First, a person relying on the proposed rule would be required to
send or give a summary prospectus to an investor no later than the time
of the ``carrying or delivery'' of the contract security.\244\ This
summary prospectus would be an initial summary prospectus in the case
of an initial purchase of a variable contract, or an updating summary
prospectus in the case of additional investments in a variable contract
previously purchased.\245\
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    \244\ See supra note 242 (discussing the prohibition against
carrying or delivering a security without otherwise accompanying it
or preceding it with a statutory prospectus).
    \245\ Proposed rule 498A(f)(1); see also supra note 207 and
accompanying text.
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    Second, the summary prospectus could not be bound together with any
other materials, except that we are permitting portfolio company
summary and statutory prospectuses to be bound together with the
contract summary

prospectus,\246\ subject to certain conditions.\247\ Third, the summary
prospectus also would be required to meet the proposed rule's content
requirements for an initial summary prospectus or updating summary
prospectus (as appropriate).\248\ Finally, the initial summary
prospectus, updating summary prospectus, contract statutory prospectus,
and contract SAI must be publicly accessible, free of charge, on a
website in the manner that the proposed rule specifies.\249\ Failure to
comply with any of these requirements would prevent a person from
relying upon the proposed rule to meet its section 5(b)(2) prospectus
delivery obligations. Absent satisfaction of the section 5(b)(2)
obligation by other available means, a section 5(b)(2) violation would
result.\250\
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    \246\ Proposed rule 498A(f)(2).
    \247\ Proposed rule 498A(f)(2)(i) and (ii). The rule would
permit binding these materials together so long as: (1) All of the
underlying portfolio companies whose prospectuses are bundled
together are available to the investor to whom they are sent or
given; and (2) a table of contents identifying each portfolio
company summary and/or statutory prospectus that is bound together
(and the page number on which each document is found), is included
at the beginning or immediately following a cover page of the bound
materials.
    \248\ Proposed rule 498A(f)(3).
    \249\ Proposed rule 498A(f)(4) (in addition, a Form N-3
registrant would also be required to post its most recent annual and
semi-annual reports to shareholders to the website); see also infra
section II.A.4.
    \250\ As discussed below, the proposed rule also includes
additional requirements (such as the requirement to send a copy of
the contract statutory prospectus upon request) whose violation
would result in a violation of the proposed rule, but would not
result in a violation of section 5(b)(2). See infra note 298 and
accompanying text.
---------------------------------------------------------------------------

    The proposed rule also would provide that a communication relating
to an offering registered on Forms N-3, N-4, or N-6 that a person sends
or gives after the effective date of a variable contract's registration
statement (other than a prospectus that section 10 of the Securities
Act permits or requires) would not be deemed a prospectus under section
2(a)(10) of the Securities Act if:

    (1) It is proved that prior to or at the same time with such
communication a summary prospectus was sent or given to the person
to whom the communication was made;
    (2) the summary prospectus meets the same binding requirements
that we discuss in the immediately-preceding paragraph;
    (3) the summary prospectus that was sent or given satisfies the
requirements for the initial summary prospectus or the updating
summary prospectus, as applicable; and
    (4) the initial summary prospectus, updating summary prospectus,
contract statutory prospectus, and contract SAI are publicly
accessible, free of charge, on a website in the manner that the
proposed rule specifies.\251\

    \251\ Proposed rule 498A(g).
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    Section 2(a)(10) of the Securities Act provides that certain
communications accompanied or preceded by a statutory prospectus are
not deemed to be ``prospectuses'' for purposes of the Securities
Act.\252\ This provision of the proposed rule, which is modeled on a
corresponding provision of rule 498,\253\ extends similar treatment to
communications accompanied or preceded by a summary prospectus if all
the provision's conditions are met. These communications remain subject
to the general antifraud provisions of the federal securities
laws.\254\
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    \252\ Section 2(a)(10) of the Securities Act [15 U.S.C.
77b(a)(10)(a)] provides that a communication sent or given after the
effective date of the registration statement (other than a
prospectus permitted under subsection (b) of section 10) shall not
be deemed a prospectus if it is proved that prior to or at the same
time with the communication a written prospectus meeting the
requirements for a statutory prospectus at the time of the
communication was sent or given to the person to whom the
communication was made.
    \253\ See rule 498(d).
    \254\ See, e.g., section 17(a) of the Securities Act [15 U.S.C.
77q(a)]; section 10(b) of the Exchange Act [15 U.S.C. 78j(b)];
section 34(b) of the Investment Company Act [15 U.S.C. 80a-33(b)].
---------------------------------------------------------------------------

    Because we believe that all investors should receive the benefit of
the succinct, investor-friendly disclosure that is included in the
variable contract summary prospectus, all of the disclosure items that
would appear in the summary prospectus also would be required to appear
in the statutory prospectus. In that respect, all variable contract
investors, regardless of whether the product they choose has a summary
prospectus, would have the benefit of improved disclosures in the
statutory prospectus.
    We request comment generally on the proposal to permit a new option
for prospectus delivery for variable contracts, and specifically on the
following issues (in addition, we are requesting comment on certain
parallel provisions of rule 498):

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

how should we evaluate the effectiveness of the new framework? What
methods or approaches should we use to evaluate the rule, and what
areas of the new framework should we focus on in any such review?
     Should registrants that elect to rely on rule 498A be
required to send current investors a notice explaining the new
delivery approach before sending the first updating summary
prospectus? Would investors benefit from receiving such a notice? If
so, should investors receive a separate notice about the transition,
or should different methods of notifying investors be permitted? For
example, should registrants be permitted to add the notice as an
insert or legend to other documents they are already sending
investors?
4. Online Accessibility of Contract Statutory Prospectus and Certain
Other Documents Relating to the Contract
    The proposed rule would permit investors who receive a succinct,
user-friendly initial or updating summary prospectus to access more
detailed information about the variable contract, either by reviewing
the information online, or by requesting the information to be sent in
paper or electronically. These provisions parallel provisions in the
rule governing the use of mutual fund summary prospectuses.\255\ In our
experience, layered disclosure for mutual funds has benefitted both
investors and registrants, and we are proposing a similar framework for
variable contracts. We believe that permitting variable contract
investors to access the contract statutory prospectus in several ways
(online and by physical or electronic delivery) maximizes the
accessibility and usability of the information, as indicated by
investors' preference for access to both online and paper
resources.\256\
---------------------------------------------------------------------------

    \255\ See rule 498(c)(4), (d)(4), (e), and (f).
    \256\ See 2012 Financial Literacy Study, supra note 39, at iv,
xix.
---------------------------------------------------------------------------

a. Required Online Contract Documents
    Under the proposal, a variable contract's current initial summary
prospectus, updating summary prospectus, statutory prospectus, and SAI,
and, in the case of a registrant on Form N-3, the registrant's most
recent annual and semi-annual reports to shareholders under rule 30e-1
under the Investment Company Act (together, the ``required online
contract documents''), would be required to be available online. This
approach operationalizes the layered disclosure framework that
undergirds the proposed rule, with the summary prospectus provided in
paper (or electronically) to investors, and additional information
about the contract securities available online. The required online
contract documents generally comprise the same set of documents that
the mutual fund summary prospectus rules require to be posted online,
and provide additional important detail about the contract that
investors can access if they wish. The required online contract
documents only reference the registrant's annual and semi-annual
shareholder reports for Form N-3 registrants because Form N-4 and Form
N-6 registrants do not have their own shareholder reports, but instead
transmit the portfolio companies' annual and semi-annual shareholder
reports to the investors in their trust accounts.
    As with similar provisions in the mutual fund summary prospectus
rule, these required online contract documents would be required to be
publicly accessible, free of charge, at the website address that the
cover page of the summary prospectus specifies, on or before the time
that the person relying on the proposed rule provides the summary
prospectus to investors.\257\ Moreover, a current version of each of
the required online contract documents would be required to remain on
that website for at least 90 days following either:
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    \257\ Proposed rule 498A(h)(1); see also rule 498(e)(1).

     The time of the ``carrying or delivery'' of the
contract security if a person is relying on the proposed rule to
satisfy its section 5(b)(2) prospectus delivery obligations; or
     If a person is relying on the proposed rule to send
communications that will not be deemed to be prospectuses, the time
that the person sends or gives the communication to investors.\258\
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    \258\ Proposed rule 498A(h)(1).

