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

    \376\ See supra note 366.
---------------------------------------------------------------------------

     What percentage of insurers currently delivers the
alternative disclosures for at least one contract? What percentage
of the variable contract business (in terms of number of contact
owners and aggregate contract value) provides alternative
disclosures? What are the size ranges of registration statements for
those contracts that deliver alternative disclosures (both in terms
of number of investors and in terms of aggregate contract value)?
     What number of investors, or aggregate contract value,
would make providing alternative disclosures more cost-effective
than annually updating a registration statement under the current
variable contract prospectus delivery regime?
     What are the cost savings, if any, associated with
providing alternative disclosures? What are the sources of the cost
savings?
     Which current items of variable annuity and variable
life insurance registration

statements are the most difficult or time-consuming for variable
contract issuers to update? Why are these items difficult or time-
consuming to update?
     How frequently do material changes to the variable
contract occur that would require an issuer that is delivering
alternative disclosures to update its registration statement? What
specific types of contract changes are considered to be material?
What types of contract changes are considered to be non-material,
such that the issuer would not update its registration statement in
response to this condition? How are investors notified of any non-
material changes? Are there types of contract changes where it is
difficult to determine whether an issuer should update its
registration statement? If so, please identify those types of
changes.
     Do insurers currently host on their websites the
alternative disclosure documents that are delivered to investors?
Why or why not?
     Do investors that receive alternative disclosures
contact their insurance company looking for information at a greater
frequency than investors who receive a prospectus annually? What
information are these investors looking for?
     Some of the circumstances that the Staff Letters
identify vary depending on the no-action letter.\377\ Under which
circumstances are issuers providing alternative disclosures?
---------------------------------------------------------------------------

    \377\ See supra note 367.
---------------------------------------------------------------------------

    We request comment generally on how investors and financial
professionals view the alternative disclosures, and specifically on
the following issues:
     Investors that have variable contracts with registrants
that provide alternative disclosures would receive different
disclosure documents, and hence different sets of information, than
they would receive under the proposed summary prospectus regime.
Which approach do you believe is most beneficial for investors and
why?
     To the extent that there are no material changes to a
variable contract, what information about the contract--if any--do
investors need to receive on an ongoing basis to monitor their
investments in the contract and understand how the contract
operates? If there are no material changes, would it be useful to
investors to receive disclosure repeating key information of the
contract each year, and/or to receive summary information about the
portfolio companies each year?
     Are investors able to effectively understand financial
statements that are provided as alternative disclosures, and are
they useful in helping investors monitor their investments?
     An updated contract statutory prospectus, which
investors typically receive annually, describes the variable
contract but does not include insurance company or separate account
financial statements. Investors holding contracts whose issuers
provide alternative disclosures, however, receive the separate
account financial statements annually, and in some cases the
insurance company's financials. Assuming there are no changes to the
contract in a given year, do investors have a preference as to which
information they would rather receive? Is there other information
that investors would like to receive?
Other Approaches to the Framework for Discontinued Contracts
    If the Commission takes the position described in the prior
subsection with respect to Alternative Disclosure Contracts, it would
permit continued operation of Alternative Disclosure Contracts (i.e.,
issuers with contracts that are operating as described in the Staff
Letters on the effective date of the final rules permitting use of a
variable contract summary prospectus). All other variable contract
issuers would operate under the new summary prospectus framework. That
is, they would be required to file post-effective amendments to update
their registration statements and provide updated prospectuses under
current regulatory requirements, and could avail themselves of the
summary prospectus framework as adopted.
    We are also considering two alternative approaches for discontinued
contracts. Each of these alternative approaches would involve
modifying, and codifying by rule, the disclosure framework the Staff
Letters identify. Each of these alternative approaches could be
implemented in two different ways:

     Method One (Apply New Approach Only to Discontinued
Contracts Going Forward): Permit Alternative Disclosure Contracts to
continue operating as they currently do under the Commission
position described above. For future discontinued contracts, adopt
final rules codifying certain practices the Staff Letters identify
and apply those rules on a going forward basis.
     Method Two (Apply New Approach to All Discontinued
Contracts): Adopt final rules codifying certain practices the Staff
Letters identify and apply those rules to all discontinued contracts
(including Alternative Disclosure Contracts).

    We request comment on the Commission position described above, as
well as the proposed approaches described below. We also request
comment on whether an alternative approach should be implemented using
method one or method two.
    Approach 1 (Codification of Practices under Staff Letters with
Modifications): Under Approach 1, the Commission would adopt final
rules providing that a registrant would not have to comply with certain
requirements to update the variable contract registration statement and
deliver updated contract prospectuses to existing investors, so long as
the registrant complies with the following conditions:

     Investors would receive an annual notice that includes
information that is comparable to that which would be provided in an
updating summary prospectus. Specifically, this notice would
include: (1) The Key Information Table that would appear in an
updating summary prospectus; (2) a brief description of any material
\378\ changes to the offering relating to fees, the standard death
benefits, other benefits available under the contract, and portfolio
companies available under the contract; \379\ (3) a table that would
include the same information about portfolio companies that would
appear in the proposed appendix to the updating summary prospectus;
and (4) legends informing investors that additional information
about their contract--including the registrant's financial
statements (the depositor's financial statements in the case of
variable life insurance contracts) and portfolio company
prospectuses and periodic reports to shareholders--is available
online. Because this notice would not be a section 10(b) prospectus,
it (unlike a summary prospectus under proposed rule 498A) would not
be subject to liability under section 12(a)(2) of the Securities
Act, although it would remain subject to the general antifraud
provisions of the federal securities laws.\380\ The notice would be
posted to the insurance company's website.
---------------------------------------------------------------------------

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

     The financial statements provided to investors under
the alternative disclosures in the Staff Letters would be filed with
the Commission, posted to the insurance company's website, and
delivered to an investor upon request;
     Registrants would be permitted to use the optional
method to satisfy portfolio company prospectus delivery requirements
as provided under proposed rule 498A; and
     Investors would continue to receive portfolio company
shareholder reports and proxy materials.

    Issuers would be able to rely on Approach 1 if the contract is no
longer offered to new purchasers, there are under 5,000 investors, and
there have been no material changes during the period since the most
recent update. Approach 1 reflects our belief that the proposed summary
prospectus framework could give investors more pertinent information to
use to help them make informed investment decisions, compared to the
information

under the circumstances that the Staff Letters identify.\381\ This
approach seeks to provide many of the benefits to investors associated
with the summary prospectus framework while limiting the burden of
updating registration statements relating to contracts that are only
offered to a limited number of investors.
---------------------------------------------------------------------------

    \381\ See supra paragraph following note 374.
---------------------------------------------------------------------------

    Approach 2 (Permit Registration Statements to be Updated via
Forward Incorporation by Reference). As a variation on the framework
for Approach 1, we also request comment on whether the Commission
should adopt final rules that would:

     Permit the registrant to rely on a modified version of
rule 498A that would:
    [cir] Require that investors receive an annual notice that
includes information that is comparable to that which would be
provided in an updating summary prospectus, as described in Approach
1;
    [cir] Require that the contract statutory prospectus and SAI be
made available online and delivered to an investor upon request; and
    [cir] Permit registrants to use the proposed rule's optional
method to satisfy portfolio company prospectus delivery
requirements;
     Require the filing of separate account (including
accumulation unit values for variable annuities) and depositor
financials with the Commission, permit issuers to incorporate these
documents by reference into the registration statement (even if they
are filed after the effective date of the registration
statement),\382\ and require these financial statements to be posted
to the insurance company's website, and delivered to an investor
upon request; and
---------------------------------------------------------------------------

    \382\ See, e.g., supra note 364. Certain registrants that file
on Forms S-1 or S-3 are permitted to update their registration
statements by reference to Exchange Act reports filed after the
effective date of the registration statement (``forward
incorporation by reference'').
---------------------------------------------------------------------------

     Require that investors receive portfolio company
shareholder reports and proxy materials.

