contain a brief summary of specified changes to the statutory
prospectus (which we anticipate to typically be limited since variable
contracts tend not to change their contract features very often), any
material changes should be reflected in a post-effective amendment
filing under rule 485(a), which will be marked to indicate such changes
and subject to staff review.\517\ Because the information contained in
the updating summary prospectus will mirror information contained in
the statutory prospectus, we do not believe the staff needs to
separately review a form of updating summary prospectus prior to first
use. Therefore, to relieve burdens on registrants, we are not requiring
it as an exhibit to the registration statement.
---------------------------------------------------------------------------

    \517\ See 17 CFR 232.301 (rule 301 of Regulation S-T). Changes
may also be indicated in blacklined versions the registration
statement that registrants or their counsel commonly supply to the
staff as courtesy copies.
---------------------------------------------------------------------------

b. Definitive Form of Summary Prospectus
    In addition to requiring registrants to file a form of initial
summary prospectus with the Commission prior to use, we are, as
proposed, amending rule 497 under the Securities Act to require a
registrant to file a definitive form of summary prospectus--whether an
initial summary prospectus or an updating summary prospectus--after it
is first used.\518\ This will ensure that the Commission receives a
copy of every summary prospectus in use.\519\ This is consistent with
the filing requirement for mutual fund summary prospectuses under rule
497.\520\
---------------------------------------------------------------------------

    \518\ Rule 497(k).
    \519\ A summary prospectus filed with the Commission will be
publicly available; however, a registrant could not rely on this
availability to satisfy the requirements to post the document
online. See supra Section II.A.5.
    \520\ See rule 497(k).
---------------------------------------------------------------------------

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

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

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

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

c. Investor Protection and Liability Under Section 11 of the Securities
Act
    Section 10(b) of the Securities Act provides that a prospectus
permitted under that section must, unless Commission rules provide
otherwise, be filed as part of the registration statement but would not
be deemed a part of the registration statement for purposes of Section
11 of the Securities Act.\524\ Accordingly, as discussed in the
proposal, a summary prospectus that is filed as part of the
registration statement (e.g., as an exhibit or otherwise) would not be
deemed a part of the registration statement for purposes of Section 11
of the Securities Act.\525\
---------------------------------------------------------------------------

    \524\ 15 U.S.C. 77j(b) and 77k. Under Section 11 of the
Securities Act [15 U.S.C. 77k], purchasers of an issuer's securities
have private rights of action for untrue statements of material
facts or omissions of material facts required to be included in the
registration statement or necessary to make the statements in the
registration statement not misleading. Congress provided a specific
exception from liability under Section 11 for summary prospectuses
under Section 10(b) of the Securities Act in order to encourage the
use of summary prospectuses. L. Loss & J. Seligman, Securities
Regulation, section 2-b-5 (3d ed. 2006) (citing S. Rep. 1036, 83d
Cong., 2d Sess. 17-18 (1954) and H.R. Rep. 1542, 83d Cong., 2d Sess.
26 (1954)).
    \525\ Section 10(b) of the Securities Act (``A prospectus
permitted under this subsection shall, except to the extent the
Commission by rules or regulations deems necessary or appropriate in
the public interest or for the protection of investors otherwise
provides, be filed as part of the registration statement but shall
not be deemed a part of such registration statement for purposes of
Section 11.'').

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

    Some commenters in connection with the mutual fund summary
prospectus proposal expressed concerns that the mutual fund summary
prospectus would not be subject to Section 11 liability, suggesting
that this would result in a diminution of funds' liability under that
section.\526\ The Commission stated in response that while Section 11
prescribes that the mutual fund summary prospectus will not itself be
deemed a part of the registration statement for purposes of Section 11,
all of the information in the summary prospectus will be subject to
liability under Section 11, either because the information is the same
as information contained in the statutory prospectus or because the
information is incorporated by reference from the registration
statement.\527\
---------------------------------------------------------------------------

    \526\ See 2009 Summary Prospectus Adopting Release, supra note
17, at n.344 and accompanying text.
    \527\ The Commission noted that: (1) The final rule required the
information contained in a summary prospectus that is used to
satisfy prospectus delivery obligations must be the same as the
information contained in the summary section of the fund's statutory
prospectus; and (2) information may be incorporated by reference
into a summary prospectus only if it is contained in the fund's
statutory prospectus, SAI, or has been incorporated into the
statutory prospectus from the shareholder report. Id. at nn.111 and
112; see also rules 498(f)(4) and 498(b)(3).
---------------------------------------------------------------------------

    For similar reasons, it is our view that while a variable contract
summary prospectus under the final rule will not itself be deemed a
part of the registration statement for purposes of Section 11, the
information in the summary prospectus will generally be subject to
liability under Section 11. While rule 498A does not have a comparable
provision to the one in rule 498 requiring that the information in the
summary prospectus must be the same as in the statutory prospectus, we
believe that the substance of the information itself would be the same,
even though the language in both documents relating to the information
may not be identical. For example, the language of the initial summary
prospectus could differ from the language used in the statutory
prospectus because rule 498A requires that the initial summary
prospectus may only describe a single contract that the registrant
currently offers for sale, whereas we understand that certain contract
statutory prospectuses include disclosure about contract features and
options that the registrant may no longer offer to new investors.
Nevertheless, the substance of the information for any currently
offered features and options will be the same.\528\ In addition, rule
498A includes the same provisions regarding information permitted to be
incorporated into the summary prospectus as those in rule 498.\529\
---------------------------------------------------------------------------