    This requirement is designed to provide continuous access to the
information from the time the summary prospectus is sent or given until
at least 90 days after the date of delivery of a security or
communication in reliance on the proposed rule. This is the timeframe
for the availability of online information under the mutual fund
summary prospectus rule, and we are proposing that it be the same in
the proposed rule because of market participants' familiarity with this
timeframe, and because there may be operational efficiencies for
certain registrants in having the timeframe be the same under both
summary prospectus frameworks. Moreover, we believe this proposed
timeframe appropriately balances the costs of maintaining information
online with investors' interests in having the flexibility to access
this online information after receiving the summary prospectus (for
example, if they would like to review a topic presented therein in more
detail in the statutory prospectus that is available online, after they
have had the opportunity to read and digest the summary prospectus).
b. Formatting Requirements for Required Online Contract Documents
    The proposed rule would direct that the required online contract
documents be presented in a manner that is human-readable and capable
of being printed on paper in human-readable format.\259\ This
formatting requirement is a condition to reliance on the rule to
satisfy a person's delivery obligations under section 5(b)(2) of the
Securities Act and the provision that a communication shall not be
deemed a prospectus under section 2(a)(1) of the Securities Act. The
rule governing mutual fund summary prospectuses also requires this
formatting approach.\260\ The ``human-readable'' presentation
requirement is designed to impose a minimum standard of usability
comparable to that of a paper document, although we understand that the
electronic version could include additional features that might enhance
the usability of the electronic version relative to the paper
version.\261\ For example, regarding usability, all portions of the
document should be human-readable such that when an investor views the
document on an internet browser, the text does not get cut off based on
the screen size.
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    \259\ Proposed rule 498A(h)(2)(i).
    \260\ Rule 498(e)(2)(i).
    \261\ As in the parallel provisions of the rule governing mutual
fund summary prospectuses, the ``human-readable'' condition is
intended to make clear that posted information must be presented in
human-readable text, rather than machine-readable software code,
when accessed through an internet browser and that it must be
printable in human-readable text. This condition does not impose any
further requirements relating to user-friendliness of the
presentation. See 2009 Summary Prospectus Adopting Release, supra
note 33, at 85; see also infra note 274 and accompanying and
following text (discussing provisions that are meant to enhance
investors' understanding of special terms when they view the summary
prospectus online, as well as other technological tools associated
with online disclosure (e.g., fee calculators, pop-up explanations)
that would present further opportunities to promote investor
understanding).
---------------------------------------------------------------------------

    In addition, the proposed rule would mandate that the online
materials be presented in a format that is convenient for both reading
online and printing on paper.\262\ The failure to comply with these
``convenient for reading and printing'' formatting requirements would
not, however, be a condition of reliance on the rule, because whether a
particular format is convenient for

reading online and printing depends on a number of factors and must be
decided on a case-by-case basis.\263\ In order to provide certainty to
market participants, we are therefore not proposing that this
requirement be a condition of reliance on the rule, and thus the
failure to comply with this requirement would not negate a person's
ability to rely on the rule in order to satisfy a person's delivery
obligations under section 5(b)(2) of the Securities Act.\264\ Such a
failure could, however, constitute a violation of Commission rules.
---------------------------------------------------------------------------

    \262\ Proposed rule 498A(i)(3); see also rule 498(f)(3)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses).
    \263\ See 2009 Summary Prospectus Adopting Release, supra note
33, at nn.272 and 273 and accompanying text (relevant factors
include the manner in which the online version renders charts,
tables, and other graphics; the extent to which the online materials
include search and other capabilities of the internet to enhance
investors' access to information and include access to any software
necessary to view the online version; and the time required to
download the online materials).
    \264\ Proposed rule 498A(i)(4); see also rule 498(f)(5)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses).
---------------------------------------------------------------------------

c. Linking Within and Between Documents
    The proposed rule also includes requirements for linking within the
electronic versions of the contract statutory prospectus and SAI that
are available online, and also for linking between electronic versions
of contract summary and statutory prospectuses that are available
online.\265\ The proposed requirements, which are substantively
identical to parallel provisions in the rule governing mutual fund
summary prospectuses,\266\ are designed to promote the usability of the
information that appears in these documents.
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    \265\ Proposed rule 498A(h)(2)(ii) and (iii).
    \266\ See rule 498(e)(2)(ii) and (iii). As discussed below, the
parallel provisions of proposed rule 498A also include similar
linking requirements for the portfolio company documents that the
proposed rule would require to appear online if a person were to
rely on the rule's new delivery option for portfolio company
prospectuses.
     In this release, the term ``substantively identical'' is meant
to refer to sets of provisions that do not include the same words
verbatim, but where the only differences between the provisions are
those that do not affect the substance of the requirement at issue.
For example, parallel provisions in rule 498 and 498A where only the
internal cross-references differ.
---------------------------------------------------------------------------

    The first linking requirement would allow the reader to move
directly between a table of contents of the contract statutory
prospectus or SAI and the related sections of that document, by a
single mouse click or mobile-device tap.\267\ The second linking
requirement would allow the reader to move back and forth between each
section of the summary prospectus and any related section of the
contract statutory prospectus and contract SAI that provides additional
detail.\268\ This back-and-forth movement could occur either directly
from the summary prospectus to the relevant section of the statutory
prospectus or SAI, or indirectly by linking from the summary prospectus
to a table of contents in the statutory prospectus or SAI, in which
case two mouse clicks or mobile-device taps would be required.\269\
---------------------------------------------------------------------------

    \267\ Proposed rule 498A(h)(2)(ii). The linked table of contents
may be outside the document (e.g., in a separate section or panel of
the screen), and need not be the table of contents that is contained
within the document itself, as long as the linked table of contents
for the statutory prospectus conforms to our rules' requirements for
the table of contents that would be required to appear within the
document). See rule 481(c) under the Securities Act.
    Mutual funds commonly implement this feature using a left
navigation or ``bookmark'' design style. While such design styles
continue to be popular (and we anticipate that some insurers relying
on proposed rule 498A might also employ this design style), the
increased use of mobile devices and applications has led to the
development of new and evolving design styles. Any navigation style
should provide the functionality that is required by the rule.
    \268\ Proposed rule 498A(h)(2)(iii).
    \269\ Id. Under the latter option, links would either have to be
available at both the beginning and end of the summary prospectus,
or would be required to remain continuously visible to persons
accessing the summary prospectus. This requirement is designed to
promote the links' prominence and accessibility to investors.
---------------------------------------------------------------------------

d. Definitions of Special Terms, and Online Viewing of Special Terms
    The summary prospectus content requirements reference information
that is required to appear in the contract statutory prospectus, which
in turn must be written using plain English principles.\270\ We
recognize, however, that it may be particularly challenging to
accurately describe a variable contract without using certain terms
that, while technically accurate, may be confusing or unfamiliar to
retail investors.
---------------------------------------------------------------------------

    \270\ Rule 421(d) of the Securities Act; see also proposed
General Instruction B.4(c) to Form N-3; proposed General Instruction
B.4(c) to Form N-4; proposed General Instruction B.4(c) of Form N-6.
---------------------------------------------------------------------------

    Accordingly, the proposed rule would require a summary prospectus
to define any ``special terms'' elected by the registrant, using any
presentation that clearly conveys their meaning to investors.\271\ This
requirement reflects the proposed instructions in Forms N-3, N-4, and
N-6 (as well as current, similar instructions in these forms to define
``special terms'' in a glossary or index).\272\ The registrant would
determine which terms would constitute special terms. We generally
believe that a special term is a term with which a new contract
investor typically may not be familiar, and that would be important for
the investor to understand key features of the contract.
---------------------------------------------------------------------------

    \271\ Proposed rule 498A(e). For example, the summary prospectus
could include a glossary or a list of definitions of special terms
that appear throughout the document. Or, as another example, if a
special term appears in only one section of the summary prospectus,
the summary prospectus could include a definition for this term on
the page, or in the section, where this term appear (for example, in
a box to the side of the main text, or at the bottom of the page).
Additionally, there are certain technological solutions that are
available for electronic versions of the summary prospectus, such as
moving or ``hovering'' the computer's pointer or mouse over the
term, or linking directly back and forth between each special term
and the corresponding entry in a glossary or list of definitions.
See infra note 274 and accompanying and following text.
    \272\ See proposed General Instruction C.3(d) to Form N-3;
proposed General Instruction C.3(d) of Form N-4; proposed General
Instruction C.3(d) to Form N-6; see also Item 2 of current Forms N-3
and N-4.
---------------------------------------------------------------------------

    We believe the proposed requirement for special terms in the
contract summary prospectus, like the current and proposed requirements
for special terms in the contract statutory prospectus, is appropriate
in the context of variable contracts, as variable contract disclosure
documents tend to include industry-specific language in order to
describe the sometimes complex features of these products.\273\
Glossaries or other means of defining these terms could help a retail
investor better understand these products' terms and features, as
discussed further below.
---------------------------------------------------------------------------

    \273\ Because variable contract prospectuses must describe the
products' insurance and investment features, they generally contain
more technical terms than mutual fund disclosure documents, which
only describe investment features.
---------------------------------------------------------------------------

    In order to leverage technology to help investors understand the
variable contract, the proposed rule includes provisions that are meant
to enhance investors' understanding of special terms when they view the
summary prospectus online. Specifically, the proposed rule would
require that investors either be able to view the definition of each
special term used in an online summary prospectus upon command,\274\ or
to move directly back and forth between each special term and the
corresponding entry in any glossary or list of definitions that the
summary prospectus includes.\275\ This approach, which today is a
common convention for many electronically-available documents, is an
example of how technology can enhance our layered approach to
disclosure and help investors who access the document online grasp the
complexities of variable contract features. Registrants may wish

to consider whether other technological tools associated with their
online disclosure (e.g., fee calculators, pop-up explanations) would
present further opportunities to promote investor understanding.
---------------------------------------------------------------------------

    \274\ For example, investors could view the definitions of
special terms by moving or ``hovering'' the computer's pointer or
mouse over the term, or selecting the term on a mobile device.
    \275\ Proposed rule 498A(h)(2)(iv).
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e. Ability To Retain Documents
    The proposed rule also would require that persons accessing the
website that appears on the summary prospectus cover page be able to
permanently retain, free of charge, an electronic version of each of
the required online contract documents. Like the online version of
these documents, the retainable version of the documents must be in a
format that is: (1) Human-readable and capable of being printed on
paper in human-readable format; and (2) permits persons accessing the
downloaded documents to move directly back and forth between each
section heading in a table of contents of that document and the section
of the document referenced in that section heading.\276\ The
permanently retained document does not have to be in a format that
allows an investor to move back and forth between the summary
prospectus and the statutory prospectus and SAI, because of possible
technical difficulties associated with maintaining links between
multiple downloaded documents. These proposed conditions are
substantively identical to parallel provisions in the rule governing
mutual fund summary prospectuses.\277\
---------------------------------------------------------------------------