    As with Approach 1, issuers would be able to rely on Approach 2 if
the contract is no longer offered to new purchasers, there are under
5,000 investors, and there are no material changes to the contract.
Also, like Approach 1, Approach 2 reflects our belief that the proposed
summary prospectus framework could give investors more pertinent
information to use to help them make informed investment decisions,
compared to the alternative disclosures received by investors under the
circumstances that the Staff Letters identify.\383\
---------------------------------------------------------------------------

    \383\ See supra paragraph following note 374.
---------------------------------------------------------------------------

    However, Approach 2 would be more similar to the proposed summary
prospectus regime in certain respects, in terms of the requirements for
the information that is (1) delivered to all investors (with the annual
notice under Approach 2 substituting for the summary prospectus), (2)
made available online, and (3) delivered to those investors who so
request.\384\ This approach seeks to provide many of the benefits to
investors associated with the summary prospectus framework and reduce
the burden of updating registration statements for contracts that are
only offered to a limited number of investors.
---------------------------------------------------------------------------

    \384\ See supra sections II.A.4 through 6. We assume for
purposes of this discussion that the relevant requirements in these
sections--for example, the formatting requirements and relevant
linking requirements discussed in these sections--would be
requirements under Approach 2.
---------------------------------------------------------------------------

    Approach 2 differs from Approach 1 chiefly in that Approach 2 would
require a registrant to maintain a current registration statement and
make the statutory prospectus and SAI available online. However, under
Approach 2, the registrant would only update the registration statement
when there are material changes to the offering, since updated
financial statements would be permitted to be forward incorporated by
reference into the registration statement.\385\ Approach 2 therefore
could reduce some of the burdens associated with maintaining a current
registration statement.
---------------------------------------------------------------------------

    \385\ One important distinction is that, under the Staff
Letters, one of the set of circumstances in which the staff has
stated that it would not recommend enforcement action is if there
are no material changes to the contract between the investor and
insurance company. However, even if there are no material changes to
the contract, there may still be material changes to the offering
that is described in the registration statement. See supra note 378.
These material changes to the offering generally should be described
in any updating summary prospectus or similar notice.
    See supra note 29 (discussing current requirements for updating
variable contract registration statements).
---------------------------------------------------------------------------

    Since Approach 2 would entail the maintenance of a current
registration statement, the liability provisions available under the
federal securities laws would apply to Approach 2 to the same extent as
under the current variable contract prospectus delivery regime \386\
and under the proposed summary prospectus regime for registrants that
choose to rely on proposed rule 498A.\387\ While the disclosures
required under Approaches 1 and 2 are similar and both include certain
protections under the federal securities laws against material
misstatements or omissions, disclosures under Approach 2 may not limit
potential issuer liability to investors.
---------------------------------------------------------------------------

    \386\ See supra note 372 and accompanying text (noting that
providing the alternative disclosures described in the Staff Letters
may have the effect of potentially limiting issuers' liability under
certain provisions available under the federal securities laws).
    \387\ See supra section II.A.3.
---------------------------------------------------------------------------

    The following Table 4 summarizes the frameworks under the Staff
Letters, Approaches 1 and 2, and the proposed summary prospectus
framework under proposed rule 498A for certain documents to either be:
(1) Delivered to all investors; (2) made available online; or (3)
delivered to those investors who so request.

                           Table 4--Documents Available to Variable Contract Investors
----------------------------------------------------------------------------------------------------------------
                                   Staff letters and                                          Summary prospectus
                                      commission          Approach 1          Approach 2        framework under
                                       position                                               proposed rule 498A
----------------------------------------------------------------------------------------------------------------
Contract Statutory Prospectus *.                 N/A \388\
                                    Required to be available online and
                                     delivered (in paper or electronic
                                           format) upon request.
                                 -------------------------------------------------------------------------------
Contract SAI *..................                    N/A
                                    Required to be available online and
                                     delivered (in paper or electronic
                                           format) upon request.
                                 -------------------------------------------------------------------------------
Contract Part C Information *...                    N/A
                                     Filed with registration statement
                                           (available on EDGAR).
                                 -------------------------------------------------------------------------------
Initial Summary Prospectus......                              N/A                             Delivered to all
                                                                                new investors.
                                 -------------------------------------------------------------------------------

Updating Summary Prospectus *...                              N/A                             Delivered to all
                                                                                existing
                                                                                investors.
                                 -------------------------------------------------------------------------------
Alternative Notice to Investors   N/A...............     Delivered to all investors (would    N/A.
 *.                                                         include information that is
                                                         comparable to that which would be
                                                          included in the updating summary
                                                                    prospectus).
                                 -------------------------------------------------------------------------------
Financial Statements * \389\....  Delivered to all    Required to be available online and delivered (in paper or
                                   investors.            electronic format) upon request, and also available on
                                                                              EDGAR.\390\
                                 -------------------------------------------------------------------------------
Portfolio Company Prospectuses *  Delivered to all     Delivered to investors, or, if the new option to satisfy
                                   investors.                   portfolio company prospectus delivery is
                                                         relied[dash]upon,\391\ required to be available online
                                                           and delivered (in paper or electronic format) upon
                                                                                request.
                                 -------------------------------------------------------------------------------
Portfolio Company Shareholder     Delivered to all       Delivered to all investors, or, if the new option to
 Reports.                          investors.               satisfy portfolio company prospectus delivery is
                                                         relied[dash]upon,\392\ required to be available online
                                                           and delivered (in paper or electronic format) upon
                                                                                request.
                                 -------------------------------------------------------------------------------
Portfolio Company Proxy                                     Delivered to all investors.
 Materials.
----------------------------------------------------------------------------------------------------------------
* Updated at least annually.

    We request comments on the framework for discontinued
contracts:388 389 390 391 392
---------------------------------------------------------------------------

    \388\ While the contract prospectus (and SAI and Part C
information) would have been filed with the Commission earlier in
the contract's life cycle, under the Staff Letters' framework and
Approach 1, these documents are not updated annually, and
registrants would not make these documents available to investors
either online or in paper format.
    \389\ These include updated audited financial statements of the
registrant, and in the case of variable life insurance contracts,
the depositor's updated audited financial statements. See supra note
368 and accompanying text.
    \390\ The financial statements are part of the contract SAI, and
proposed rule 498A would require a registrant relying on the rule to
make the SAI available online. See proposed rule 498A(h)(1);
proposed Item 26 of Form N-4; proposed Item 27 of Form N-6.
    Approaches 1 and 2 separately would require financial statements
to be filed with the Commission, posted to the insurance company's
website, and delivered to an investor upon request. See supra text
following note 380; supra note 382 and accompanying text.
    \391\ See supra section II.B.2; see also supra bullets
accompanying notes 378-382.
    \392\ See id.

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

three years? If not, why not? In between updates to a registration
statement, issuers typically file stickers reflecting certain
changes.\394\ Instead of requiring updated registration statements
or prospectuses after a certain period of time, should we limit the
number of stickers before an updated registration statement or
prospectus must be filed? If so, what should be the limit?
---------------------------------------------------------------------------

    \393\ See rule 415(a)(5) under the Securities Act.
    \394\ See supra note 29 and accompanying text.
---------------------------------------------------------------------------

     Should Approach 2 be permitted for all registration
statements even if the contract is still offered to new purchasers,
has over 5,000 investors, or may have had material changes since the
most recent prospectus update? What would be the benefits to
registrants and investors of permitting forward incorporation by
reference, as under Approach 2, for all variable contract
registration statements? Or, would this result in changes to
variable contract disclosure practices that would impede investors'
ability to understand their variable contracts in any way?