    \528\ See supra Section II.A.1.b.
    The updating summary prospectus could include information that
does not appear in the related contract statutory prospectus if the
updating summary prospectus discloses changes to the contract that
the issuer has made after the most recent updating summary
prospectus or statutory prospectus was sent or given to investors.
See supra Section II.A.2.c.ii.(a); see also rule 498A(c)(6)(i) and
(ii). This information that only appears in the updating summary
prospectus therefore would not be deemed a part of the registration
statement for purposes of Section 11 of the Securities Act.
    For example, if a particular fee has changed from x% to y%,
while the disclosure of the current fee rate (y%) would appear in
both the updating summary prospectus and the related statutory
prospectus, the earlier fee rate (x%) and the fact that the fee was
changed would likely not be disclosed in the statutory prospectus.
    \529\ See rule 498A(d); see also rule 498(b)(3) (parallel
provisions in the rule governing the use of mutual fund summary
prospectuses).
---------------------------------------------------------------------------

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

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

9. Defined Terms in Final Rule
    We are adopting, substantially as proposed, a section of
definitions for certain terms used throughout new rule 498A.\531\ These
definitions generally: (1) Identify specific prospectuses described in
the proposed rule (e.g., ``initial summary prospectus''); (2) mirror
the existing definitions used in Forms N-3, N-4, and N-6 (e.g.,
``variable annuity contract'' as used in Forms N-3 and N-4) or other
rules (e.g., ``statement of additional information'' as used in rule
498); or (3) combine other defined terms in the rule (e.g., ``summary
prospectus'').\532\ We received no comments regarding these terms.
---------------------------------------------------------------------------

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

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

    \533\ We understand that this is how the term is commonly used
in industry practice. See Proposing Release, supra note 6, at note
334.
    \534\ See CAI Comment Letter (a variable contract can and
``frequently does have ``classes'' that differ in ways other than
distribution-related fees and expenses . . . [t]hus, the concepts of
classes with respect to mutual funds and classes with respect to
variable products do not necessarily correspond. Indeed, with
respect to variable products, the term ``class'' is often used
interchangeably with ``versions''); see also ACLI Comment Letter
(``While we do not suggest any specific additions or exclusions to
the defined terms, we note that flexibility should be provided to
permit a registrant's use of alternative terms used by the company
in its contracts that reflect the substance of the defined terms in
the proposal'').
    \535\ See also rule 498A(a) and 17 CFR 270.18f-3 (rule 18f-3)
(permitting registered investment companies to issue multiple
classes of voting stock); Part A (``Definitions'') of the General
Instructions to Form N-1A (defining ``class'' as ``a class of shares
issued by a Multiple Class Fund that represents interests in the
same portfolio of securities under rule 18f-3 [17 CFR 270.18f-3] or
under an order exempting the Multiple Class Fund from Sections
18(f), 18(g), and 18(i) [15 U.S.C. 80a-18(f), 18(g), and 18(i)]'').
    \536\ See, e.g., Item 4 of Form N-4 (requiring separate
responses for each Class regarding the Example in the Fee Table).
---------------------------------------------------------------------------

B. Optional Method To Satisfy Portfolio Company Prospectus Delivery
Requirements

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

    \537\ See Proposing Release, supra note 6, at Section II.B.1
(stating that, typically, prospectuses for all underlying portfolio
companies are delivered to investors to avoid the administrative
burden of tracking whether an investor has already received the
current prospectus).
---------------------------------------------------------------------------

    Delivery of prospectuses for underlying portfolio companies is
typically effected by the insurance company rather than the portfolio
company. Based on a staff review of participation agreements between
insurance companies and underlying portfolio companies, we understand
that there is diversity in practice as to whether the insurance company
or portfolio company bears the printing and mailing costs associated
with portfolio company prospectus deliveries.

2. New Option To Satisfy Prospectus Delivery Requirements
a. Overview
    As proposed, new rule 498A provides an optional method for
satisfying portfolio company prospectus delivery obligations under
section 5(b)(2) of the Securities Act by making portfolio company
summary and statutory prospectuses available online, with certain key
information about the portfolio companies provided in the contract's
summary prospectus.\538\ This new option is available to Form N-4 and
Form N-6 registrants, but is not available to Form N-3 registrants
because they do not have underlying portfolio companies.
---------------------------------------------------------------------------