    \276\ Proposed rule 498A(h)(3).
    \277\ See rule 498(e)(3).
---------------------------------------------------------------------------

    In addition, the proposed rule would mandate that the electronic
versions of the documents that may be permanently retained must be in a
format that is convenient for both reading online and printing on
paper.\278\ Like the ``convenient for reading and printing'' online
formatting requirements,\279\ the failure to comply with these
formatting requirements for retained electronic documents would not be
a condition for reliance on the rule.\280\ Since the convenience of
these formatting requirements must be decided on a case-by-case basis,
we believe this proposed approach would help provide certainty to
market participants who seek to rely on the proposed rule to satisfy
prospectus delivery obligations.\281\
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    \278\ Proposed rule 498A(i)(3).
    \279\ See supra note 262 and accompanying text.
    \280\ Proposed rule 498A(i)(4).
    \281\ See supra notes 263 and 264 and accompanying text.
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f. Safe Harbor for Temporary Noncompliance
    Compliance with the conditions in the proposed rule regarding the
online availability of the required online contract documents
(including the formatting and linking requirements for these documents,
the requirements associated with the use of special terms in these
documents, and the ability to retain these documents permanently) is
generally required in order to rely on the proposed rule to meet
prospectus delivery obligations under section 5(b)(2) of the Securities
Act.\282\ Such a failure to comply with any of these conditions could
result in a violation of section 5(b)(2) unless the contract statutory
prospectus is delivered by means other than reliance on the rule.
---------------------------------------------------------------------------

    \282\ Proposed rule 498A(f)(4) (section 5(b)(2) transfer of the
contract security is satisfied if, among other things, the
conditions in proposed rule 498A(h) are satisfied).
---------------------------------------------------------------------------

    We recognize, however, that there may be times when, due to events
beyond a person's control, the person may temporarily not be in
compliance with the proposed rule's conditions regarding the
availability of the required online contract documents.\283\ The
proposed rule therefore contains a safe harbor provision for temporary
noncompliance, which is substantively identical to a parallel provision
in the rule governing mutual fund summary prospectuses.\284\
---------------------------------------------------------------------------

    \283\ Such events might, for example, include system outages or
other technological issues, natural disasters, acts of terrorism, or
pandemic illnesses.
    \284\ Proposed rule 498A(h)(4); see also rule 498(e)(4).
---------------------------------------------------------------------------

    This provision provides that the conditions regarding the
availability of the required online contract documents will be deemed
to be met, even if the required online contract documents are
temporarily unavailable, provided that the person has reasonable
procedures in place to ensure that those materials are available in the
required manner. A person relying on the proposed rule to satisfy
prospectus delivery obligations would be required to take prompt action
to ensure that those materials become available in the manner required
as soon as practicable following the earlier of the time when the
person knows, or reasonably should have known, that the documents were
not available in the manner required.\285\
---------------------------------------------------------------------------

    \285\ Id.; see also 2009 Summary Prospectus Adopting Release,
supra note 33, at nn.92 and 93. This safe harbor generally would not
be available to a registrant that repeatedly fails to comply with
the rule's website posting requirements or that is not in compliance
with the requirements over a prolonged period. Id. at n.293.
---------------------------------------------------------------------------

    We request comment generally on the conditions in the proposed rule
regarding the availability of the required online contract documents,
and specifically on the following issues:

     Should we require the online posting of the required
online contract documents in the manner that the proposed rule
specifies? Should we require that the required online contract
documents be available on the insurance company's website as opposed
to a third-party website? Should the website include an archive of
older versions of these documents (not just the current versions)?
If so, what information should be in the archive, and how long
should such materials be required to be archived online?
     Should we require, as proposed, that persons accessing
this website be able to permanently retain, through downloading or
otherwise, free of charge, an electronic version of such documents?
Should we require that downloaded documents retain links that enable
a user to move readily between related passages of multiple
documents? Would these requirements pose any technological,
financial, or other challenges for persons relying on the proposed
rule?
     Does the proposed 90-day timeframe for the availability
of online information appropriately balance the costs of maintaining
information online with investors' interests in having the
flexibility to access this online information after receiving the
summary prospectus? Would there be operational efficiencies for
certain registrants in having the timeframe be the same under the
variable contract summary prospectus framework and the mutual fund
summary prospectus framework? How long do registrants typically
maintain information online that is required under the mutual fund
summary prospectus rules? As a matter of practice, is information
generally maintained for a full year from the date of the summary
prospectus?
     Should we provide additional guidance regarding what
might constitute a ``human-readable'' format for providing the
required online contract documents, as well as a ``convenient''
format for both reading these documents online and printing them on
paper? \286\ Or should persons relying on the proposed rule have the
flexibility to determine how best to comply with this or other
technological requirements that the proposed rule contemplates? Is
it necessary for the proposed rule to include separate provisions
regarding the ``human-readable'' website presentation of the
required online contract documents, as well as the ``convenient for
reading and printing'' presentation? Is it appropriate that, of
these two provisions, the former should be a condition to relying on
the rule to satisfy section 5(b)(2) prospectus delivery
requirements, whereas the latter should not? If we were to modify
these provisions, should we also propose to modify the parallel
provisions in the rule governing mutual fund summary prospectuses?
Should we instead retain one of these provisions, and if so which?
If the final rule retains only one of these provisions, should we
propose to modify rule 498 to similarly only retain just that
provision?
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    \286\ See supra notes 261 and 263 and accompanying text.
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     Although the proposed rule specifies that the materials
posted online must be in

a human-readable format, should we also require that the materials
be posted online in a machine-readable format to promote the
gathering and dissemination of information by data aggregators, or
to facilitate the review, analysis, and comparison by investors and
other data users? For example, should we require the materials to be
posted online to use Inline XBRL, as we are proposing to require for
certain disclosures in statutory prospectuses that are filed with
the Commission? \287\ Why or why not?
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    \287\ See infra section II.E.
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     Are the proposed linking requirements appropriate and
useful? Will these requirements help investors to navigate
effectively within and between these documents? If not, why not? Are
there other ways we can improve the usability of these documents?
What are some options for enabling the linking requirements? Are the
proposed linking requirements sufficiently technology-neutral and
flexible enough to accommodate future technological developments?
     Should persons accessing the summary prospectus be able
to view the definition of special terms upon command? Is the term
``special terms'' sufficiently clear, and is the proposed
requirement that the document permit a person to ``view the
definition of each special term . . . upon command'' sufficiently
clear? Are the examples in the proposed rule text of what it means
to view a term upon command (e.g., by moving or ``hovering'' the
computer's pointer or mouse over the term, or selecting the term on
a mobile device) helpful? What are some options for enabling the
`upon command' features? Are there other examples we should include?
     Should we require both the initial summary prospectus
and the updating summary prospectus to define special terms? Should
the updating summary prospectus, for example, be exempt from this
requirement given that such documents are likely to be relatively
brief and may only include a few defined terms? Are there other
considerations that would create operational complications to
requiring the updating summary prospectus to define special terms,
such as any burden associated with updating definitions from year to
year?
     Should we require registrants to electronically format
the summary prospectus to allow investors to move directly back and
forth between each defined term and the corresponding entry in a
``glossary'' section, if any? Should we extend this requirement to
the contract statutory prospectus, or other required online contract
documents? Is this functionality appropriate and useful? Is there a
reason we should permit this capability, but not require it? What
are some technology options that would enable investors to move
directly back and forth between each term and the glossary?
     How can we encourage insurers to make fuller use of
innovative technology to enable more interactive, user-friendly
summary prospectus disclosure, while still creating a short, easy-
to-read document that includes the proposed content? Are there
potential tools that we should encourage or require insurers to use
in order to make their disclosures more interactive and
understandable? Should the proposed rule incorporate any additional
requirements for technological tools to promote further investor
understanding? For example, should we require that the required
online contract documents be accompanied with any other
technological tools (e.g., additional embedded hyperlinks, fee
calculators, pop-up explanations, tools to sort or compare optional
benefits or portfolio companies) that encourage interactivity and
could help investors understand the features and risks of their
contracts?
     Should we mandate that the required online contract
documents be available in formats that are compatible with mobile
devices such as smartphones and tablets, or that are optimized for
use with these types of technology platforms? Is the language of the
proposed rule broad enough to contemplate current and future
technology platforms? Should we incorporate any special provisions
in the proposed rule, or provide guidance, regarding design features
that could promote investor understanding of information that
investors view on smartphones and tablets--for example, placement
and prominence of certain disclosure (e.g., in terms of size, color,
and graphic treatment), designing disclosure so that ``scrolling''
is not necessary in order to find certain disclosure elements, and
including certain explicit instructions on disclosure that appears
online and on mobile device platforms (e.g., ``click here'' or ``see
below'') to assist investors in navigating the required online
contract documents? Should we require persons relying on the
proposed rule to make available the information in formats that
serve individuals that may be visually impaired, or other formats
that promote accessibility, including alternatives that use
languages other than English? Should we consider other ways to
provide for greater accessibility, portability, and utility of the
required online contract documents?
     Does the proposed rule appropriately provide a safe
harbor to address the possibility of inadvertent technological
problems? Should persons relying on the proposed rule who have
technological issues that prevent them from complying with the
online posting requirements of the rule for a period of time be
required to disclose on the website that the information was not
available for a time in the manner required and explain the reasons
for the failure to comply? If not, why not?
     Are those aspects of the proposed rule that mirror the
approaches taken in the rule governing the use of mutual fund
summary prospectuses (e.g., required online documents, formatting
requirements, linking, ability to retain online documents, safe
harbor for temporary noncompliance) appropriate in the context of
variable contract disclosure? Are there differences between the
respective disclosure frameworks for mutual funds versus variable
contracts, or operational aspects associated with these different
types of investment products, that warrant a different approach? If
so, what modifications should we consider?
     How else could we modify the proposed summary
prospectus regime to take greater advantage of modern technology to
modernize current disclosure practices for variable contracts? For
example, should insurers consider employing technology to require a
retail investor to scroll through the entirety of the summary
prospectus before entering the next stage in the sales process,
accessing a different part of the insurer's website to obtain more
information, or checking a box to submit the application to purchase
a variable contract? Are there other ways that technology could be
used to encourage investors to read the summary prospectus?
     Does the proposal sufficiently encourage electronic
design and delivery? Are there other ways we can modify the
requirements to make clear that paper-based delivery is not the only
permissible or desired delivery format?
     Are there other requirements that we should consider
for insurers that are offering variable contracts to retail
investors? Should we require that certain disclosures be presented
in a manner reasonably calculated to draw retail investor attention
to it? Are there other ways to ensure that retail investors receive
the information they need to clearly understand the features, costs
and risks of the variable contract they are considering?
5. Other Requirements for Summary Prospectus and Other Contract
Documents
    Under the proposed rule, an investor who receives a contract
summary prospectus and who would also like to review the required
online contract documents would be able to choose whether to review
these documents online or to receive that information directly, in
paper or electronic format as requested by the investor. Accordingly,
the proposed rule would require a registrant (or financial intermediary
distributing the contract) to send a paper or electronic copy of the
required online contract documents to any person requesting such a
copy.\288\ The person must send requested paper documents at no cost to
the requestor, by U.S. first class mail or other reasonably prompt
means, within three business days after receiving the request. The
proposed rule also would require a registrant or intermediary to send
electronic copies of these documents upon request within three business
days.\289\ The proposed rule