Other Considerations

     How do Approach 1 and Approach 2 compare to the
requirement to update a registration statement, and to the
circumstances that the Staff Letters identify, with respect to the
liability provisions available to investors under the federal
securities laws? Are there changes to Approach 1 and Approach 2 that
should be considered to further protect investors?
     Approaches 1 and 2 contemplate that the codified relief
would be available only to Form N-4 and Form N-6 registrants (as the
conditions associated with portfolio company disclosure would be
applicable only to Form N-4 and Form N-6 registrants, and not also
Form N-3 registrants).\395\ Should the Commission's position on
Alternative Disclosure Contracts or Approaches 1 or 2 be extended to
managed separate accounts? If yes, how should the conditions be
modified to accommodate managed separate accounts? For example,
should we consider an approach similar to rule 8b-16(a) under the
Investment Company Act where updated information about the contract
(including audited financial statements for the insurance company)
and the investment options are included in the separate account's
annual shareholder report?
---------------------------------------------------------------------------

    \395\ Under the Staff Letters, one of the set of circumstances
under which the staff has stated that it would not recommend
enforcement action is that investors are provided prospectuses for
the underlying portfolio companies. However, because a managed
separate account prospectus describes both the offering of the
contract and the investment options, it is not possible to provide
the investment option prospectuses separate from the separate
account prospectus.
---------------------------------------------------------------------------

     Should the Commission's position on Alternative
Disclosure Contracts or Approaches 1 or 2 be extended to annuity
contracts registered with the Commission under the Securities Act
only and filed on Forms S-1 and S-3? If yes, how should the
conditions be modified to accommodate these contracts?
     If the Commission were to codify Approach 1 or Approach
2, should issuers that are operating in the manner described in the
Staff Letters, as of the effective date of the adoption of final
variable contract summary prospectus rules, be permitted to continue
operating in this manner? Or should the Commission instead require
all issuers--including those that are operating in the manner
described in the Staff Letters as of the effective date of the
adoption of final variable contract summary prospectus rules--to
satisfy the conditions under Approach 1 or Approach 2? If commenters
believe that the latter approach is appropriate, should Approach 1
or Approach 2 be available to only those contracts that are no
longer offered to new purchasers, make no material changes, for
contracts with fewer than a certain number of investors, or for some
other group of contracts? Why?

D. Proposed Amendments to Registration Forms

    We are proposing amendments to Forms N-3, N-4, and N-6 to update
and enhance the disclosures to investors in variable contracts, and to
implement the proposed summary prospectus framework. These proposed
amendments include new disclosure requirements to reflect the evolution
of variable contract features, including, in particular, the prevalence
of optional benefits that insurers offer under these contracts. In
addition, we are proposing amendments to provide greater consistency
among the registration forms for variable contracts. Form N-6, which
was adopted in 2002 and is the newest variable contract form, served as
a model for many of the proposed revisions to Forms N-3 and N-4.
Accordingly, we are proposing fewer changes to Form N-6 than the other
forms.
    Certain investors who are considering variable annuities may also
be considering variable life insurance (and vice versa). We believe a
consistent presentation could reduce investor confusion and promote
investor understanding through common disclosure across types of
variable products on elements that we consider useful in explaining
variable contracts' features and risks. Also, we believe that more
uniformity of disclosures across variable contract types may make it
easier for investors to compare similar products. Similarly, we believe
that increasing consistency of disclosure requirements among
registration forms could increase efficiencies among sponsors of
variable contracts that register on multiple of these registration form
types, and other market participants.
1. General Instructions
    We are proposing amendments to the General Instructions of Forms N-
3, N-4, and N-6 regarding the preparation and filing of registration
statements. The proposed General Instructions would, like the General
Instructions in current Form N-6,\396\ be structured to include four
parts: (A) Definitions; (B) Filing and Use of Form; (C) Preparation of
the Registration Statement; and (D) Incorporation by Reference.\397\
With the exception of General Instruction C.3, these amendments are
organizational in nature and incorporate minor changes that are not
intended to significantly alter the content of the current General
Instructions for these forms.
---------------------------------------------------------------------------

    \396\ While the proposed General Instructions in Forms N-3 and
N-4 would be structured like the General Instructions in current
Form N-6, there are certain new instructions that we are proposing
to add to each of the forms. See, e.g., proposed General
Instructions C.3.(a), C.3.(b), C.3.(c), C.3.(e), and C.3.(h) to
Forms N-3, N-4, and N-6, each described infra.
    \397\ In 2017, the Commission proposed amendments to its rules
on incorporation by reference as part of a broader proposal to
modernize and simplify certain disclosure requirements in Regulation
S-K (and related rules and forms) to implement Section 72003 of the
Fixing America's Surface Transportation Act. See 2017 FAST Act
Proposal, supra note 307. We would amend any references to these
rules in the General Instructions to Forms N-3, N-4, and N-6 to
reflect any rules that the Commission may adopt based on that
proposal.
---------------------------------------------------------------------------

    Proposed General Instruction C.3 would provide substantive
requirements for the preparation of the registration statement,
including instructions relating to the organization, presentation, and
prospectuses permitted to be included in a registration statement. The
instruction would parallel Instruction C.3 of current Form N-6 in
substance, except as described below.
    Proposed General Instruction C.3.(a) would require that the
disclosures in response to Item 2, Item 3, and Item 4 of the
registration forms appear in numerical order at the front of the
prospectus, and not be preceded by anything other than a cover page
(Item 1), a glossary, or a table of contents. We believe that these
disclosures should appear at the beginning of the prospectus because
they contain the most salient information about a variable contract's
key features, costs, and risks.\398\ Additionally, the instruction
would provide that, if the discussion of the information that Items 2
or 3 requires also responds to disclosure requirements in other items
of the prospectus, a registrant need not include additional disclosure
that repeats this information.
---------------------------------------------------------------------------

    \398\ The disclosure that proposed Items 2 and 3 would require
also would appear at the beginning of the initial summary
prospectus. See supra note 75 and accompanying text.
---------------------------------------------------------------------------

    Proposed General Instruction C.3.(b) would provide that, except in
response to Items 2 and 3, a registrant would be

permitted to include information in the prospectus or SAI that is not
otherwise required, so long as it is not incomplete, inaccurate, or
misleading and does not, because of its nature, quantity, or manner of
presentation, obscure or impede understanding of the information that
is required to be included. This instruction is intended to provide
flexibility to registrants to include contextual and other information
that could aid investors' understanding of variable contracts and
assist them in making informed investment decisions.
    Proposed General Instruction C.3.(c) would encourage registrants to
use, as appropriate, question-and-answer presentations, tables, side-
by-side comparisons, captions, bullet points, numeric examples,
illustrations or similar presentation methods.\399\ We believe that
these alternative ways of presenting information could increase
readability and that this proposed instruction could encourage
registrants to use these presentation options, where appropriate.
---------------------------------------------------------------------------

    \399\ See, e.g., Kleimann Presentation, supra note 106
(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).
---------------------------------------------------------------------------

    Proposed General Instruction C.3.(d) includes in substance the
requirements of Item 2 (Definitions) of current Forms N-3 and N-4. The
changes conform this instruction to the language in the parallel
current General Instruction of Form N-6, which we believe will improve
readability and consistency across form types.
    Proposed General Instruction C.3.(e) would provide new guidance in
each of the forms addressing when a registrant may describe multiple
contracts in a single prospectus, and include multiple prospectuses in
a single registration statement. First, proposed General Instruction
C.3.(e)(i) would provide that registrants may describe multiple
contracts in a single prospectus when the contracts are ``essentially
identical.'' Whether the contracts are essentially identical would
depend on the facts and circumstances. The proposed instruction
includes examples to provide guidance on this point.\400\ Similarly,
proposed General Instruction C.3.(e)(ii) would further provide that a
registrant may combine multiple prospectuses in a single registration
statement when the prospectuses describe contracts that are essentially
identical. The proposed instruction also includes examples to provide
guidance on this point.\401\ We believe these examples are generally
consistent with current industry practice.
---------------------------------------------------------------------------

    \400\ The examples clarify that a contract that does not offer
optional benefits would not be essentially identical to one that
does. Similarly, group and individual contracts would not be
essentially identical. However, contracts that vary only due to
state regulatory requirements would be essentially identical.
    \401\ 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 an ``enhanced'' version of the same
contract (where the ``enhanced'' version modifies the features or
options that the registrant offers under that contract).
---------------------------------------------------------------------------

    While proposed paragraph (a) of General Instruction C.3 requires
registrants to disclose the information required by Items 2, 3, and 4
in numerical order at the front of the prospectus and generally not to
precede the items with other information, proposed General Instruction
C.3.(e)(iii) would provide that, as a general matter, registrants
providing disclosure in a single prospectus for more than one contract,
or for contracts sold in both the group and individual markets, may
depart from this requirement as necessary to present the required
information clearly and effectively (although the order of information
required by each item must remain the same). The proposed instruction
would include examples to provide guidance on this point.\402\
---------------------------------------------------------------------------

