that registrants use a different figure instead? If so, why? Should we require additional information to accompany the tables? For example, should the legend accompanying the tables inform investors that it is possible that the total fees associated with the contract may exceed the accumulated gains from the investment options selected by the investor? Should the Lowest and Highest Cost table include additional information such the hypothetical value of the contract (

e.g.,

in year 1 and year 10), the expenses incurred per year, and the value of the contract (

e.g.,

in year 1 and year 10) after expenses?

• Should we require registrants creating an electronic version of the initial summary prospectus to provide an interactive calculator for investors to determine how fees and expenses would affect their specific investments? If so, should the calculator include transaction charges?

• Should variable life insurance contracts also be required to show the lowest and highest possible combination of charges in the Form N-6 Key Information Table? Cost of insurance is often an important component of expenses for variable life insurance contracts (unlike variable annuities), and can vary significantly from one insured person to another depending on various demographic characteristics (

e.g.,

age, gender, health, smoking status). If the lowest and highest possible combinations of charges are shown, how should variations in cost of insurance be reflected?

• Would the disclosure that a registrant would provide in response to the proposed “Risks” line-items adequately convey an overview of the risks of investing in a variable contract? Are there other risks that we should require a registrant to disclose in the proposed Key Information Table? Should we revise or remove any of the proposed “Risks” line-items? For example, is it appropriate to allow registrants to include the insurance company's financial strength rating(s) in the line-item regarding the claims-paying ability of the insurance company? Should we revise the instructions associated with these proposed line-items to require different disclosures? Should we require a line-item for “Other Principal Risks” to provide registrants an opportunity to disclose risks related to investing in the contract that they would not otherwise be required to disclose in the Key Information Table? Should we instead provide flexibility by permitting registrants to disclose other risks at their discretion? Why or why not?

• Would the disclosure that a registrant would provide in response to the proposed “Restrictions” line-items appropriately convey the appropriate amount of information about certain restrictions that various contract options may entail, in light of the goals of the proposed Key Information Table? Should a registrant be required to disclose information about restrictions in the Key Information Table other than those associated with the contract's investment options and optional benefits? If so, what? Instead, should we provide flexibility by permitting registrants to disclose other restrictions at their discretion?

• Is the disclosure that a registrant would be required to provide in response to the proposed “Tax Implications” line-item appropriate, in light of the goals of the proposed Key Information Table? Should a registrant be required to emphasize more prominently that withdrawals will be subject to ordinary income tax, and not the capital gains rates? Should the line-item require disclosure of the specific tax penalties and requirements that variable contract investors may incur (

e.g.,

penalties for withdrawal before age 59

1/2

, or that purchases through a tax-qualified plan may be subject to required minimum distribution each year beginning at age 70

1/2

• Are the disclosures that a registrant would be required to provide in response to the proposed “Investment Professional Compensation” line-items appropriate, in light of the goals of the proposed Key Information Table? Would these disclosures adequately apprise investors of the potential conflicts that arise when their investment professional is compensated for recommending an investment into a new or an exchange from an existing variable contract, and are these disclosures appropriately balanced? Should we revise these proposed disclosure requirements, and if so, how? Is it appropriate that these line-items appear under the heading “Conflicts of Interest”? Is there another way that the summary prospectus could highlight the implications for investors of exchanges?

• Do the instructions associated with each of the proposed line-items clearly explain what a registrant would be required to disclose? In keeping with the structured format of a tabular presentation, we sought to promote concise disclosure by largely directing registrants to state, rather than to explain, certain information in response to the required line-items. Should the

instructions prescribe specific language or should registrants have flexibility in drafting their responses? Are there any particular instructions that we should include or modify in any way, for clarity or for any other reason?

The initial summary prospectus would be required to briefly describe the standard death benefit that the contract provides, under the heading “Standard Death Benefit.”

168

It would briefly describe the operation of the benefit.

169

Including this disclosure in the initial summary prospectus would highlight to investors important information about this benefit, such as information about the potential limitations on the standard death benefit and the possibility of its termination, that they might not otherwise receive through marketing materials and similar channels during the sales process.

168

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.

169

Id.

For a discussion of the proposed disclosure requirements,

see infra

section II.D.2.j.

Under the proposed registration form amendments, a registrant would include in the statutory prospectus these disclosures, as well as additional disclosures relating to when the death benefit is calculated and payable or the forms the benefit may take.

170

While this additional information provides detail that may help an investor who wants to understand the mechanics of how the standard death benefit operates later in the contract lifecycle, we are not requiring that it be included in the initial summary prospectus because we believe it would not be as critical to a basic initial understanding of the benefit, including any risks and limitations.

170

See

proposed Items 11(b) and (c) of Form N-3; proposed Items 10(b) and (c) of Form N-4; proposed Item 10(b) of Form N-6.