would also provide that the requirement to send an electronic copy of a
document may be satisfied by sending a direct link to the online
document; provided that a current version of the document is directly
accessible through the link from the time that the email is sent
through the date that is six months after the date that the email is
sent and the email explains both how long the link will remain useable
and that, if the recipient desires to retain a copy of the document, he
or she should access and save the document.\290\
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    \288\ Proposed rule 498A(i)(1) (permitting an investor to
request either a paper copy of the required online contract
documents, or an electronic copy of such documents); see also rule
498(f)(1) (parallel provision in the rule governing the use of
mutual fund summary prospectuses); proposed Item 1(b)(1) of Forms N-
3, N-4, and N-6 (requiring the prospectus to provide a toll-free
telephone number for investors to call to request the SAI, to
request other information about the contract, and to make investor
inquiries).
    \289\ Proposed rule 498A(i)(1).
    \290\ Id.
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    Collectively, these requirements are intended to ensure that an
investor has prompt access to the required information in a format that
he or she prefers. The three-business-day time period for sending the
required online contract documents mirrors the parallel provision of
the mutual fund summary prospectus rule.\291\
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    \291\ See rule 498(f)(1). We understand that persons relying on
rule 498 have effective processes in place to handle requests for
paper or electronic delivery of mutual fund materials that are
available online, within the three-business-day time period that the
rule specifies. See Comment Letter of the Investment Company
Institute on Investment Company Reporting Modernization, File No.
S7-08-15 (Mar. 14, 2016) (stating that fund firms have ``specific,
highly effective processes in place to handle requests under Rule
498''); see also Investment Company Reporting Modernization,
Investment Company Act Release No. 31610 (May 20, 2015) [80 FR 33590
(June 12, 2015)] (``Investment Company Reporting Modernization
Proposing Release'').
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    Under the proposed approach, investors who prefer paper copies of
prospectuses but do not have ready access to the internet (or the
ability to print out the statutory prospectus that is made available
online) would not be able to elect in advance to receive paper copies
of all future statutory prospectuses unless a registrant chose to give
investors that option. Assuming no such accommodation, investors would
need to follow the summary prospectus legend's instruction on how to
request paper delivery each time a summary prospectus is available.
Those that do not take the additional step of requesting paper delivery
would not receive the statutory prospectus in their preferred format.
While we recognize that this could provide a challenge for these
investors, we nonetheless believe that the proposed approach
appropriately balances the interests of the number of variable contract
investors whom we believe would benefit from the convenience of online
documents against the number of those whom we believe prefer paper.
    In addition to the requirement to provide certain documents upon
request in paper or electronically, the proposed rule also requires
that a contract summary prospectus must be given greater prominence
than any materials that accompany the summary prospectus.\292\ We
believe that this requirement is important to prevent any accompanying
sales or other materials from obscuring the contract summary
prospectus, and to highlight for investors the concise presentation of
the summary prospectus, and the salience of the information included
therein.\293\ Generally, we believe that the greater prominence
requirement would be satisfied if the placement of the contract summary
prospectus makes it more conspicuous than any accompanying materials
(e.g., the summary prospectus is on top of a group of papers that are
provided together, or listed first if presented on a website together
with other materials related to the contract).\294\
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    \292\ Proposed rule 498A(i)(2); see also rule 498(f)(2)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses).
    \293\ The Commission's rationale was similar for the parallel
provision in the rule governing mutual fund summary prospectuses.
See 2009 Summary Prospectus Adopting Release, supra note 33, at
n.217 and accompanying text.
    \294\ See similar discussion in 2009 Summary Prospectus Adopting
Release, supra note 33, at n.220 and accompanying text.
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    The proposed rule would also require any website address or cross-
reference that is included in an electronic version of the summary
prospectus (i.e., electronic versions sent to investors or available
online) to be an active hyperlink.\295\ This instruction is intended to
ensure that investors viewing electronic versions of the prospectus are
able to easily access website addresses and cross-referenced materials
that are referenced in the prospectus. This requirement would not apply
to summary prospectuses that are filed on the EDGAR system.\296\
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    \295\ See proposed rule 498A(i)(4). A parallel requirement would
also apply to statutory prospectuses. See proposed General
Instruction C.3.(i) to Forms N-3, N-4, and N-6.
    \296\ Id.; see also rule 105 of Regulation S-T [17 CFR 232.105]
(prohibiting hyperlinking to websites, locations, or other documents
that are outside of the EDGAR system).
---------------------------------------------------------------------------

    The failure to comply with each of these additional requirements
would not be a condition of reliance on the rule, in order to provide
greater certainty to market participants who seek to rely on the rule.
For example, market participants could be concerned that the three-
business-day requirement could be violated on account of weather issues
or other forces outside of the control of a person seeking to rely on
the rule. Similarly, market participants could be concerned if
compliance with the greater prominence requirement were a condition to
rely on the proposed rule, because whether one is in compliance with
this requirement could entail a certain degree of subjectivity.\297\
Thus, we are proposing that the failure to comply with either
requirement would not negate a person's ability to rely on the rule to
satisfy a person's delivery obligations under section 5(b)(2) of the
Securities Act.\298\ This failure would, however, constitute a
violation of Commission rules.
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    \297\ Commenters expressed this concern about the parallel
requirement in the rule governing mutual fund summary prospectuses,
when it was proposed. See Comment Letter of the Investment Company
Institute on Enhanced Disclosure and New Prospectus Delivery Option
for Registered Open-End Management Investment Companies, File No.
S7-28-07 (Feb. 28, 2008).
    \298\ Proposed rule 498A(i)(5); see also rule 498(f)(5)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses). The proposed rule's requirements would
mandate that (1) the required online documents be presented in a
format that is convenient for reading and printing, and (2) a person
be able to retain electronic versions of these documents in a format
that is convenient for reading and printing, also are not conditions
to relying on the rule to satisfy prospectus delivery obligations.
See supra notes 262 and 278 and accompanying text.
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    We request comment generally on the requirements we discuss in this
section, and specifically on the following issues:

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

section be a condition of reliance on the rule? That is, should
failure to comply with these requirements result in a violation of
section 5(b)(2) of the Securities Act? Alternatively, should the
failure to comply with these requirements be a violation of
Commission rules that does not result in an inability to rely on the
rule or a violation of section 5(b)(2)?
     The proposed rule would require any website address or
cross-reference that is included in an electronic version of the
summary prospectus (i.e., electronic versions sent to investors or
available online) to be an active hyperlink. To what extent, if any,
would this requirement present challenges or add costs or burdens
with respect to the use of summary prospectuses, given that active
links are not required in EDGAR filings (and active links to
websites, locations, and documents outside of the EDGAR system are
expressly prohibited pursuant to rule 105 of Regulation S-T [17 CFR
232.105])?
6. Incorporation by Reference
a. Permissible Incorporation by Reference
    The proposed rule would permit a registrant to incorporate by
reference into the summary prospectus information contained in the
contract statutory prospectus and SAI, subject to certain
conditions.\299\ Much like with the mutual fund summary prospectus, we
do not intend the variable contract summary prospectus to be a self-
contained disclosure vehicle, but rather one element in a layered
disclosure regime.\300\ Any information incorporated by reference would
be separately made available to investors, either electronically or in
paper. A Form N-3 registrant also could incorporate by reference into
the summary prospectus information from its reports to shareholders
that the registrant has incorporated by reference into its statutory
prospectus.\301\ A registrant would not be permitted to incorporate by
reference into the summary prospectus information from any other
source. Moreover, a registrant could not incorporate by reference any
information that would be required to appear in the contents of the
initial summary prospectus or the updating summary prospectus.\302\
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    \299\ Proposed rule 498A(d)(2); see also rule 498(b)(3)(ii).
    \300\ See 2009 Summary Prospectus Adopting Release, supra note
33, at paragraph accompanying n.327.
    \301\ Proposed rule 498A(d)(2) references rule 30e-1, which
applies only to management companies (Form N-3 registrants). While
Form N-4 and Form N-6 registrants must transmit the portfolio
companies' annual and semi-annual shareholder reports to the
investors in their trust accounts (see rule 30e-2 under the
Investment Company Act), we would not expect a registrant would wish
to incorporate by reference information from a portfolio company
shareholder report into the contract prospectus even if such
information by reference was permissible. Accordingly, we do not
reference rule 30e-2 in the proposed rule.
    \302\ Proposed rule 498A(d)(2)(ii); see also supra sections
II.A.1 (describing proposed content requirements for the initial
summary prospectus) and II.A.2 (describing proposed content
requirements for the updating summary prospectus).
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    Information could be incorporated by reference into the summary
prospectus only by reference to the specific document that contains the
information, and not by reference to another document that incorporates
the information by reference.\303\ For example, if a contract statutory
prospectus were to incorporate the contract SAI by reference, the
summary prospectus could not incorporate information in the SAI simply
by referencing the statutory prospectus but would be required to
reference the SAI directly.\304\
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    \303\ Proposed rule 498A(d)(2)(iii).
    \304\ Cf. Item 10(d) of Reg. S-K [17 CFR 229.10(d)] (``Except
where a registrant or issuer is expressly required to incorporate a
document or documents by reference . . . reference may not be made
to any document which incorporates another document by reference if
the pertinent portion of the document containing the information or
financial statements to be incorporated by reference includes an
incorporation by reference to another document.''). General
Instruction D.2 to current Form N-6 makes Item 10(d) of Regulation
S-K applicable to incorporation by reference into a variable life
insurance contract's statutory prospectus.
---------------------------------------------------------------------------

    The proposed rule would permit incorporation by reference only if
the registrant satisfies the rule's conditions that prescribe the means
by which the required online contract documents must be made available
to investors.\305\ In addition, if a registrant incorporates
information by reference into a summary prospectus, the summary
prospectus legend must specify the type of document (e.g., statutory
prospectus) that contains the incorporated information and the date of
the document.\306\ If a registrant incorporates a part of a document by
reference into the summary prospectus, the summary prospectus legend
must clearly identify the part by page, paragraph, caption, or
otherwise.\307\ The legend would also explain that the incorporated
information may be obtained, free of charge, in the same manner as the
contract statutory prospectus.\308\
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    \305\ Proposed rule 498A(d)(2)(i) (referencing proposed rule
498A(h), among other paragraphs in the proposed rule); see also
supra section II.A.4.
    \306\ Proposed rule 498A(b)(2)(vi)(C) and 498A(c)(3)(vi).
    \307\ Id. This requirement mirrors the requirements of rule
498(b)(1)(v)(B), and is similar to the requirements of rule 411(d)
under the Securities Act [17 CFR 230.411(d)], which requires that
information incorporated by reference ``be clearly identified in the
reference by page, paragraph, caption or otherwise.'' Rule 411 is
also subject to the 2017 FAST Act Modernization rulemaking proposal
(which includes proposed amendments to the Commission's rules on
incorporation by reference). See FAST Act Modernization and
Simplification of Regulation S-K, Securities Act Release No. 10425
(Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (``2017 FAST Act
Proposal''). We requested that comments on the 2017 FAST Act
Proposal be submitted by January 2, 2018.
    \308\ Id.; see also supra discussion in section II.A.4 and 5.
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    The conditions on the availability of information that is
incorporated by reference into the contract summary prospectus, and on
identifying the information that is incorporated by reference, are
intended to facilitate access to this information. Parallel conditions
exist in the rule governing mutual fund summary prospectuses. Based on
our experience, we believe that investors have found this approach to
be useful. Therefore, we are proposing similar conditions for
incorporation by reference for variable contract summary
prospectuses.\309\
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    \309\ See supra note 300 and accompanying text.
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    A registrant that fails to comply with any of the above conditions
is not permitted to incorporate information by reference into its
summary prospectus. A registrant that does comply with these
conditions, however, including the conditions for providing the
documents that include the incorporated information online, would not
also be required to send or give the incorporated information to
investors together with the summary prospectus.\310\ The contract
summary prospectus, together with information incorporated therein by
reference, would be subject to liability under sections 12(a)(2) and
17(a)(2) of the Securities Act.
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    \310\ Proposed rule 498A(d)(1); see also rule 498(b)(3)(i)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses); General Instruction G of current Forms N-3
and N-4; General Instruction D of current Form N-6 (permitting a
registrant to incorporate by reference all or part of the SAI into
the prospectus without delivering the SAI with the prospectus).

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b. Effect of Incorporation by Reference
    Rule 159 under the Securities Act provides that any information
``conveyed'' to a purchaser after the time of sale will not be taken
into account, for purposes of determining whether a prospectus or oral
statement included an untrue statement of material fact at the time of
sale for purposes of sections 12(a)(2) and 17(a)(2) of the Act.\311\
The proposed rule would provide that, for purposes of rule 159,
information is conveyed to a person not later than the time the person
receives a summary prospectus, if that information is incorporated by
reference into the summary prospectus in accordance with the proposed
rule's conditions.\312\ This addresses the question of when information
that is incorporated by reference into the contract summary prospectus
is conveyed for purposes of liability under sections 12(a)(2) and
17(a)(2) of the Securities Act.\313\
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    \311\ See rule 159 under the Securities Act.
    Under section 12(a)(2) of the Securities Act, sellers have
liability to purchasers for offers or sales by means of a prospectus
or oral communication that includes an untrue statement of material
fact or omits to state a material fact that makes the statements
made, based on the circumstances under which they were made, not
misleading. Section 17(a)(2) of the Securities Act is a general
antifraud provision, which makes it unlawful for any person in the
offer and sale of a security to obtain money or property by means of
any untrue statement of a material fact or any omission to state a
material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading.
    \312\ Proposed rule 498A(d)(3); see also rule 498(b)(3)(iii)
(parallel provision in the rule governing the use of mutual fund
summary prospectuses); 2009 Summary Prospectus Adopting Release,
supra note 33, at nn.106 through 110.
    \313\ See 2009 Summary Prospectus Adopting Release, supra note
33, at nn.109 and 110 (discussing further considerations of
liability under sections 12(a)(2) and 17(a)(2) of the Securities
Act, as well as reliance under section 19(a) of the Securities Act).
---------------------------------------------------------------------------

    We request comment generally on the proposal to permit
incorporation by reference into the summary prospectus and specifically
on the following issues:

     Should we permit the contract statutory prospectus,
SAI, and shareholder reports to be incorporated by reference into
the summary prospectus? Are there special considerations in the case
of variable contracts that warrant different incorporation by
reference provisions than those under rule 498? For example, is
there any other information we should permit registrants to
incorporate by reference into the proposed contract summary
prospectuses? Should we permit a registrant to incorporate by
reference any information that is required to be included in the
summary prospectuses? If so, should this approach vary based on the
type of summary prospectus (initial summary prospectus versus
updating summary prospectus)?
     Should we require, as proposed, that materials
incorporated by reference into the summary prospectuses be available
online? Are there additional or different conditions we should
impose on the ability to incorporate by reference into the summary
prospectus?
     The proposed rule would provide that, for purposes of
rule 159, information is conveyed to a person not later than the
time the person receives a summary prospectus, if that information
is incorporated by reference into the summary prospectus in
accordance with the proposed rule's conditions. Is this proposed
provision, which mirrors the approach taken in the rule governing
mutual fund summary prospectuses, also appropriate for variable
contracts? Are there differences between mutual funds and variable
contracts that warrant an alternative approach? If so, what
modifications should be considered? Should the proposed provision
apply to both types of summary prospectus (initial and updating)?
Are there any modifications that would be appropriate depending on
the type of summary prospectus?
7. Filing Requirements for the Summary Prospectus
a. Preliminary Form of Summary Prospectus
    We are proposing to require that registrants file a preliminary
form of any contract summary prospectus (initial or updating summary
prospectus) that the registrant intends to use on or after the
effective date of the registration statement as an exhibit to the
registration statement (``preliminary summary prospectus'').\314\
Registrants would only be required to provide the preliminary summary
prospectus exhibit in connection with the filing of an initial
registration statement, or in connection with a pre-effective amendment
or a post-effective amendment filed in accordance with paragraph (a) of
rule 485 under the Securities Act.
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    \314\ See proposed Item 34(r) of Form N-3; proposed Item 28(o)
of Form N-4; proposed Item 29(r) of Form N-6. The filing process and
format of these documents would be dictated by current Commission
rules, including its rules on electronic submissions and exceptions.
See, e.g., rule 101 of Regulation S-T [17 CFR 232.101] (providing,
among other things, that registration statements and prospectuses
filed pursuant to the Securities Act shall be submitted in
electronic format).
---------------------------------------------------------------------------