    \402\ The examples clarify that a prospectus may present all of
the Item 2 information for several contracts, followed by all of the
Item 3 information for the contracts, and followed by all of the
Item 4 information for the contracts. Alternatively, the prospectus
may present Items 2, 3, and 4 for each of several contracts
sequentially. Other presentations also could be acceptable if they
are consistent with the form's intent to disclose the information
required by Items 2, 3, and 4 in a standard order at the beginning
of the prospectus. As guidance, we believe that regardless of the
presentation method chosen, when disclosing information relating to
one of several contracts, registrants should clearly identify to
which contract the information relates.
---------------------------------------------------------------------------

    Proposed paragraph (h) of General Instruction C.3, which would
require variable contracts to use the Inline XBRL format for the
submission of certain required disclosures in the variable contract
statutory prospectus,\403\ is discussed in more detail in Section II.E
below.
---------------------------------------------------------------------------

    \403\ See proposed General Instruction C.3.(h) to Forms N-3, N-
4, and N-6; see also proposed Items 3, 4, 5, 12, 19, and 20 of Form
N-3; proposed Items 3, 4, 5, 11, and 18 of Form N-4; proposed Items
3, 4, 5, 11, and 18 of Form N-6.
---------------------------------------------------------------------------

    Proposed paragraph (i) of General Instruction C.3 would require any
website address or cross-reference that is included in an electronic
version of the statutory prospectus (i.e., electronic versions sent to
investors or available online) to be an active hyperlink.\404\ This
instruction is intended to ensure that investors viewing electronic
versions of the prospectus are able to easily access website addresses
and cross-referenced materials that are referenced in the prospectus.
This requirement would not apply to statutory prospectuses that are
filed on the EDGAR system.\405\
---------------------------------------------------------------------------

    \404\ See proposed General Instruction C.3.(i) to Forms N-3, N-
4, and N-6.
    \405\ Id.; see also rule 105 of Regulation S-T [17 CFR 232.105]
(prohibiting hyperlinking to websites, locations, or other documents
that are outside of the EDGAR system).
---------------------------------------------------------------------------

    We request comment generally on the proposed amendments to the
General Instructions of Forms N-3, N-4, and N-6 and specifically on the
following issues:

     Would the proposed instructions provide clear guidance
to registrants when preparing or amending a registration statement?
Should any of the proposed instructions be modified or not be
included? For example, proposed paragraph (i) of General Instruction
C.3 would require any website address or cross-reference that is
included in an electronic version of the statutory prospectus to be
an active hyperlink. Should we broaden that requirement to also
apply to the SAI and Part C of the registration statement? Would
broadening the requirement in this manner result in any synergies or
redundancies with the requirements of proposed rule 498A(h)(2)(iii)?
\406\ Additionally, to what extent, if any, would the proposed
requirement regarding active hyperlinks present challenges or add
costs or burdens with respect to the use of statutory prospectuses,
given that active links are not required in EDGAR filings (and
active links to websites, locations, and documents outside of the
EDGAR system are expressly prohibited pursuant to rule 105 of
Regulation S-T [17 CFR 232.105])? Are there additional instructions
that we should include? Should any current instructions not be
included in the revised forms?
---------------------------------------------------------------------------

    \406\ See supra section II.A.5.
---------------------------------------------------------------------------

     Are the proposed definitions listed as Part A of the
General Instructions clear, or should they be modified? Are there
additional definitions that we should include in proposed Part A of
the General Instructions?
     Are the proposed instructions in Part B of the General
Instructions relating to the filing and use of the registration
forms clear, or should they be modified? For example, proposed
General Instruction B.2.(b) to Forms N-3, N-4, and N-6 provides that
for registration statements or amendments filed only under the
Investment Company Act, registrants need not respond to certain
items of the forms. Those registration statements generally relate
to contracts offered to institutional investors who are seeking to
provide coverage for their key personnel, and

therefore certain disclosures that would be relevant to retail
investors are less significant.\407\ Should that instruction in each
of the forms be updated to either add any additional items to, or
remove any of the items from, this proposed list of exclusions?
---------------------------------------------------------------------------

    \407\ For example, institutional investors generally negotiate
benefits coverage on a custom basis, and therefore prospectuses
regarding contracts offered to institutional investors may not
include any discussion regarding death benefits.
---------------------------------------------------------------------------

     Would the proposed instructions in Part C of the
General Instructions result in clearer and more concise disclosure
to investors? Are there other instructions that we should include to
encourage registrants to use plain English principles or otherwise
promote clear and concise disclosure?
     Would other requirements improve the utility and
accessibility of the statutory prospectus for retail investors? Are
there any areas in the document where requiring the use of a
specific check-the-box approach, bullet points, tables, charts,
graphs or other graphics or text features would be helpful in
presenting any of the information or making it more engaging to
retail investors? Should we include requirements for font size,
margins and paper size? Should we restrict certain types or sizes of
font, color choices or the use of footnotes?
     Is the requirement of proposed General Instruction
C.3.(a) that Items 2, 3, and 4 appear in numerical order at the
front of the prospectus appropriate? Should we specify that any
other items appear at the front of the prospectus? Should all of the
portions of the statutory prospectus that are also summary
prospectus disclosures be segregated and placed at the beginning of
the statutory prospectus to aid in the effective presentation of
information for investors in contracts whose issuers choose not to
rely on proposed rule 498A?
     Are the instructions in proposed General Instruction
C.3.(e) on when registrants may describe multiple contracts in a
single prospectus, and include multiple prospectuses in a single
registration statement, clear and appropriate? Is it clear when
contracts are ``essentially identical,'' or would additional
clarification (either in the form text, or provided as Commission
guidance) be helpful? Are the examples that the proposed form
instructions include useful and appropriate? Are they generally
consistent with current industry practice? Should we modify or
expand these examples in any way? Would some alternative standard
for when a single prospectus may describe multiple contracts, or for
when a single registration statement may include multiple
prospectuses, be more appropriate than the proposed ``essentially
identical'' standard?
     Should a registrant only be permitted to describe a
single contract in a prospectus, and if so, what parameters should
dictate what a single contract is? Likewise, should a registrant
only be permitted to include one prospectus in a registration
statement? What is industry practice in terms of describing multiple
contracts in a single prospectus, and combining multiple
prospectuses into a single registration statement? What are the
benefits and costs of this practice, both to members of the industry
as well as to investors?
     Should we, as proposed, permit registrants that are
providing disclosure for more than one contract in a single
prospectus, or for contracts sold in both the group and individual
markets, to depart from the instruction to disclose the information
required by Items 2, 3, and 4 in numerical order to present the
required information clearly and effectively (provided the order of
information required by each item remains the same)? Should this
instruction be modified in any way?
     Should the instructions in proposed Part D of the
General Instructions regarding the use of incorporation by reference
be modified in any way?
2. Part A (Information Required in a Prospectus)
    Table 5 shows how our proposed amendments would amend the item
requirements of Part A of the variable contract registration forms.