We request comment generally on the disclosure on the standard death benefit that we propose would appear in the initial summary prospectus, and specifically on the following issues:

• Are the proposed disclosure requirements in the initial summary prospectus under the “Standard Death Benefit” heading clear and appropriate in light of the goals of the initial summary prospectus?

• Would this disclosure be useful to investors in connection with an initial purchase of a variable contract? Should this proposed content requirement include any additional, or any different, disclosure about the standard death benefit? For example, would including one or more of the other disclosures required to be included in the statutory prospectus better assist investors in gaining a basic initial understanding of the standard death benefit?

(d) Other Benefits Available Under the Contract

Following the discussion of the standard death benefit, the initial summary prospectus would be required to summarize additional standard or optional benefits available to the investor under the variable contract. We understand that insurers commonly consider these types of benefits to be primary features of variable contracts.

171

These benefits are also often key differentiators between competing products, and we propose requiring specific disclosures in both the statutory prospectus and the initial summary prospectus. This information would appear in tabular form, under the heading “Other Benefits Available Under the Contract.”

172

This summary table would include information about any optional death benefits, as well as any optional or standard living benefits, that the contract offers.

171

See supra

paragraph accompanying note 17 (regarding the prevalence of optional benefits).

172

See

proposed rule 498A(b)(5)(iv);

see also

proposed Item 12(a) of Form N-3; proposed Item 11(a) of Form N-4; proposed Item 11(a) of Form N-6.

Specifically, the summary table would include the name of each benefit, its purpose, whether the benefit is standard or optional, associated fees (as a stated percentage of contract value, benefit base, etc.), and a brief description of limitations or restrictions.

173

The table items include key factors investors may wish to consider when assessing these benefits. We also have designed the proposed table to include information that investors may be less likely to receive through other channels, such as concise disclosure about the restrictions and limitations associated with these benefits. The terms of optional benefits can be complex. Providing the required information in a uniform tabular presentation is designed to make these important disclosures easier for investors to read, understand, and compare.

173

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 proposed Item 12(a) of Form N-3; Instruction 6 to proposed Item 11(a) of Form N-4; Instruction 6 to proposed Item 11(a) of Form N-6.

Under the proposed form amendments, a registrant would include in the statutory prospectus the summary table, as well as additional disclosures in narrative form relating to optional benefits, such as further additional description of each benefit, and descriptions of benefits' limitations, restrictions and risks, and one or more examples illustrating the operation of each benefit.

174

We believe that requiring the initial summary prospectus to include only the summary table and not the additional narrative disclosures is appropriate for the scope of the initial summary prospectus.

175

Consistent with the layered disclosure approach, investors who want more information about optional benefits may refer to the more extensive narrative disclosures in the contract statutory prospectus.

174

See

proposed Item 12(b) and (c) of Form N-3 and Instruction to proposed Item 12(b) and (c); proposed Item 11(b) and (c) of Form N-4 and Instruction to proposed Item 11(b) and (c); proposed Item 11(b) and (c) of Form N-6 and Instruction to proposed Item 11(b) and (c).

175

Registrants may, but would not be required to, provide in the initial summary prospectus cross-references or links to these additional narrative disclosures in the contract statutory prospectus.

We are also proposing instructions to allow registrants that offer multiple benefits of the same type (

e.g.,

death benefit, accumulation benefit, withdrawal benefit, long-term care benefit, etc.) to use multiple tables to provide the required information, if doing so might better permit comparisons of those benefits.

176

Registrants may also include appropriate titles, headings, or other information that might promote clarity and facilitate understanding of the table(s).

177

For example, if certain optional benefits are only available to certain investors, or are mutually exclusive, the table could include footnotes or headings to identify which optional benefits are affected and to whom they are available.

178

These instructions are designed to accommodate the variety of benefits currently offered or that might be offered in the future, and provide registrants flexibility in presenting this information.

176

See

Instruction 1(b) to proposed Item 12(a) of Form N-3; Instruction 1(b) to proposed Item 11(a) of Form N-4; Instruction 1(b) to proposed Item 11(a) of Form N-6.

177

See

Instruction 1(c) to proposed Item 12(a) of Form N-3; Instruction 1(c) to proposed Item 11(a) of Form N-4; Instruction 1(c) to proposed Item 11(a) of Form N-6.

178

Id.

We request comment generally on the disclosure relating to other benefits available under the contract that we propose would appear in the initial summary prospectus, and specifically on the following issues:

• Are the proposed initial summary prospectus disclosure requirements

under the heading “Other Benefits Available Under the Contract” clear and appropriate in light of the goals of the initial summary prospectus?

• Are the proposed disclosure items in that table useful and appropriate for consideration by investors in connection with the initial purchase of a variable contract, or should we revise, supplement, or replace those items? Should the proposed summary table include any additional, or any different, disclosure about the standard death benefit or any other benefit? For example, should it include one or more of the other disclosures required to be included in the statutory prospectus? Or should we require that registrants add links or cross-references to these other disclosures? For the associated fee of each

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