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

    This option allows satisfaction of prospectus delivery obligations
with respect to a portfolio company, if: (1) An initial summary
prospectus is used for each currently offered contract described under
the related registration statement; \539\ (2) a summary prospectus is
used for the portfolio company (only if the portfolio company is
registered on Form N-1A); \540\ and (3) the portfolio company's current
summary prospectus, statutory prospectus, SAI, and most recent
shareholder reports are posted online under similar posting
requirements for the variable contract's summary prospectuses and other
documents.\541\ In addition, the rule provides that any communication
related to a portfolio company, other than a prospectus permitted or
required under Section 10 of the Securities Act, would not be deemed a
prospectus if the above conditions are satisfied.\542\
---------------------------------------------------------------------------

    \539\ Rule 498A(j)(1)(i).
    \540\ Rule 498A(j)(1)(ii).
    \541\ Rule 498A(j)(1)(iii).
    \542\ Rule 498A(j)(2).
---------------------------------------------------------------------------

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

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

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

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

    We are concerned that the volume of disclosure materials variable
contract investors currently receive may discourage them from reading
the materials or prevent them from fully understanding these products.
While the new variable contract summary prospectus framework is
intended to provide investors with key information relating to the
contract's terms, benefits, and risks in a concise and more reader-
friendly format, we are concerned that investors may not read or
understand information if the variable contract summary prospectus is
accompanied by hundreds of pages of underlying portfolio company
prospectuses.\548\ We also note that, to the extent that an investor
wants additional information regarding a portfolio company beyond that
provided in the Appendix and cannot or chooses not to view that
information online, the final rule provides that an investor may always
request paper or electronic copies of these documents be sent to them
at no charge to them.\549\
---------------------------------------------------------------------------

    \548\ Variable annuity contracts offer an average of 60
portfolio companies as investment options. See supra note 16. While
we intended mutual fund summary prospectuses to be three to four
pages in length, rule 498 does not provide page length or similar
restrictions and some summary prospectuses have been as long as 19
pages. See Request for Comment on Fund Retail Investor Experience
and Disclosure, Investment Company Act Release No. 33113 (June 5,
2018) [83 FR 26891 (June 11, 2018)] (``Request for Comment on Fund
Retail Investor Experience''), at n.27 and accompanying text. If we
conservatively estimate that each portfolio company summary
prospectus is four pages in length, an investor who purchases a
variable contract that offers 60 portfolio companies would receive
240 pages of portfolio company disclosure materials, in addition to
the contract prospectus.
    \549\ Rule 498A(j)(3) and (i)(1).
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

    Finally, as a third condition to rely on the delivery option, as
proposed, the portfolio company's current summary and statutory
prospectus, SAI, and most recent annual and semi-annual shareholder
reports (together, the ``required online portfolio company documents'')
must be posted online under similar conditions for the posting of
required online contract documents:
     The required online portfolio company documents are
publicly accessible, free of charge, at the website address specified
on the cover page or beginning of the summary prospectuses for the
variable contract, for the time period specified in rule 498A(h)(1);
\559\
---------------------------------------------------------------------------

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

     The required online portfolio company documents are
presented on the website in a format, or formats, that are human-
readable and capable of being printed on paper in human-readable
format,\560\ and permit persons accessing the documents to move
directly back and forth between each section heading in a table of
contents and the corresponding section of the document; \561\
---------------------------------------------------------------------------

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

     Persons accessing the required online portfolio company
documents must be able to permanently retain, free of charge, an
electronic version of such documents in a format, or formats, that is
human-readable and permits persons accessing the materials to move
directly back and forth between each section heading in a table of
contents and the corresponding section of the document; \562\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

c. Interim Amendments to Portfolio Company Prospectuses
    When a portfolio company supplements or otherwise amends its
summary or statutory prospectus between annual updates, the amendment
is typically filed with the Commission pursuant to rule 497 under the
Securities Act.\579\ In addition, we understand that the amendment is
typically delivered to investors, either by special mailing or by
including it with another mailing, such as with the account statement
or confirmation.\580\
---------------------------------------------------------------------------

    \579\ Rule 497 under the Securities Act.
    \580\ For investors who received a summary prospectus for a
portfolio company, we understand that amendments are typically
delivered to investors only if the amendments relate to the summary
prospectus and summary section portion of the statutory prospectus.
---------------------------------------------------------------------------

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

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

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

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

    \582\ See, e.g., 17 CFR 270.35d-1 (rule 35d-1 under the
Investment Company Act) (requiring a registered investment company
with a name suggesting investment in certain investments or
industries, or investment in countries or geographic regions, to
adopt a policy to invest at least 80% of its net assets (plus the
amount of any borrowings for investment purposes) in investments
suggested by its name, and if not a fundamental policy, to provide
investors with at least 60 days prior notice of any change in that
investment policy).
---------------------------------------------------------------------------