                        Table 5--Proposed Amendments to Part A of Forms N-3, N-4, and N-6
----------------------------------------------------------------------------------------------------------------
                                                      Form N-3: Proposed  Form N-4: Proposed  Form N-6: Proposed
        Item description           Proposed item No.       treatment           treatment           treatment
----------------------------------------------------------------------------------------------------------------
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).
Overview of the Contract........   Form N-3:  New Item (also in   New Item (also in   New Item (also in
                                   Item 2.             ISP).               ISP).               ISP).
                                   Form N-4:
                                   Item 2.
                                   Form N-6:
                                   Item 2.
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 3.             ISP, USP).          ISP, USP).          ISP, USP).
                                   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 and moved   Revised and moved   N/A.
                                   Item 33             to SAI.             to SAI.
                                   (currently Item
                                   4).
                                   Form N-4:
                                   Item 27
                                   (currently Item
                                   4).
Principal Risks of Investing in    Form N-3:  New Item..........  New Item..........  Revised Item.
 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...............  Unchanged (part
                                   Item 9 (currently                                           also in ISP).
                                   Item 7).
Standard Death Benefit (in Forms   Form N-3:  Revised (part also  Revised (part also  Revised (part also
 N-3 and N-4, currently ``Death    Item 11             in ISP).            in ISP).            in ISP).
 Benefit,'' and in Form N-6,       (currently Item
 currently ``Death Benefits and    10).
 Contract Values'').               Form N-4:
                                   Item 10
                                   (currently Item
                                   9).
                                   Form N-6:
                                   Item 10
                                   (currently Item
                                   8).
Other Benefits Available Under     Form N-3:  New Item (part      New Item (part      New Item (part
 the Contract.                     Item 12.            also in ISP).       also in ISP).       also in ISP).
                                   Form N-4:
                                   Item 11.
                                   Form N-6:
                                   Item 11.
Purchases and Contract Value....   Form N-3:  Revised (part also  Revised (part also  N/A.
                                   Item 13             in ISP).            in ISP).
                                   (currently Item
                                   11).
                                   Form N-4:
                                   Item 12
                                   (currently Item
                                   10).
                                   Form N-6:
                                   N/A.
Surrenders and Withdrawals (in     Form N-3:  Revised (part also  Revised (part also  Unchanged (part
 Forms N-3 and N-4, currently      Item 14             in ISP).            in ISP).            also in ISP).
 ``Redemptions,'' in Form N-6,     (currently Item
 currently ``Surrenders, Partial   12).
 Surrenders, and Partial           Form N-4:
 Withdrawals'').                   Item 13
                                   (currently Item
                                   11).
                                   Form N-6:
                                   Item 12
                                   (currently Item
                                   9).
Loans...........................   Form N-3:  New Item..........  New Item..........  Revised.
                                   Item 15.
                                   Form N-4:
                                   Item 14.
                                   Form N-6:
                                   Item 13
                                   (currently Items
                                   10 and 23).
Lapse and Reinstatement.........   Form N-6:  N/A...............  N/A...............  Unchanged (also in
                                   Item 14                                                     ISP).
                                   (currently Item
                                   11).
Taxes...........................   Form N-3:  Revised...........  Revised...........  Unchanged.
                                   Item 16
                                   (currently Item
                                   13).
                                   Form N-4:
                                   Item 15
                                   (currently Item
                                   12).
                                   Form N-6:
                                   Item 15
                                   (currently Item
                                   12).
Legal Proceedings...............   Form N-3:  Revised...........  Revised...........  Unchanged.
                                   Item 17
                                   (currently Item
                                   14).
                                   Form N-4:
                                   Item 16
                                   (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) \408\.
Financial Statements............   Form N-3:  New Item..........  New Item..........  Unchanged.
                                   Item 18.
                                   Form N-4:
                                   Item 17.
                                   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 19.            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 18.            Item 20 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 20.            ISP, USP if
 Options Available Under the                           disclosures from
 Contract.                                             Item 19 are not
                                                       included).
----------------------------------------------------------------------------------------------------------------

a. Front and Back Cover Pages (Item 1 of Forms N-3, N-4, and N-6)
    We propose to amend Item 1 of each registration form to reflect the
requirements for the prospectus cover pages required by Item 1 of
current Form N-6, with three additions to the front cover page:
---------------------------------------------------------------------------

    \408\ We are proposing to eliminate the Table of Contents of the
SAI that is required by Item 15 of current Form N-3 and Item 14 of
current Form N-4. We do so to streamline the prospectus and avoid
duplicative disclosure with the SAI, which separately requires a
Table of Contents. See infra section II.D.3.

     First, we are proposing that the front cover page
include the name of the contract and the class or classes, if any,
to which the contract relates to help clarify the specific contract
and class or classes covered by the prospectus; \409\
---------------------------------------------------------------------------

    \409\ Proposed Item 1(a)(5) of Forms N-3; proposed Item 1(a)(4)
of Forms N-4 and N-6.
---------------------------------------------------------------------------

     Second, as with the initial summary prospectus and
updating summary prospectus, we are proposing that the front cover
page include a statement directing an investor to the Investor.gov
website for additional information; \410\ and
---------------------------------------------------------------------------

    \410\ Proposed Item 1(a)(8) of Form N-3; proposed Item 1(a)(7)
of Forms N-4 and N-6; see also supra note 84 and accompanying text.
---------------------------------------------------------------------------

     Third, as with the initial summary prospectus, we are
proposing that the front cover page include a legend informing
investors about the free look period.\411\
---------------------------------------------------------------------------

    \411\ Proposed Item 1(a)(10) of Form N-3; proposed Item 1(a)(8)
of Forms N-4 and N-6; see also supra note 83 and accompanying text.
The proposed legend on each of the three forms would read: ``If you
are a new investor in the [Contract], you may cancel your [Contract]
within 10 days of receiving it without paying fees or penalties. In
some states, this cancellation period may be longer. Upon
cancellation, you will receive either a full refund of the amount
you paid with your application or your total contract value. You
should review this prospectus, or consult with your investment
professional, for additional information about the specific
cancellation terms that apply.''

    To streamline the front cover page and because similar information
would appear in tabular presentation in the prospectus, we are
proposing to eliminate the current requirements in Forms N-3 and N-4
that the registrant include on the front cover page the type of
separate account and names of the available portfolio companies,
respectively.
    Additionally, we are proposing that the prospectus back cover page
include certain additional information concerning: (1) The availability
of the SAI and how to request other information about the contract; (2)
whether and from where information is incorporated by reference into
the prospectus as permitted by proposed Part D of the Form's General
Instructions; and (3) the EDGAR contract identifier for the
contract.\412\
---------------------------------------------------------------------------

    \412\ Proposed Item 1(b) of Forms N-3, N-4, and N-6.
---------------------------------------------------------------------------

    We request comment generally on the proposed amendments to the
prospectus cover page requirements, and specifically on the following
issues:

     Are there additional disclosure topics that should be
included in the cover pages of the statutory prospectus?
     As proposed, should a legend that is similar to the
disclosure regarding the free look period on the cover page of the
initial summary prospectus also appear on the cover page of the
statutory prospectus? Why or why not? Should we modify the proposed
legend regarding the free look period that would appear on the cover
page of the statutory prospectus in any way?
     Should the registration forms require that the
registrant include the names of the investment options/portfolio
companies on the front cover page?
     Should we require the name of the contract and the
class/classes?
b. Overview of the Contract (Item 2 of Forms N-3, N-4, and N-6)
    We propose to add new Item 2 to the registration forms, which would
require registrants to include certain basic and introductory
information about the contract and its benefits.\413\ These disclosures
would also be required in initial summary prospectuses.\414\
---------------------------------------------------------------------------

    \413\ See supra section II.A.1.c.ii(a) for a discussion of these
requirements in more detail. Proposed Item 2(d) of Form N-6 would
include the requirements that appear in Item 2(a) of current Form N-
6.
    \414\ Proposed rule 498A(b)(5)(i).
---------------------------------------------------------------------------

    We request comment generally on the proposal to include a new item
requiring registrants to include in the prospectus an overview of the
contract, and specifically on the following issues:

     Should we require the proposed overview discussion to
be included in the statutory prospectus? Are the content
requirements for this proposed item appropriate for inclusion in the
statutory prospectus?
     Should the disclosure requirements for this item be
modified in any way for the statutory prospectus?
c. Key Information (Item 3 of Forms N-3, N-4, and N-6)
    We propose to add new Item 3 to the registration forms, which would
require a statutory prospectus to include the Key Information Table
providing a brief description of key facts about the variable
contract.\415\ The Key Information Table would also appear in the
initial summary prospectus and the updating summary prospectus, except
that it could vary depending on the scope of the initial summary
prospectus (which could only describe a single contract that the
registrant currently offers for sale), in contrast to the updating
summary prospectus and statutory prospectus (which could describe
multiple contracts under the conditions of the proposed General
Instructions to the registration forms).\416\ An updating summary
prospectus that describes multiple contracts could contain a separate
Key Information Table for each of the contracts, or use a different
presentation approach that consistently discloses the required
information for each contract in the required order. \417\
---------------------------------------------------------------------------

    \415\ See supra section II.A.1.c.ii(b) for a discussion of these
requirements in more detail.
    \416\ See supra sections II.A.1 and II.A.2.
    \417\ See supra section II.A.2.c.ii(b).
---------------------------------------------------------------------------

    We request comment generally on the proposal to include the Key
Information Table in the prospectus, and specifically on the following
issues:

     Should we require the proposed Key Information Table to
be included in the statutory prospectus? Are the content
requirements for this proposed item appropriate for inclusion in the
statutory prospectus?
     Should the Key Information Table in the statutory
prospectus differ in any respect from the table in the summary
prospectuses? If so, in what respect? Should we eliminate certain
line-items? Are there additional disclosure topics that we should
require in the Key Information Table that appears in the statutory
prospectus?
     Would the Key Information Table disclosure requirements
confuse investors if a prospectus were to describe multiple
contracts? For example, if a prospectus that describes multiple
contracts were to include a single Key Information Table that
discloses separate fee information in the ``Fees and Expenses''
line-items for each contract, would this confuse investors?
     Are there certain disclosure presentations that would
be so lengthy, or overly-broad, that they may not be useful to
investors? Would it be useful for us to provide additional
instructions in the form, about different approaches that
registrants could take in presenting any of the required information
in the Key Information Table? For example, with respect to fee
disclosure in the Key Information Table, should we provide guidance
or additional instructions on whether it would be acceptable to
present a range of minimum and maximum fees, and lowest and highest
annual costs, that includes all of the contracts that the prospectus
describes, or instead require registrants to provide separate fee
and cost ranges for each contract that the prospectus describes?
Alternatively or additionally, should we require disclosure in the
Key Information Table reminding investors to review their individual
contract for information about the specific fees they will pay in
connection with their contract?
     As discussed above, we are proposing a requirement that
the Key Information Table include cross-references to the location
in the statutory prospectus where the relevant subject matter is
described in greater detail.\418\ We are separately proposing a

General Instruction (and a parallel instruction in proposed rule
498A) requiring cross-references in electronic versions of the
statutory prospectus to link directly to the location in the
statutory prospectus where the subject matter is discussed in
greater detail).\419\ Should we instead include a General
Instruction in each of the registration forms (and/or rule 498A as
appropriate) that would provide that, where a topic is summarized in
the summary or statutory prospectus and is discussed in more detail
elsewhere in the statutory prospectus, the summarized topic must
include a cross-reference (and a hyperlink in electronic document
versions) to the location in the statutory prospectus where the
topic is discussed in more detail?
---------------------------------------------------------------------------

    \418\ See supra note 162 and accompanying text.
    \419\ Id.
---------------------------------------------------------------------------

d. Fee Table (Item 4 of Forms N-3, N-4, and N-6)
    We propose to amend Item 3 of the current registration forms (which
we would re-designate as Item 4) to simplify and update current fee and
expense disclosure obligations.\420\
---------------------------------------------------------------------------

    \420\ We also propose to change the title of the Item from
``Synopsis of Highlights'' in Form N-3, ``Synopsis'' in Form N-4,
and ``Risk/Benefit Summary: Fee Table'' in Form N-6 to ``Fee Table''
in all three forms.
---------------------------------------------------------------------------

i. Transaction Expenses (Forms N-3 and N-4)
    We are proposing to modify the current ``Contractowner Transaction
Expenses'' table in Forms N-3 and N-4 (which we would re-title as
``Annual Transaction Expenses'' in each form) by removing the current
``Surrender Fees'' line-item in this table. We believe the current
``Deferred Sales Load'' line-item in the table would already capture
these fees.\421\ Correspondingly, we are proposing to revise the title
of the ``Deferred Sales Load'' line-item to include ``Deferred Sales
Load (or Surrender Charge)'' to clarify that a registrant should
continue to include surrender charges in the table.
---------------------------------------------------------------------------

    \421\ As a conforming change, we propose to remove Instruction
2(c) to current Item 3 of Form N-3 and Instruction 10 to current
Item 3 of Form N-4 and revise Instruction 2(b) to current Item 3 of
Form N-3 and Instruction 9 to current Item 3 of Form N-4 (which we
would re-number as Instruction 10 in each form) to clarify that the
term ``deferred sales load'' includes surrender charges.
---------------------------------------------------------------------------

ii. Annual Contract Expenses (Forms N-3 and N-4) and Periodic Charges
Other Than Portfolio Company Operation Expenses (Form N-6)
    We are proposing several changes to the current ``Annual Account
Fee'' and ``Annual Expenses'' line-items in Form N-3,\422\ and the
current ``Annual Contract Fee and Separate Account Annual Expenses''
table in Form N-4. As proposed, each would be retitled, as a stand-
alone table, under the heading ``Annual Contract Expenses'' in both
forms to clarify that the item reflects insurance-related annual
contract fees and not the fees related to investment options.
---------------------------------------------------------------------------

    \422\ In current Form N-3, these items are each presented as
line-items in the table that Item 3(a) requires.
---------------------------------------------------------------------------

    In addition, we are proposing to modify the captions for existing
line-items, consolidate certain line-items, and add a new line-item for
optional benefits in this table in each form.\423\ Under the proposal,
the ``Annual Contract Expenses'' table in Forms N-3 and N-4 would be
composed of the following line-items:
---------------------------------------------------------------------------

    \423\ Although these proposed revisions generally apply to Forms
N-3 and N-4, as discussed below, the new line-item for optional
benefits would also be added to the ``Periodic Charges Other Than
Portfolio Company Operation Expenses'' table in Form N-6.

     Administrative Expenses. The line-item ``Annual
Contract Fee'' in Form N-4 (``Annual Expenses'' in Form N-3) would
be replaced with the more plain-English ``Administrative Expenses.''
\424\
---------------------------------------------------------------------------

    \424\ We also propose to make conforming changes to Instruction
3 to current Item 3 of Form N-3 and Instruction 7 to current Item 3
of Form N-4, which we would renumber as new Instruction 8 in both
forms (no changes to the definition).
---------------------------------------------------------------------------

     Base Contract Expenses. We are consolidating the
current line-item under ``Annual Expenses'' in Form N-3 (``Mortality
and Expense Risk Fees,'' and ``Other Expenses''), and the current
line-items under ``Separate Account Annual Expenses'' in Form N-4
(``Mortality and Expense Risk Fees,'' ``Account Fees and Expenses,''
and ``Total Separate Account Annual Expenses'') under a single new
line-item in each table, ``Base Contract Expenses.'' Collapsing
these fees into a single line-item is intended to make it easier for
investors to understand the annual cost of investing in the basic
variable contract.\425\ Any other recurring charge (other than
charges associated with the portfolio companies, or management fees
in the case of Form N-3) would appear as an additional line-item in
the Annual Transaction Expenses table or the Annual Contract
Expenses table, and would disclose the maximum amount or basis on
which the charge is deducted.\426\
---------------------------------------------------------------------------

    \425\ We also propose to make conforming changes to each form's
instructions. We propose to remove Instruction 4(b) to current Item
3 of Form N-3 and Instruction 13 to current Item 3 of Form N-4,
which permit ``Mortality and Expense Risk Fees'' to be listed
separately on two lines in the table. We also propose to revise
Instruction 14 to current Item 3 of Form N-4 (which we would
renumber as Instruction 13), and add a corresponding new Instruction
13 to proposed Item 4 of Form N-3, to state that ``Base Contract
Expenses'' includes mortality and expense risk fees, and account
fees and expenses. We would also include a new Instruction 3(e) to
proposed Item 4 of Form N-6 permitting Registrants to consolidate
any charges that are assessed on a similar basis (e.g.,
Administrative charge and Mortality and Expense Risk Fees).
    \426\ We propose to revise and renumber Instruction 15 to
current Item 3 of Form N-4 (which currently appears under the
heading ``Portfolio Company Annual Expenses'') as Instruction 14 to
proposed Item 4 (to appear under the heading ``Other Annual
Expenses'') to make clear that other annual expenses are required to
be disclosed (not just other portfolio company annual expenses, as
the current instruction provides).
---------------------------------------------------------------------------

     Management Fees. Unlike Forms N-4 and N-6, which as
discussed below would require separate disclosures about total
annual portfolio company operating expenses, Form N-3 would not
require such disclosures because Form N-3 registrants have a single-
tier structure and do not have underlying portfolio companies.
However, Form N-3 registrants generally do have distinct management
fees for each investment option offered under the contract. Since
these management fees can vary significantly, we propose to require
disclosure of the management fee for each investment option.\427\
---------------------------------------------------------------------------

    \427\ See Instruction 7 to proposed Item 4 of 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 would require a new line-item that would
require registrants to list any optional benefits available under
the contract, along with its corresponding annual charge.\428\ In
Form N-6, this same new line-item would be added in the ``Periodic
Charges Other Than Portfolio Company Operations Expenses''
table.\429\
---------------------------------------------------------------------------