    We believe that it is important that Commission staff have the
opportunity to review a variable contract's summary prospectus for
compliance with the proposed rule and the relevant form requirements
prior to its first use. However, we note that this approach differs
from the approach regarding mutual fund summary prospectuses. The
Commission elected not to require the filing of a mutual fund summary
prospectus prior to first use because the content of the summary
prospectus would be essentially identical to the content of the summary
section of the statutory prospectus, which is filed prior to its first
use.\315\
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    \315\ See 2009 Summary Prospectus Adopting Release, supra note
33, at n.73. The contents of a mutual fund summary prospectus
consist of the information required or permitted by Items 2-8 of
Form N-1A, which constitutes the summary section of the statutory
prospectus. See rule 498(b)(2).
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    In contrast, the proposed rule does not require the variable
contract statutory prospectus to contain a stand-alone summary section
from which a summary prospectus is created. In addition, while some
variable contract summary prospectus disclosures would be identical to
those in the statutory prospectus,\316\ others would include only part
of the information required in the statutory prospectus.\317\ For
example, the proposed rule would require an initial summary prospectus
only to describe the features and options of the contract that the
registrant currently offers, while the statutory prospectus could
include information regarding contracts that the registrant no longer
sells to new investors.
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    \316\ See, e.g., Items 2 and 3 of Forms N-3, N-4, and N-6.
    \317\ See, e.g., proposed Item 11(a) of Form N-3; proposed Item
10(a) of Form N-4; proposed Item 10(a) of Form N-6; proposed Item
12(a) of Form N-3; proposed Item 11(a) of Form N-4; proposed Item
11(a) of Form N-6. (These are the proposed ``Standard Death
Benefit'' and ``Other Benefits Available Under the Contract''
disclosure items for Forms N-3, N-4, and N-6.). While only certain
information of the statutory prospectus is required to be included
in the summary prospectus, proposed rule 498A permits the summary
prospectus to incorporate by reference some or all of the
information contained in the statutory prospectus or SAI.
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    The initial summary prospectus and updating summary prospectus
would also present certain information in a different order than might
appear in the contract statutory prospectus.\318\ Furthermore, certain
disclosure requirements differ depending on whether the summary
prospectus is an initial summary prospectus or an updating summary
prospectus. We do not believe that registrants would need to visually
identify or otherwise segregate those portions of the statutory
prospectus that are also summary prospectus disclosures, and we
recognize that doing so could impede the effective presentation of
information in a contract statutory prospectus to investors.
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    \318\ For example, in the initial summary prospectus, the Fee
Table would be located towards the end of the prospectus, with more
summary type of fee information would be provided earlier in the
summary prospectus as part of the Key Information Table. In
contrast, the Fee Table in the statutory prospectus is closer to the
front of the document, where it has been traditionally located.

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

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

statutory prospectus (for example, the updating summary prospectus
describes the fact that there was a change and the nature of the
change), or otherwise includes content or wording differences
compared to the statutory prospectus, would this adversely affect
investor protection (for example, if certain information were not
deemed to be part of the registration statement for purposes of
section 11 of the Securities Act), and if so, how? Should we require
the statutory prospectus to include the same description of contract
changes contained in the related updating summary prospectus? Why or
why not?
     Should the summary prospectus be subject to the stop
order and other administrative provisions of section 8 of the
Securities Act? Why or why not?
     Should the contract summary prospectus be deemed a part
of the registration statement for purposes of section 11 of the
Securities Act? Why or why not?
8. Definitions in the Proposed Rule
    Proposed rule 498A includes a section of definitions for certain
terms used throughout the rule.\333\ These definitions generally: (1)
Identify specific prospectuses described in the proposed rule (e.g.,
``initial summary prospectus''); (2) mirror the existing definitions
used in Forms N-3, N-4, and N-6 (e.g., ``variable annuity contract'' as
used in Forms N-3 and N-4) or other rules (e.g., ``statement of
additional information'' as used in rule 498); or (3) combine other
defined terms in the proposed rule (e.g., ``summary prospectus''). In
addition, in recognition that today a variable contract may offer
classes with the same currently-available features and options but
different characteristics (e.g., differences in the length of the
surrender periods) and/or different pricing structures, we are also
proposing to define ``class'' to mean a class of a contract that varies
principally with respect to distribution-related fees and
expenses.\334\
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    \333\ Proposed rule 498A(a).
    \334\ Proposed rule 498A(a)(1). We understand that this is how
the term is commonly used in industry practice. See also rule 18f-3
(permitting registered investment companies to issue multiple
classes of voting stock); Part A (``Definitions'') of the General
Instructions to Form N-1A (defining ``class'' as ``a class of shares
issued by a Multiple Class Fund that represents interests in the
same portfolio of securities under rule 18f-3 [17 CFR 270.18f-3] or
under an order exempting the Multiple Class Fund from sections
18(f), 18(g), and 18(i) [15 U.S.C. 80a-18(f), 18(g), and 18(i)]'').
---------------------------------------------------------------------------

    We request comment generally on the definitions used in the
proposed rule and specifically on the following issues:

     Should we include any additional, or exclude any
proposed, defined terms?
     Should we modify the definitions of any defined terms?
For example, does the proposed definition of ``class'' adequately
distinguish among classes of a variable contract?

B. Optional Method To Satisfy Portfolio Company Prospectus Delivery
Requirements

1. Current Delivery Practices for Portfolio Company Prospectuses
    The Commission has interpreted section 5(b)(2) of the Securities
Act to require the delivery of a portfolio company prospectus to any
variable contract investor that allocates his or her purchase payments
to that portfolio company, including on any exchange of contract value
from one portfolio company to another.\335\ Since variable contracts
generally offer exchange privileges permitting an investor to
reallocate his or her investment from one underlying portfolio company
to another, we understand that, typically, prospectuses for all
underlying portfolio companies are delivered to investors to avoid the
administrative burden of tracking whether an investor has already
received the current prospectus.\336\ We also understand that summary
prospectuses, as opposed to statutory prospectuses, for the underlying
portfolio companies are typically delivered. As with contract
prospectuses, portfolio company prospectuses may be delivered
electronically pursuant to the Commission's guidance.\337\
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    \335\ See Forms N-3 and N-4 Adopting Release, supra note 28, at
n.49 and accompanying text (``Of course, delivery of a prospectus of
an underlying company in which a contractowner actually invests will
be required pursuant to section 5(b)(2) of the 1933 Act'').
    \336\ We understand that while some insurers have invested in
infrastructure to deliver only those prospectuses to which an
investor allocates contract value, most insurers have not.
    \337\ See supra note 32 and accompanying text.
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    Because the identity of investors is known by the insurance company
and not the underlying portfolio companies, delivery of prospectuses
for underlying portfolio companies is typically effected by the
insurance company rather than the portfolio company.\338\ Based on a
staff review of participation agreements between insurance companies
and underlying portfolio companies, we understand that there is
diversity in practice as to whether the insurance company or portfolio
company bears the printing and mailing costs associated with portfolio
company prospectus deliveries.
---------------------------------------------------------------------------

    \338\ See, e.g., Forms N-3 and N-4 Adopting Release, supra note
28, at n.48 and accompanying text (suggesting that under certain
circumstances, the prospectus delivery obligation for underlying
portfolio companies would rest with the insurance company); see also
rule 22c-2(c)(1) under the Investment Company Act (defining a
``financial intermediary'' for purposes of the rule to include a UIT
that invests in a fund in reliance on section 12(d)(1)(E) under the
Investment Company Act) [17 CFR 270.22c-2(c)(1)].
---------------------------------------------------------------------------

2. New Option To Satisfy Prospectus Delivery Requirements
a. Overview
    The proposed rule would provide an optional method for satisfying
portfolio company prospectus delivery obligations by making portfolio
company summary and statutory prospectuses available online, with
certain key information about the portfolio companies provided in the
contract's summary prospectus.\339\ This new option would be available
to Form N-4 and Form N-6 registrants, but would not be available to
Form N-3 registrants because they do not have underlying portfolio
companies.
---------------------------------------------------------------------------

    \339\ Proposed rule 498A(j).
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    As proposed, this option would allow satisfaction of prospectus
delivery obligations with respect to a portfolio company, if: (1) An
initial summary prospectus is used for each currently offered contract
described under the related registration statement; \340\ (2) a summary
prospectus is used for the portfolio company (only if the portfolio
company is registered on Form N-1A); \341\ and (3) the portfolio
company's current summary prospectus, statutory prospectus, SAI, and
most recent shareholder reports are posted online under similar posting
requirements for the variable contract's summary prospectuses and other
documents.\342\ In addition, the proposed rule would provide that any
communication related to a portfolio company, other than a prospectus
permitted or required under section 10 of the Securities Act, would not
be deemed a prospectus if the above conditions are satisfied.\343\
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    \340\ Proposed rule 498A(j)(1)(i).
    \341\ Proposed rule 498A(j)(1)(ii).
    \342\ Proposed rule 498A(j)(1)(iii).
    \343\ Proposed rule 498A(j)(2).
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    As discussed above, we are concerned that the volume of disclosure
materials variable contract investors currently receive may prevent
them from reading the materials or fully understanding these products.
While the proposed variable contract summary prospectus framework is
intended to provide investors with key information relating to the
contract's terms, benefits, and risks in a concise and more reader-
friendly format, we are concerned that investors may not read or
understand information if the variable contract summary prospectus is
accompanied by hundreds of pages of underlying

portfolio company prospectuses.\344\ To address this issue, the
proposed option for satisfying portfolio company prospectus delivery
requirements would provide investors with certain key summary
information about underlying portfolio companies in an appendix to the
contract summary prospectus.\345\ If an investor desires more detailed
information about a particular portfolio company, prospectuses and
other documents relating to the portfolio company would be available
online and in paper or electronically upon request.
---------------------------------------------------------------------------