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

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

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

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

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

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

C. Amendments to Registration Forms

    We are adopting amendments to Forms N-3, N-4, and N-6 to update and
enhance the disclosures to investors in variable contracts, and to
implement the summary prospectus framework. These amendments include
new disclosure requirements to reflect the evolution of variable
contract features, including, in particular, the prevalence of optional
benefits that insurers offer under these contracts. In addition, we are
adopting amendments to provide greater consistency among the
registration forms for variable contracts. Form N-6, which was adopted
in 2002 and is the newest variable contract form, served as a model for
many of the revisions to Forms N-3 and N-4. Accordingly, we are
adopting fewer changes to Form N-6 than the other forms.
    Certain investors who are considering variable annuities may also
be considering variable life insurance (and vice versa). We believe a
consistent presentation could reduce investor confusion and promote
investor understanding through common disclosure across types of
variable products on elements that we consider useful in explaining
variable contracts' features and risks. Also, we believe that more
uniformity of disclosures across variable contract types may make it
easier for investors to compare similar products. We also believe that
increasing consistency of disclosure requirements among registration
forms could increase efficiencies among sponsors of variable contracts
that register on multiple of these registration form types, and other
market participants.
    We are adopting amendments to the registration statement forms
substantially as proposed with some modifications in response to
comments on specific reporting items.\588\ The comments that we
received relating to our proposal to amend variable contract
registration statements were generally supportive of our efforts to
improve the information that is provided to shareholders and filed with
the Commission.\589\ Although commenters did not raise broad objections
to our proposed amendments, commenters raised concerns with and/or
requested clarification on various items, as discussed in more detail
below. To the extent we received no comments on certain items, we are
adopting them as proposed, as discussed further below.
---------------------------------------------------------------------------

    \588\ In a change from the proposal, we are also making non-
substantive amendments to the forms to standardize and conform the
use of certain terminology and references to defined terms, such as
changing references from ``contractowner'' to the more plain English
term ``investor.''
    \589\ See, e.g., CAI Comment Letter (``[T]he Committee applauds
the Commission for dedicating considerable time and effort to revamp
the variable product registration statement forms. . . .''); XBRL
U.S. Comment Letter (``Making variable annuity data consistent,
comparable from product to product, and easily accessible on a
timely basis, will improve the investor's ability to evaluate these
offerings, and is a task best handled through standardized reported
data.'').
---------------------------------------------------------------------------

1. General Instructions
    We are adopting amendments to the General Instructions of Forms N-
3, N-4, and N-6 regarding the preparation and filing of registration
statements. Although commenters did not raise broad objections to our
proposed amendments, commenters raised concerns with and/or requested
clarification on General Instruction C.3, as discussed in more detail
below. To the extent we received no comments on the other General
Instructions, we are adopting them as proposed.
    The amended General Instructions, like the General Instructions in
current Form N-6,\590\ are structured to include four parts: (A)
Definitions; (B) Filing and Use of Form; (C) Preparation of the
Registration Statement; \591\ and (D) Incorporation by Reference.\592\
With the

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

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

    General Instruction C.3 provides substantive requirements for the
preparation of the registration statement, including instructions
relating to the organization, presentation, and prospectuses permitted
to be included in a registration statement. The instruction parallels
Instruction C.3 of current Form N-6 in substance, except as described
below.
Organization of Information
    As proposed, General Instruction C.3.(a) requires the disclosures
in response to Item 2 (Key Information), Item 3 (Overview of the
Contract), and Item 4 (Fee Table) of the registration forms to appear
in numerical order at the front of the prospectus, and not be preceded
by anything other than a cover page (Item 1), a glossary, or a table of
contents. One commenter stated that registrants should be given
flexibility to present disclosure where it makes most logical sense,
and recommended against an approach that would require those
disclosures to be segregated and placed at the beginning of the
statutory prospectus.\593\ Another commenter disagreed and supported
the proposed order of the items in the amended forms and the related
General Instructions.\594\ We continue to believe that these
disclosures should appear at the beginning of the prospectus because
they contain the most salient information about a variable contract's
key features, costs, and risks and standardization of these disclosures
will aid investors in comparing different products.\595\ We also
believe that the instruction incorporates a certain degree of
flexibility for issuers. As proposed and adopted, the instruction also
provides that if the discussion of the information that Items 2 or 3
requires also responds to disclosure requirements in other items of the
prospectus, a registrant need not include additional disclosure that
repeats this information.
---------------------------------------------------------------------------

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

Other Information
    As proposed, General Instruction C.3.(b) provides that, except in
response to Items 2 and 3, a registrant is permitted to include
information in the prospectus or SAI that is not otherwise required, so
long as it is not incomplete, inaccurate, or misleading and does not,
because of its nature, quantity, or manner of presentation, obscure or
impede understanding of the information that is required to be
included.\596\ This instruction is intended to provide flexibility to
registrants to include contextual and other information that could aid
investors' understanding of variable contracts and assist them in
making informed investment decisions.
---------------------------------------------------------------------------

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

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

    \597\ See, e.g., Kleimann Presentation, supra note 112
(encouraging, for example, the use of question-and-answer format,
the use of headings to make structure clear, using a strong design
grid to organize elements, making line length readable, and using
common words and sentence constructions as ways of designing
disclosure to promote readability).
---------------------------------------------------------------------------