    \428\ See Instruction 15 to proposed Item 4 of Forms N-3 and N-
4.
    \429\ See Instruction 3.(f) to proposed Item 4 of Form N-6.
---------------------------------------------------------------------------

     Total Annual Contract Expenses. In Form N-3, we are
proposing a new requirement to disclose total annual contract
expenses, and a related instruction that would specify that total
annual contract expenses should be disclosed as a percentage of
account value.\430\ While annual contract expenses are generally
calculated as a percentage of account value, optional benefit
expenses may be calculated on a different basis, such as a
percentage of the benefit base or as a percentage of average net
assets. The proposed instruction would provide that if optional
benefit expenses are calculated on a basis other than account value,
registrants should prominently indicate that those optional benefit
expenses are not included in total annual contract expenses (because
they are calculated on different bases and cannot be added). The
requirement to disclose total annual contract expenses would differ
from the proposed approach to disclosing annual contract expenses in
Form N-4, which would require separate line-items for administrative
expenses, base contract expenses, and optional benefit expenses, but
would not (unlike the proposed approach in Form N-3) require the
disclosure of a composite total of these line-items.\431\
---------------------------------------------------------------------------

    \430\ See Instruction 16 to proposed Item 4 of Form N-3.
    \431\ See ``Annual Contract Expenses'' table in Item 4 of
proposed Form N-4. We understand that most registrants on Form N-4
calculate optional benefit expenses on a basis other than contract
value. Because of this, it would generally be difficult to sum
optional benefit expenses with other expenses that are presented as
annual contract expense line- items. In contrast, we understand that
most registrants on Form N-3 either do not offer optional benefits
or else calculate optional benefit expenses on a contract value
basis. We therefore believe that proposing the disclosure of total
annual contract expenses is appropriate for Form N-3 registrants,
because the disclosure would be practicable and could help investors
understand the total expenses (not including portfolio company fees
and expenses) that they will pay each year.

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

iii. Total Annual Portfolio Company Operating Expenses (Form N-4)
    We are proposing to amend the disclosures that registrants would
provide with respect to the ``Total Annual Portfolio Company Operating
Expenses'' table in Form N-4. First, we are proposing to revise the
legend that would precede the table to direct investors to the new
appendix required by new Item 18 relating to the portfolio companies
available under the contract. As a conforming change, we are proposing
to eliminate current Instruction 20 (stating that a registrant may
include additional tables showing annual operating expenses separately
for each portfolio company immediately following the required table),
as this information would duplicate the fee information that would
appear in the new appendix.
    We also propose to simplify other instructions to the table. We
propose to revise current Instruction 17(a) (which we would re-
designate as new Instruction 16) to instruct registrants to use the
gross expense ratio presented in the fee table of a portfolio company's
current prospectus when disclosing the minimum and maximum ``Total
Annual [Portfolio Company] Operating Expenses.'' Current Instruction
17(a) contains instructions for calculating Total Annual Portfolio
Company Operating Expenses, which results in a figure that is the same
as the gross expense ratio presented in a portfolio company's
prospectus fee table. Directing registrants to use the gross expense
ratio reflected in a portfolio company's current prospectus would avoid
the need to provide detailed instructions in the form regarding how to
calculate this figure (as is the case with current Instruction
17(a)).\432\
---------------------------------------------------------------------------

    \432\ Because this simplification would render obsolete the rest
of Instruction 17, as well as Instructions 16 and 18, to current
Item 3 of Form N-4, we propose eliminating them.
---------------------------------------------------------------------------

    We also propose revising current Instruction 19 (and renumbering it
as Instruction 17) to modify the way that registrants could reflect
operating expenses that include expense reimbursement or fee waiver
arrangements. Currently, the instruction specifies that such expenses
could appear in a footnote to the table. The revised instruction would
instead state that these could appear as an additional line-item to the
table. We believe that including these disclosures as a separate line-
item in the table would provide a clearer presentation for investors
than a footnote to the table.\433\
---------------------------------------------------------------------------

    \433\ See Disclosure of Costs and Expenses by Insurance Company
Separate Accounts Registered as Unit Investment Trusts that Offer
Variable Annuity Contracts, Investment Company Act Release No. 25802
(Nov. 13, 2002) [67 FR 69973 (Nov. 19, 2002)], at n.14 and
accompanying text (``We intend that the staff construe the
amendments to the fee table of Form N-4 consistent with the approach
taken under Form N-1A, to permit the addition of one line to the fee
table showing the range of net Portfolio Company operating expenses
after taking account of contractual limitations that require
reimbursement or waiver of expenses.'').
---------------------------------------------------------------------------

iv. Example (Forms N-3 and N-4)
    We are proposing to update the requirements for the Example that
would appear in the Fee Table in Forms N-3 and N-4 in several respects.
First, we propose to revise the legend accompanying the Example to
reflect the revised Fee Table headings and to reference the inclusion
of optional benefits in the Example's assumptions. We believe the
Example should reflect the highest cost that an investor may pay under
the contract, inclusive of any available optional benefits. We also
propose to increase the value of the assumed investment from $10,000,
as required under Item 3 of current Form N-4 (and $1,000, as required
under Item 3 of current Form N-3), to $100,000. We believe that
$100,000 more closely approximates the current average value of a
variable annuity,\434\ and therefore we believe this figure is more
likely to result in cost projections that align with actual investor
expectations and experience.
---------------------------------------------------------------------------

    \434\ See supra note 130.
---------------------------------------------------------------------------

    We are also proposing to revise the instructions for the Example to
clarify that registrants must provide an example for each contract
class, consistent with current practice.\435\ We also propose to revise
Instruction 21(b) in current Form N-4 (which we would re-number as
Instruction 18(b)), and to add new Instruction 16(b) in Form N-3, to
make clear that that an example showing the most expensive combination
of contract features should be shown first, while additional expense
examples would be permitted, but not required.
---------------------------------------------------------------------------

    \435\ The instructions for the Example in current Item 3 of Form
N-3 (currently unnumbered) would be new Instruction 17 to proposed
Item 4, while Instruction 21 to current Item 3 of Form N-4 would be
renumbered as Instruction 18 to proposed Item 4.
---------------------------------------------------------------------------

    In addition, we propose to remove the last sentence of Instruction
21(b) of current Form N-4, which states that in lieu of providing the
required example based on maximum portfolio company expenses, a
registrant may include separate expense examples based on the expenses
of each portfolio company. In our experience, registrants rarely
include separate expense examples based on the expense of each
portfolio company (likely because to do so would add extensive length
to the Example section of the prospectus). Eliminating this option
would therefore not only reflect actual practice, but also would be
consistent with our goal of streamlining prospectus disclosure.
    We also propose to make certain technical corrections to
Instructions 21(a) and (b) of current Form N-4, by eliminating
references to amortization costs, which do not apply to variable
annuity contracts that are structured as UITs.\436\
---------------------------------------------------------------------------

    \436\ 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.
---------------------------------------------------------------------------

v. Portfolio Turnover (Form N-3)
    Because Form N-3 registrants have a single-tier structure,
investors do not receive separate prospectuses containing portfolio
turnover information for investment options offered under the contract,
as is the case for portfolio companies offered under contracts
registered on Forms N-4 and N-6. We propose to require disclosure of
portfolio turnover for each investment option in Form N-3, as well as a
brief statement explaining that portfolio turnover has associated
transaction costs, and that a higher portfolio turnover rate may
indicate higher transaction cost and higher taxes, which affect the
investment option's performance.\437\ These disclosure requirements
would largely restate existing requirements in caption 10 of Item 4(a)
of current Form N-3, although they would include the brief statement
that is required by the parallel item in Form N-1A in order to provide
more context and information for investors.\438\
---------------------------------------------------------------------------

    \437\ See proposed Item 4 of Form N-3.
    \438\ See Item 3 of Form N-1A.
---------------------------------------------------------------------------

vi. General Instructions (Forms N-3, N-4, and N-6)
    In addition to specific instructions associated with each of the
tables and the Example(s) that would appear in response to the proposed
Item 4 disclosure requirements, we also propose to update the General
Instructions associated with this item.
    Instruction 1(a) to the Fee Table in current Form N-6 instructs
registrants to round all dollar figures to the nearest

dollar and all percentages to the nearest hundredth of one
percent.\439\ Because of the underwriting process inherent in variable
life insurance contracts, rounding dollar figures to the nearest dollar
for certain younger and healthier investors may result in disclosures
of zero cost for certain fees, which may be misleading for investors.
Therefore, we have proposed to modify this instruction to only require
rounding percentages to the nearest hundredth of one percent.\440\
---------------------------------------------------------------------------