    \344\ Variable annuity contracts offer an average of 59
portfolio companies as investment options. See supra note 8. While
we intended mutual fund summary prospectuses to be three to four
pages in length, rule 498 does not provide page length or similar
restrictions and some summary prospectuses have been as long as 19
pages. See Request for Comment on Fund Retail Investor Experience,
supra note 39, at n. 27 and accompanying text. If we conservatively
estimate that each portfolio company summary prospectus is four
pages in length, an investor who purchases a variable contract that
offers 59 portfolio companies would receive 236 pages of portfolio
company disclosure materials, in addition to the contract
prospectus.
    \345\ A contract summary prospectus would include an appendix
that would provide for each portfolio company its name, type or
investment objective, adviser and subadviser, expense ratio, and
average annual returns for the past year, five years, and ten years.
See supra discussion at section II.A.1.c.ii(i); see also infra
section II.D.2.r (discussing our proposal to include this appendix
also in variable contracts' statutory prospectuses). Registrants on
Form N-3, who would not be relying upon this optional method to
satisfy portfolio company prospectus delivery obligations, would
have the option of omitting the appendix and instead providing more
detailed disclosures for the investment options offered under the
contract that would be required by proposed Item 20 of Form N-3. See
supra note 204 and accompanying text.
     In addition, each summary prospectus would also include a Key
Information Table that would provide certain disclosures about
portfolio company risks and investment restrictions. See supra
discussion at section II.A.1.c.ii(b)(ii); see also infra section
II.D.2.c (discussing the Key Information Table in proposed Forms N-
3, N-4, and N-6).
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    The vast majority of investors purchase variable contracts from
sales persons, as opposed to purchasing directly from insurance
companies.\346\ We understand these sales agents assist investors in
many ways, including providing information about underlying portfolio
companies and sometimes recommending that investors allocate their
contract value into specific portfolio companies. We anticipate that
this would continue following our proposal, and that sales agents would
assist investors in understanding key facts about the portfolio
companies, obtaining portfolio company prospectuses, and understanding
the proposed portfolio company prospectus delivery framework. For this
reason, we believe that sales agents would play a significant role in
continuing to provide information about portfolio companies to
investors, even if investors were to no longer receive paper copies of
portfolio company prospectuses.
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    \346\ Approximately 97% of sales of variable annuities are made
through sales agents. See IRI Fact Book, supra note 8, at 168. Only
a small percentage of investors purchase their variable contracts
directly from the issuing insurance company. See Insurance
Information Institute, Facts + Statistics: Distribution Channels,
available at https://www.iii.org/fact-statistic/facts-statistics-distribution-channels (in 2013, 4% of new individual life insurance
sales were directly sold). In comparison, only 50% of households
owning mutual funds purchased their funds through sales agents. See
Investment Company Institute, Profile of Mutual Fund Shareholders,
2017 (Oct. 2017), at Fig. 3.1, available at https://www.ici.org/pdf/rpt_17_profiles17.pdf.
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b. Conditions
    As a condition to relying on the new option, we would require the
related variable contract to use an initial summary prospectus for each
currently offered contract described under the related registration
statement.\347\ We believe that this condition would help promote the
use of contract summary prospectuses. Also, the initial summary
prospectus content requirements (as well as the requirements for the
updating summary prospectus) would ensure that investors receive
disclosure regarding: (1) The online availability of the portfolio
company prospectuses; \348\ and (2) key summary information about each
of the portfolio companies.\349\
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    \347\ Proposed rule 498A(j)(1)(i).
    \348\ See supra note 198 and accompanying text.
    \349\ See supra section II.A.1.c.(ii)(i).
---------------------------------------------------------------------------

    As a second condition, a portfolio company that is registered on
Form N-1A must use a summary prospectus.\350\ If we were to permit the
satisfaction of delivery obligations by making portfolio company
prospectuses (and other documents) available online, portfolio
companies that are mutual funds and ETFs would have less incentive to
use a summary prospectus.\351\ We believe it is important to make
available both a summary prospectus and the statutory prospectus for a
portfolio company to continue the current layered disclosure approach
for portfolio companies whereby investors have the option to choose the
amount and type of information to review. This condition also would
continue to provide investors with summary information about the
portfolio company that we believe they are more likely to use and
understand.\352\
---------------------------------------------------------------------------

    \350\ Proposed rule 498A(j)(1)(ii).
    \351\ For example, this online option would reduce--or fully
eliminate--the cost savings associated with printing and mailing a
summary prospectus as opposed to the statutory prospectus, since
those summary prospectuses would be posted online instead of being
printed and mailed.
    \352\ See 2009 Summary Prospectus Adopting Release, supra note
33, at paragraph accompanying n.195.
---------------------------------------------------------------------------

    Finally, to rely on the new option, the portfolio company's current
summary and statutory prospectus, SAI, and most recent annual and semi-
annual shareholder reports would be required to be posted online under
similar conditions for the posting of variable contract materials:

     The materials are publicly accessible, free of charge,
at the website address specified on the cover page or beginning of
the summary prospectuses for the variable contract, for the time
period specified in proposed rule 498A(h)(1); \353\
---------------------------------------------------------------------------

    \353\ Proposed rule 498A(j)(1)(iii).
---------------------------------------------------------------------------

     The materials are presented on the website in a format,
or formats, that are human-readable and capable of being printed on
paper in human-readable format,\354\ and permit persons accessing
the materials to move directly back and forth between each section
heading in a table of contents and the corresponding section of the
document; \355\
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    \354\ Proposed rule 498A(h)(2)(i); proposed rule
498A(j)(1)(iii). In addition, the materials must be presented on the
website in a format or formats that are convenient for reading
online and printing on paper. Proposed rule 498A(i)(3)(i); proposed
rule 498A(j)(1)(iii).
    \355\ Proposed rule 498A(h)(2)(ii).
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     Persons accessing the materials must be able to
permanently retain, free of charge, an electronic version of such
materials in a format, or formats, that is human-readable and
permits persons accessing the materials to move directly back and
forth between each section heading in a table of contents and the
corresponding section of the document; \356\
---------------------------------------------------------------------------

    \356\ Proposed rule 498A(j)(1)(iii); proposed rule 498A(h)(3).
In addition, persons must be able to permanently retain these
materials in a format or formats that are convenient for reading
online and printed on paper. Proposed rule 498A(j)(1)(iii); proposed
rule 498A(i)(3)(ii).
---------------------------------------------------------------------------

     Requested materials must be sent in paper or
electronically upon request within three business days after
receiving a request; \357\ and
---------------------------------------------------------------------------

    \357\ Proposed rule 498A(j)(1)(iii); proposed rule 498A(i)(1).
---------------------------------------------------------------------------

     The safe harbor specified in paragraph (h)(4) of the
proposed rule would be available if the required materials are
temporarily unavailable at the specified website.\358\
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    \358\ Proposed rule 498A(j)(1)(iii); proposed rule 498A(h)(4).
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c. Interim Amendments to Portfolio Company Prospectuses
    When a portfolio company supplements or otherwise amends its
summary or statutory prospectus between annual updates, the amendment
is typically filed with the Commission pursuant to rule 497 under the
Securities Act.\359\ In addition, we understand that the amendment is
typically delivered to investors, either

by special mailing or by including it with another mailing, such as
with the account statement or confirmation.\360\
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    \359\ Rule 497 under the Securities Act.
    \360\ For investors who received a summary prospectus for a
portfolio company, we understand that amendments are typically
delivered to investors only if the amendments relate to the summary
prospectus and summary section portion of the statutory prospectus.
---------------------------------------------------------------------------

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

    We request comment generally on the proposal to permit a new option
for satisfying portfolio company prospectus delivery requirements, and
specifically on the following issues (in addition, we are requesting
comment on certain parallel provisions of rule 498):