Use of Terms
    As proposed, General Instruction C.3.(d)(i) includes in substance
the requirements of Item 2 (Definitions) of current Forms N-3 and N-4.
The changes conform this instruction to the language in the parallel
current General Instruction of Form N-6, which we believe will improve
readability and consistency across form types.
    As discussed above, and in response to requests from commenters,
General Instruction C.3.(d) includes new subparagraph (ii) which
provides registrants with the flexibility to use alternate terminology
other than that used by the form, so long as the alternate terminology
clearly conveys the meaning of, or provides comparable information as,
the terms used by the form.\598\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

    \602\ The examples clarify that a registrant could determine it
is appropriate to include multiple prospectuses in a registration
statement in the following situations: (1) The prospectuses describe
the same contract that is sold through different distribution
channels; (2) the prospectuses describe contracts that differ only
with respect to underlying funds offered; or (3) the prospectuses
describe both the original and a ``modified'' version of the same
contract (where the ``modified'' version modifies the features or
options that the registrant offers under that contract).
---------------------------------------------------------------------------

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

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

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

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

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

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

    \606\ Specifically, registrants may do so when providing
disclosure in a single prospectus for more than one contract.
However, the order of information required by each item must remain
the same, and they must still present the required information
clearly and effectively.
    \607\ The example clarifies that a prospectus may present all of
the Item 2 information for several contracts (e.g., by providing
several Key Information Tables sequentially or by providing a single
Key Information Table containing separate disclosures for each
contract to the extent that such disclosures vary by contract),
followed by all of the Item 3 information for the contracts, and
followed by all of the Item 4 information for the contracts.
Alternatively, the prospectus may present Items 2, 3, and 4 for each
of several contracts sequentially. Other presentations also could be
acceptable if they are consistent with the form's intent to disclose
the information required by Items 2, 3, and 4 in a standard order at
the beginning of the prospectus.
    \608\ See General Instruction C.3.(e)(i)(A) to Forms N-3, N-4,
and N-6.
    \609\ Id.
---------------------------------------------------------------------------

    Regardless of the presentation method chosen, when disclosing
information relating to one of several contracts, registrants should
clearly identify to which contract the information relates. In a change
from the proposal, and consistent with our effort to provide greater
clarity to investors,\610\ the amended forms contain a new instruction
that requires registrants to generally include appropriate titles,
headings, or any other information to promote clarity and facilitate
understanding regarding which disclosures apply to which contract, if
such disclosures vary based on the contract.\611\
---------------------------------------------------------------------------

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

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

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

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

    \613\ See General Instruction C.3.(i) to amended Forms N-3, N-4,
and N-6.
    \614\ Id.; see also rule 105 of Regulation S-T [17 CFR 232.105]
(prohibiting hyperlinking to websites, locations, or other documents
that are outside of the EDGAR system). Because this is an existing
EDGAR restriction, we do not believe it is necessary to add this
provision to registration statements. Thus, in a change from the
proposal, amended Forms N-3, N-4, and N-6 do not include this
provision.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

    \619\ As discussed below, we are eliminating the Table of
Contents of the SAI that is required by Item 15 of current Form N-3
and Item 14 of current Form N-4. We do so to streamline the
prospectus and avoid duplicative disclosure with the SAI, which
separately requires a Table of Contents. See infra Section II.C.3.
---------------------------------------------------------------------------

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

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

     First, the name of the contract and the class or classes,
if any, to which the contract relates to help clarify the specific
contract and class or classes covered by the prospectus; \621\
---------------------------------------------------------------------------

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

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

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

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

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

    To streamline the front cover page and because similar information
would appear in tabular presentation in the prospectus, the Commission
proposed to eliminate the current requirements in Forms N-3 and N-4
that the registrant include on the front cover page the type of
separate account and names of the available portfolio companies. We
received one comment letter which supported removal of the names of the
available portfolio companies and did not object to removal of the name
of the type of separate account, and we are adopting these changes as
proposed.\624\
---------------------------------------------------------------------------

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

    Additionally, as proposed, we are amending the prospectus back
cover page to include certain additional information concerning: (1)
The availability of the SAI and how to request other information about
the contract; (2) whether and from where information is incorporated by
reference into the prospectus as permitted by proposed Part D of the
Form's General Instructions; and (3) the EDGAR contract identifier for
the contract.\625\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

    \631\ We are also changing the title of the Item from ``Synopsis
of Highlights'' in Form N-3, ``Synopsis'' in Form N-4, and ``Risk/
Benefit Summary: Fee Table'' in Form N-6 to ``Fee Table'' in all
three forms.
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

    As proposed, we are removing the current ``Surrender Fees'' line-
item in this table, on the grounds that the current ``Deferred Sales
Load'' line-item in the table should already capture these fees.\640\
Correspondingly, we are revising the title of the ``Deferred Sales
Load'' line-item to include ``Deferred Sales Load (or Surrender
Charge)'' to clarify that a registrant should continue to include
surrender charges in the table.
---------------------------------------------------------------------------

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

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

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

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

iii. Annual Contract Expenses (Forms N-3 and N-4) and Periodic Charges
Other Than Annual Portfolio Company Expenses (Form N-6)
    We are adopting, as proposed, several changes to the current
``Annual Account Fee'' and ``Annual Expenses'' line-items in Form N-
3,\643\ and the current ``Annual Contract Fee and Separate Account
Annual Expenses'' table in Form N-4. As proposed, each is retitled, as
a stand-alone table, under the heading ``Annual Contract Expenses'' in
both forms to clarify that the item reflects insurance-related annual
contract fees and not the fees related to investment options.
---------------------------------------------------------------------------

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

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

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

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

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

     Base Contract Expenses. Largely as proposed, we are
consolidating the current line-item under ``Annual Expenses'' in Form
N-3 (``Mortality and Expense Risk Fees''), and the current line-items
under ``Separate Account Annual Expenses'' in Form N-4 (``Mortality and
Expense Risk Fees,'' ``Account Fees and Expenses,'' and ``Total
Separate Account Annual Expenses'') under a single new line-item in
each table, ``Base Contract Expenses,'' which discloses those fees in
the aggregate as a percentage of average account value. Collapsing
these fees into a single line-item is intended to make it easier for
investors to understand the annual cost of investing in the basic
variable contract.\648\ Any other recurring charge (other than charges
associated with the portfolio companies) appears as an additional line-
item in the Annual Contract Expenses table in Form N-4, which discloses
the maximum amount or basis on which the charge is deducted.\649\
---------------------------------------------------------------------------

    \648\ We also are making conforming changes to each form's
instructions. We are removing Instruction 4(b) to Item 3 of current
Form N-3 and Instruction 13 to Item 3 of current Form N-4, which
permit ``Mortality and Expense Risk Fees'' to be listed separately
on two lines in the table. We also are revising Instruction 14 to
Item 3 of current Form N-4 (which we are renumbering as Instruction
13), and adding a corresponding new Instruction 13 to Item 4 of
amended Form N-3, to state that ``Base Contract Expenses'' includes
mortality and expense risk fees, and account fees and expenses. We
are also including a new Instruction 3(g) to Item 4 of amended Form
N-6 permitting Registrants to consolidate any charges that are
assessed on a similar basis (e.g., Administrative Fees and Mortality
and Expense Risk Fees).
    \649\ We are revising and renumbering Instruction 15 to Item 3
of current Form N-4 (which currently appears under the heading
``Portfolio Company Annual Expenses'') as Instruction 15 to Item 4
of amended Form N-4 (to appear under the heading ``Annual Contract
Expenses'') to make clear that other annual expenses are required to
be disclosed (not just other portfolio company annual expenses, as
the current instruction provides). In a conforming change, we are
also revising an instruction in Form N-3 regarding when expense
reimbursements or fee waiver arrangements that reduce operating
expenses can be reflected to parallel a similar instruction in Form
N-1A. Compare Instruction 15(e) to Item 4 of amended Form N-3 with
Instruction 3(e) to Item 3 of Form N-1A.
---------------------------------------------------------------------------

     Other Expenses. Similarly, and in a change from the
proposal, ``Other Expenses'' remains a separate line-item in Form N-3
and is not consolidated as part of ``Base Contract Expenses.''
Registrants on Form N-3 are management investment companies and are
subject to certain expenses that do not apply to unit investment trust
registrants on Form N-4 and N-6. Because such expenses can vary over
time, we believe it may be helpful for investors to continue to see
such expenses as part of a separate line-item rather than consolidated
as part of Base Contract Expenses.
     Management Fees. Unlike Forms N-4 and N-6, which as
discussed below require separate disclosures about annual portfolio
company expenses, Form N-3 does not require such disclosures because
Form N-3 registrants have a single-tier structure and do not have
underlying portfolio companies. However, Form N-3 registrants generally
do have distinct management fees for each investment option offered
under the contract. Since these management fees can vary significantly,
we are requiring disclosure of the management fee for each investment
option, as proposed.\650\
---------------------------------------------------------------------------

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

     Optional Benefits. In recognition of the fact that
variable contracts today commonly offer optional benefits, the table in
Forms N-3, N-4, and N-6 requires, as proposed, a new line-item that
requires registrants to list any optional benefit available under the
contract, along with its corresponding annual charge.\651\ In Form N-6,
this same new line-item, as proposed, is added in the ``Periodic
Charges Other Than Portfolio Company Operations Expenses'' table.\652\
One commenter suggested that insurers should be permitted, but not
required, to include benefits available at no additional charge in the
Fee Table.\653\ We believe that inclusion of these benefits could add
complexity and length to the Fee Table and obscure significant fees
that are more relevant to investors, and therefore benefits available
at no additional charge are neither required nor permitted to be
included in the Fee Table. As discussed further below, registrants that
wish to itemize all these