 Should the rule permit the use of the new option for
satisfying portfolio company prospectus delivery requirements?
Should this aspect of the proposed rule be optional as proposed or
required if the variable contract uses a summary prospectus?
 The rule as proposed would only permit the use of the new
option for portfolio company prospectuses if the related variable
contract uses an initial summary prospectus for each currently
offered contract described under the related registration statement.
Should we permit the use of the new option even if the related
variable contract does not use a summary prospectus? Why or why not?
 The rule as proposed would only permit the use of the new
option if the portfolio company uses a summary prospectus. This
would effectively require a portfolio company to use a summary
prospectus if it does not already do so. If we were to permit the
satisfaction of delivery obligations by making portfolio company
prospectuses (and other documents) available online, would portfolio
companies still have an incentive to use a summary prospectus?
Should we permit the use of the new option even if the portfolio
company does not otherwise use a summary prospectus? Why or why not?
 Should we modify any of the proposed conditions related to
the new option for satisfying portfolio company prospectus delivery
requirements, or add any additional conditions? For example, should
we--as proposed--specify that these materials must be available at
the same website address as the variable contract materials that
appear online, or should there be flexibility regarding the website
address on which the portfolio company materials appear? As another
example, although the proposed rule specifies that the materials
posted online must be in human-readable format, should we also
require that the materials be posted online in machine-readable
format to promote the gathering and dissemination of information by
data aggregators?
 If we change any of the proposed conditions related to the
new option, should we make parallel changes regarding the use of
contract summary prospectuses? Should we similarly make any changes
to rule 498 under the Securities Act governing mutual fund summary
prospectuses for consistency or other reasons?
 Should we modify the proposed linking requirements in any
way with respect to portfolio company documents encompassed by the
online accessibility and delivery upon demand requirements of the
proposed rule?
 Do the separate requirements of rule 498 regarding mutual
fund summary prospectus documents create any confusion that should
be addressed by proposed rule 498A?
 Under the rule as proposed, persons relying on the new
delivery option would not be required to deliver interim prospectus
supplements to investors. Should we instead require that interim
prospectus supplements be delivered? Would confusion result if
investors were to receive prospectus supplements when they had not
previously received portfolio company prospectuses? Are there ways
to mitigate any such confusion?
 Would the proposed legend on the initial and updating
summary prospectuses provide sufficient notice to investors that
portfolio company prospectuses may be amended from time to time? Why
or why not? Should we revise the legend to include alternate or
additional information? Should a similar legend also appear on the
cover page of the contract summary prospectus, as well as in the
appendix to the summary prospectus as proposed? Alternatively,
should we require that a separate notice be given to investors to
alert them of the online availability of prospectus supplements? If
so, what information should that notice contain? Should that notice
be filed with the Commission?
 Should the final rules provide that a communication
relating to a portfolio company (other than a prospectus permitted
or required under section 10 of the Securities Act) is not deemed to
be a prospectus under section 2(a)(10) of the Securities Act under
the conditions specified by the rule? Should we amend any of the
conditions related to this provision?

C. Discontinued Variable Contracts

    An insurance company may choose to stop offering a variable
contract to new investors while continuing to accept additional
payments from existing investors. Each additional purchase payment
under a variable contract is considered a ``sale'' under section 5 of
the Securities Act requiring delivery of a current prospectus, and
variable contract issuers generally maintain current prospectuses for
their products through the filing of annual post-effective amendments
to the registration statements.\363\
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    \363\ See supra note 28 and accompanying text.
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    As the number of contracts outstanding declines over time, the
proportion of fixed costs per contract and other burdens associated
with maintaining a current registration statement and mailing
prospectuses increase over a diminishing asset base. Unlike other types
of registered investment companies that can liquidate

when assets are reduced to such a level that continuing the fund is not
viable, an insurance company is unable to liquidate or otherwise
terminate a variable contract. We understand that an insurance company
may sometimes seek to encourage investors to exchange into new
contracts or make buyout offers, but it cannot unilaterally terminate
an investor's contract.
Staff No-Action Letters
    Beginning in 1977, the staff of the Division of Investment
Management issued a series of no-action letters stating that the staff
would not recommend enforcement action if issuers did not update the
variable contract registration statement and deliver updated
prospectuses to existing investors, so long as certain conditions were
met, including sending alternative disclosures to investors (each, a
``Staff Letter,'' and collectively, the ``Staff Letters'').\364\ The
last Staff Letter was issued in 1995.\365\
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    \364\ See, e.g., Great-West Life and Annuity Insurance Company,
SEC Staff No-Action Letter (pub. avail. Oct. 23, 1990) (``1990
Letter''); MML Bay State Life Ins. Co., SEC Staff No-Action Letter
(pub. avail. Apr. 12, 1990); Transamerica Occidental Life Insurance
Co., SEC Staff No-Action Letter (pub. avail. Mar. 16, 1990);
Connecticut Mutual Life Insurance Company, SEC Staff No-Action
Letter (pub. avail. Mar. 7, 1990).
    The staff declined to extend its no-action position to variable
annuities funded by managed separate accounts. See Provident
National Assurance Company, SEC Staff No-Action Letter (pub. avail.
June 2, 1987); Great-West Life Assurance Company, SEC Staff No-
Action Letter (pub. avail. June 4, 1987).
    \365\ See Metropolitan Life Insurance Co., SEC Staff No-Action
Letter (pub. avail. Apr. 26, 1995) (``Metropolitan Letter'').
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    The Staff Letters generally were limited to Securities Act
registration statements for contracts that are no longer offered to new
purchasers and that have fewer than 5,000 investors (or participants in
the case of group contracts).\366\ The Staff Letters also identified a
set of circumstances in which the staff would not recommend enforcement
action once the registration statement is no longer updated: \367\
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    \366\ In the 1990 Letter, the staff stated that it would no
longer respond to no-action requests ``in this area unless they
raise novel issues or involve more than 5,000 variable annuity or
variable life insurance contracts.'' However, there are four Staff
Letters concerning contracts where the number of investors exceeded
5,000. See Metropolitan Letter (42,910 investors); Monarch Life
Insurance Co., SEC Staff No-Action Letter (pub. avail. June 9, 1992)
(``Monarch Letter'') (5,900 investors); New York Life Insurance and
Annuity Corp., SEC Staff No-Action Letter (pub. avail. Nov. 15,
1989) (13,713 investors); Security Benefit Life Insurance Company,
SEC Staff No-Action Letter (pub. avail. July 2, 1987) (28,019
investors).
    \367\ Some of the circumstances identified in which the staff
would not recommend enforcement action varied slightly across the
Staff Letters over time, specifically with respect to the delivery
and availability of the insurance company's audited financial
statements. The circumstances discussed below reflect those
identified in the most recent Staff Letters.

     There are no material changes made to the contract;
     Investors are provided the following disclosures:
    [cir] The portfolio companies' current prospectuses (or summary
prospectuses) and any updates thereto, annual and semi-annual
reports, proxy materials, and any other periodic reports or other
shareholder materials for the portfolio companies;
    [cir] Confirmations of transactions in accordance with rule 10b-
10 under the Exchange Act;
    [cir] Within 120 days after the close of the fiscal year,
updated audited financial statements of the registrant, and in the
case of variable life insurance contracts, the depositor's updated
audited financial statements; \368\ and
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    \368\ With respect to variable annuities, the depositor's
updated audited financial statements would be available upon
request. See, e.g., Metropolitan Letter; Monarch Letter.
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    [cir] At least once a year, a statement of the number of units
and values in each investor's account.
     The registrant files periodic reports with the
Commission pursuant to section 30 of the Investment Company Act
(i.e., reports on Form N-CEN); \369\ and
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    \369\ The Staff Letters specifically identified a registrant's
filing of reports on Form N-SAR as one of the set of applicable
circumstances. Form N-SAR was recently rescinded and succeeded by
Form N-CEN. See Investment Company Reporting Modernization,
Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR
81870 (Nov. 18, 2016)] (``Investment Company Reporting Modernization
Adopting Release''), at n.744 and accompanying text.
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     New contracts are not offered to the public, and the
registrant does not contemplate such an offering in the future.
Liability
    As of the end of calendar year 2017, we understand that more than
half of variable contract Securities Act registration statements may
provide the alternative disclosures that the Staff Letters describe:
\370\
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    \370\ Our understanding is based on staff review of filings with
the Commission and discussions with industry participants.
    \371\ The number of registration statements is based on a count
of unique Securities Act registration statements and amendments
filed on EDGAR. The number of registration statements representing
contracts that provide alternative disclosures instead of the
contract statutory prospectus, as described in the Staff Letters,
was based on the number of Form N-4 and Form N-6 filers that did not
file a registration statement or amendment in 2017, but made other
regulatory filings, such as filings on Form 24f-2 (the form used by
variable insurance contracts to pay registration fees to the
Commission).

----------------------------------------------------------------------------------------------------------------
                                                                     Variable      Variable life
                          Status \371\                                annuity        insurance      Grand total
----------------------------------------------------------------------------------------------------------------
Registration Statements That Are Updated Annually...............             500             221             721
Registration Statements Operating Under Staff Letters...........             521             334             855
                                                                 -----------------------------------------------
    Total Number of Registration Statements.....................           1,021             555           1,576
----------------------------------------------------------------------------------------------------------------

    Providing the alternative disclosures described in the Staff
Letters may have the effect of potentially limiting issuers' liability
under certain provisions of the federal securities laws requiring a
registration statement or prospectus to contain whatever information
may be necessary or appropriate to avoid material misstatements or
omissions.\372\ Although these alternative disclosures may not be
subject to liability under sections 11 or 12 of the Securities Act, or
section 34(b) of the Investment Company Act, they are subject to
provisions prohibiting material misstatements in the offer or sale of a
security.\373\
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    \372\ Sections 11 and 12(a)(2) of the Securities Act and section
34(b) of the Investment Company Act. See supra discussion at notes
311 (discussing section 12(a)(2) liability) and 322 (discussing
section 11 liability). In addition, section 34(b) of the Investment
Company Act also imposes liability for misstatements in a
registration statement, however, unlike sections 11 and 12(a)(2),
there is no private right of action available to aggrieved
investors. See Bellikoff v. Eaton Vance Corp., 481 F.3d 110 (2d Cir.
2007).
    \373\ See, e.g., section 17(a) of the Securities Act; section
10(b) and rule 10b-5 under the Exchange Act. There may also be
additional remedies for investors, for example, under state
insurance law, state securities law, and contract law.
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Commission Position on Existing Contracts Whose Issuers Provide
Alternative Disclosures to Investors
    In proposing the new variable contract summary prospectus
disclosure framework, we acknowledge the industry practice of providing
alternative disclosures (which are

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

     Would adoption of a summary prospectus framework and
related form amendments effectively relieve some of the current
burdens and costs on variable contract issuers of updating