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

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

     Total Annual Contract Expenses. In Form N-3, we are
adopting, as proposed, a new requirement to disclose total annual
contract expenses, and a related instruction specifying that total
annual contract expenses should be disclosed as a percentage of account
value.\655\ While annual contract expenses are generally calculated as
a percentage of account value, optional benefit expenses may be
calculated on a different basis, such as a percentage of the benefit
base or as a percentage of average net assets. The new instruction
provides that if optional benefit expenses are calculated on a basis
other than account value, registrants should prominently indicate that
those optional benefit expenses are not included in total annual
contract expenses (because they are calculated on different bases and
cannot be added). However, we understand that most registrants on Form
N-3 either do not offer optional benefits or else calculate optional
benefit expenses on an account value basis. We therefore believe that
requiring disclosure of total annual contract expenses is appropriate
for Form N-3 registrants, because the disclosure will be practicable
and could help investors understand the total expenses (not including
portfolio company fees and expenses) that they will pay each year. The
requirement to disclose total annual contract expenses in Form N-3
differs from the approach to disclosing annual contract expenses in
amended Form N-4, which requires separate line-items for administrative
expenses, base contract expenses, and optional benefit expenses, but
does not require the disclosure of a composite total of these line-
items.\656\ We understand that most registrants on Form N-4 calculate
optional benefit expenses on a basis other than contract value. Because
of this, it would generally be infeasible to sum optional benefit
expenses with other expenses that are presented as annual contract
expense line-items.
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    \655\ See Instruction 16 to Item 4 of amended Form N-3.
    \656\ See ``Annual Contract Expenses'' table in Item 4 of
amended Form N-4.
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iv. Annual Portfolio Company Expenses (Forms N-4 and N-6)
    Largely as proposed, we are amending the disclosures that
registrants provide with respect to the ``Annual Portfolio Company
Expenses'' table in Forms N-4 and N-6.\657\ As proposed, we are
revising the legend that precedes the table to direct investors to the
new Appendix relating to the portfolio companies available under the
contract.\658\ As a conforming change, and as proposed, we are
eliminating an instruction in each form stating that a registrant may
include additional tables showing annual expenses separately for each
portfolio company immediately following the required table, as this
information will duplicate the fee information that appears in the new
Appendix.\659\
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    \657\ While the text of the Proposing Release only mentioned
Form N-4 with regards to this item, both Forms N-4 and N-6
themselves, as proposed, included the changes that we indicate ``as
proposed.''
    \658\ See Item 17 to amended Form N-4; Item 18 to amended Form
N-6.
    \659\ See Instruction 20 to Item 3 in Form N-4; Instruction
4.(f) to Item 3 in Form N-6.
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    In a change from the proposal, and in response to commenters, a new
instruction in each form provides that if the registrant charges a
platform charge to make any of the portfolio companies available as
investment options under the contract, the registrant should include
the maximum platform charge associated with each portfolio company when
calculating minimum and maximum annual portfolio company expenses.\660\
In a conforming change, we are also revising the name of this table
from ``Total Annual Portfolio Company Operating Expenses'' to ``Annual
Portfolio Company Expenses'' to clarify that the expenses included
within the table are not limited to total operating expenses. If
platform charges are charged, registrants must also provide a brief
statement regarding the inclusion of these platform charges.\661\
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    \660\ See VIP Working Group Letter (asking how ``fund
facilitation fees'' should be disclosed, and stating these fees are
charged by the insurance company for offering a low cost fund that
would not otherwise provide sufficient distribution fees or revenue
sharing to the insurance company); Instruction 16 to Item 4 of
amended Form N-4; Instruction 4.(a) to Item 4 of amended Form N-6.
    \661\ See Item 4 of amended Form N-4 (``[These amounts also
include applicable Platform Charges if you choose to invest in
certain Portfolio Companies.'']); Item 4 of amended Form N-6 (same).
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    We are also simplifying other instructions to the table. As
proposed, we are revising an instruction in each form to instruct
registrants to use the gross expense ratio presented in the fee table
of a portfolio company's current prospectus when disclosing the minimum
and maximum ``Annual Portfolio Company Expenses.'' \662\ The current
instruction contains instructions for calculating Annual Portfolio
Company Expenses, which results in a figure that is the same as the
gross expense ratio presented in a portfolio company's prospectus fee
table. Directing registrants to use the gross expense ratio reflected
in a portfolio company's current prospectus avoids the need to provide
detailed instructions in the form regarding how to calculate this
figure (as is the case with the current instruction).\663\
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    \662\ See Instruction 17(a) to Item 3 of Form N-4 (which we are
re-designating as Instruction 16 to Item 4 of amended Form N-4);
Instruction 4.(b) to Item 3 of Form N-6 (which we are re-designating
as Instruction 4.(a) to Item 4 of amended Form N-6).
    \663\ Because this simplification renders obsolete the rest of
Instruction 17, as well as Instructions 16 and 18, to Item 3 of Form
N-4, we are eliminating them. Similarly, this simplification renders
obsolete the rest of Instruction 4.(b), as well as Instructions
4.(c) through (d), to Item 3 of Form N-6, and therefore we are
eliminating those instructions as well.
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    Also, as proposed, we are revising an instruction in each form to
modify the way that registrants could reflect operating expenses that
include expense reimbursement or fee waiver arrangements.\664\
Currently, the instruction specifies that such expenses could appear in
a footnote to the table. The revised instruction instead states that
these could appear as an additional line-item to the table. We believe
that including these disclosures as a separate line-item in the table
provides a clearer presentation for investors than a footnote to the
table.\665\ In a change from the proposal, and in response to
commenters, this instruction also provides that if the registrant
charges a platform charge to make any of the portfolio companies
available as investment options under the contract, the registrant
should include the current platform charge associated with each
portfolio company when calculating minimum and maximum annual portfolio
company expenses that include expense reimbursement or fee waiver
arrangements.\666\
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    \664\ See Instruction 19 to Item 3 of Form N-4 (which we are
renumbering as Instruction 17 to Item 4 of amended Form N-4);
Instruction 4.(e) to Item 3 of Form N-6 (which we are renumbering as
Instruction 4.(b) to Item 4 of amended Form N-6).
    \665\ See 2002 Adopting Release, supra note 286, at n.14 and
accompanying text (``We intend that the staff construe the
amendments to the fee table of Form N-4 consistent with the approach
taken under Form N-1A, to permit the addition of one line to the fee
table showing the range of net Portfolio Company operating expenses
after taking account of contractual limitations that require
reimbursement or waiver of expenses.'').
    \666\ See VIP Working Group Letter. See Instruction 17 to Item 4
of amended Form N-4; Instruction 4.(b) to Item 4 of amended Form N-
6.
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v. Example (Forms N-3 and N-4)
    We are updating the requirements for the Example that will appear
in the Fee Table in Forms N-3 and N-4 in several respects. First, as
proposed, we are revising the legend accompanying the

Example to reflect the revised Fee Table headings and to reference the
inclusion of optional benefits in the Example's assumptions. We believe
the Example should reflect the highest cost that an investor may pay
under the contract, inclusive of any available optional benefits.
    As proposed, we are increasing the value of the assumed investment
from $10,000, as required under Item 3 of current Form N-4 (and $1,000,
as required under Item 3 of current Form N-3), to $100,000. Several
commenters objected to this change but, as discussed above, we continue
to believe that $100,000 more closely approximates the current average
value of a variable annuity and is more likely to result in cost
projections that align with actual investor expectations and
experience.\667\
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    \667\ See supra note 131 and accompanying and following text.
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    As proposed, we are revising the instructions for the Example to
clarify that registrants must provide an example for each contract
class, consistent with current practice.\668\ Also, as proposed, we are
revising Instruction 21(b) in current Form N-4 (which we are re-
numbering as Instruction 18(b)), and adding new Instruction 17(b) in
Form N-3, to make clear that that an example showing the most expensive
combination of contract features should be shown first, while
additional expense examples are permitted, but not required.
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    \668\ The instruction for the Example in Item 3 of current Form
N-3 (currently unnumbered) is new Instruction 17 to Item 4 of
amended Form N-3. Instruction 21 to Item 3 of current Form N-4 is
renumbered as Instruction 18 to Item 4 of amended Form N-4.
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    In addition, as proposed, we are removing the last sentence of
Instruction 21(b) of current Form N-4, which states that in lieu of
providing the required example based on maximum portfolio company
expenses, a registrant may include separate expense examples based on
the expenses of each portfolio company. In our experience, registrants
rarely include separate expense examples based on the expense of each
portfolio company (likely because to do so would add extensive length
to the Example section of the prospectus). Eliminating this option
therefore not only reflects actual practice, but is also consistent
with our goal of streamlining prospectus disclosure.
    As proposed, we are also making certain technical corrections to
Instructions 21(a) and (b) of current Form N-4, by eliminating
references to amortization costs, which do not apply to variable
annuity contracts that are structured as UITs.\669\
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    \669\ When Forms N-3 and N-4 were first adopted, the references
in Form N-3 to amortization costs were inadvertently included in
Form N-4. Because investors in UITs (Form N-4 and N-6 filers) do not
pay amortization costs, we are removing this reference from the
instruction. In a conforming change, we are also revising an
instruction in Form N-3 regarding amortization of organizational
expenses to parallel similar instructions in Form N-1A. Compare
Instruction 17(a) to Item 4 of amended Form N-3 with Instruction
4(a) to Item 3 of Form N-1A.
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vi. Portfolio Turnover (Form N-3)
    Because Form N-3 registrants have a single-tier structure,
investors do not receive separate prospectuses containing portfolio
turnover information for investment options offered under the contract,
as is the case for portfolio companies offered under contracts
registered on Forms N-4 and N-6. As proposed, we are requiring
disclosure of portfolio turnover for each investment option in Form N-
3, as well as a brief statement explaining that portfolio turnover has
associated transaction costs, and that a higher portfolio turnover rate
may indicate higher transaction cost, which affect the investment
option's performance.\670\ These disclosure requirements largely
restate existing requirements in caption 10 of Item 4(a) of current
Form N-3, although they include the brief statement that is required by
the parallel item in Form N-1A in order to provide more context and
information for investors.\671\
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    \670\ See Item 4 of amended Form N-3.