    \439\ See Instruction 1(a) to current Item 3 of Form N-6.
    \440\ See Instruction 1(a) to proposed Item 4 of Form N-6.
---------------------------------------------------------------------------

    We also propose to revise General Instruction 5 of Form N-4 to
state that if a fee is calculated based on a benchmark (e.g., a fee
that varies according to volatility levels or Treasury yields), the
registrant must disclose a maximum guaranteed charge as a single
number. We believe that this proposed instruction would help minimize
confusion regarding how much an investor can expect to pay under the
contract and would better assist investors in understanding the costs
they will pay when investing in a variable annuity. Without this
clarifying statement, registrants that offer variable annuity contracts
that link certain fees to benchmarks might seek only to present the
maximum fee as a range (e.g., a certain percentage plus or minus a
stated benchmark).\441\ Under the proposed instruction, a registrant
that chooses to disclose the fee range (e.g., a fee that varies based
on the 10-year Treasury rate) associated with a particular feature
could do so, as long as they also disclose the maximum possible charge
(e.g., 3%). We also propose to add a parallel provision to Form N-3 as
General Instruction 5 of Item 4.
---------------------------------------------------------------------------

    \441\ Our staff has observed that some registrants disclose a
fee range for certain optional benefits based on a benchmark (e.g.,
a fee that varies according to volatility levels or Treasury
yields), without also disclosing a firm cap on the maximum amount an
investor may have to pay for that contract feature.
---------------------------------------------------------------------------

    As part of our effort to update the Fee Table, we propose to modify
current General Instruction 1.(f) to Item 3 of Form N-3 and General
Instruction 6 to Item 3 of Form N-4 to eliminate language that would be
redundant in light of new proposed General Instruction C.3.(e) of both
forms.\442\ We also propose to include new General Instruction 7 to
Forms N-3 and N-4, which would require registrants offering a contract
with more than one class to provide fee and expense information for
each class (and, for Form N-3 registrants, to require registrants
offering more than one investment option to provide a separate response
for each investment option).\443\
---------------------------------------------------------------------------

    \442\ We propose to remove from Instruction 6 to current Item 3
of Form N-4 and Instruction 1.(f) to current Item 3 of Form N-3 the
statement that ``[i]f a Registrant uses one prospectus to offer a
contract in both the group and individual variable annuity contract
markets, the Registrant may (a) add narrative disclosure following
the fee table identifying markets where certain fees are either
inapplicable or waived or lower fees charged to investors in group
markets, or (b) provide a separate fee table for group and
individual contracts,'' as proposed General Instruction C.3.(e)(i)
of Forms N-3 and N-4 would address the registration of multiple
contracts.
    \443\ This would harmonize the General Instructions associated
with the Fee Table for Forms N-3 and N-4 with parallel instructions
in Form N-1A. See Instruction 1(d)(ii) to Item 3 of Form N-1A (``If
the prospectus offers more than one Class of a Multiple Class Fund
or more than one Feeder Fund that invests in the same Master Fund,
provide a separate response for each Class or Feeder Fund.'').
---------------------------------------------------------------------------

vii. Instructions for New Variable Contract Registrants (Forms N-3, N-
4, and N-6)
    Finally, we propose to eliminate certain instructions in Item 3 of
current Forms N-3, N-4, and N-6 relating to new variable contract
registrants. Specifically, we propose to eliminate Instructions
4(d)(i), 4(f)(ii), 4(g)(vi) and Instruction (f) under ``Example'' in
Form N-3, Instruction 22 of Form N-4, and Instruction 5 of Form N-6 as
the staff has found these instructions to be unnecessary.
    For example, Instruction 4(d)(i) to Item 3 of current Form N-3,
Instruction 22(a) to Item 3 of current Form N-4, and Instruction 5(a)
to current Item 3 of Form N-6 instruct a registrant to base the
percentages in the Total Annual Portfolio Company Operating Expenses
table on estimated amounts for the current fiscal year, but we
understand that these operating expenses need not be estimated because
they would not vary based on whether the registrant is new or already
exists. Likewise, Instructions 4(f)(ii) and 4(g)(vi) to Item 3 of
current Form N-3, Instruction 22(b) to Item 3 of current Form N-4, and
Instruction 5(b) of Item 3 to current Form N-6 state that a new
registrant may disclose any expense reimbursement or fee waiver
arrangements that are expected to reduce the expenses that the table
would show. Because Instruction 14(e) in proposed Item 4 of Form N-3,
Instruction 17 in proposed Item 4 of Form N-4, and Instruction 4(b) in
proposed Item 4 of Form N-6 would address this same issue, and we do
not see a reason to distinguish between new and existing registrants
for this purpose, these current Instructions are unnecessary.
    Lastly, Instruction (f) under the ``Example'' in Item 3 of current
Form N-3 and Instruction 22(c) to Item 3 of current Form N-4 state that
new registrants must only complete the 1- and 3-year period portions of
the Example and estimate any annual contract fees collected. However,
because variable contract charges are contractual and do not vary based
on whether the variable contract registrant is new or existing, we
believe a new registrant's Example should include the full 1, 3, 5, and
10-year periods required of existing registrants. For these reasons, we
propose to eliminate these current Instructions in their entirety.
    We request comment generally on the amendments we propose to make
to the Fee Table, and specifically on the following issues:

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

Company Operating Expenses'' table, as proposed in Forms N-4 and N-
6? Are the amendments that we propose to the current instructions
associated with this table appropriate? Should we make any other
modifications to the table?
     Should we modify the requirements for the Example that
would appear in the Fee Table, as proposed? Would the revised legend
accompanying the Example appropriately alert investors to the
assumptions that form the basis for the Example? Are the proposed
revised instructions for the Example, including eliminating the
option to include separate expense examples based on the expenses of
each portfolio company, appropriate? Would they result in a clearer
and more salient illustration of the costs of investing in the
contract? Would increasing the value of the assumed investment in
the Example from $10,000 (or $1,000 in the case of Form N-3
registrants) to $100,000 more closely align with typical current
levels of investment in variable contracts? Are there any other
modifications to the Example that we should make? If so, what?
     Should we revise the General Instructions to the Fee
Table item, as proposed? For example, would the proposed requirement
to disclose a maximum guaranteed charge as a single number, if a fee
is calculated based on a benchmark, reduce investor confusion and
better assist investors in understanding the costs they will pay
when investing in a variable annuity? Are the other proposed
revisions to the General Instructions appropriate to eliminate
redundant language, and to otherwise update the tables? Should we
modify or remove any other General Instructions, and if so, how?
     Are there any current General Instructions that we also
should amend or other General Instructions we should include?
     Are there any additional modifications we should
require to make the fee and expense information easier for investors
to understand?
e. Principal Risks of Investing in the Contract (Item 5 of Forms N-3,
N-4, and N-6)
    We propose to add new Item 5 to Forms N-3 and N-4, which would
require registrants to summarize the principal risks of purchasing a
contract, including the risks of poor investment performance, that
contracts are unsuitable as short-term savings vehicles, limitations on
access to cash value through withdrawals, and the possibility of
adverse tax consequences. The new disclosure item for Forms N-3 and N-4
generally mirrors Item 2(b) of current Form N-6 (which we propose to
re-designate as Item 5), with the exception of the risk of contract
lapse.\444\ Although registrants currently include risk disclosures in
their prospectuses without an explicit form requirement to do so, we
note that in some cases, the risk discussions are provided across
various sections of the prospectus. We believe the approach taken in
Form N-6 of requiring a consolidated summary of the principal risks
associated with the contract would provide more effective communication
of risks to investors.
---------------------------------------------------------------------------

    \444\ We are not including risk of contract lapse in proposed
Item 5 of Form N-3 or Form N-4 because lapse, which occurs when
there is insufficient cash value to pay insurance policy charges, is
a less significant risk for variable annuities. Lapse is a greater
risk for variable life insurance contracts, which, unlike variable
annuities, require continuous premium payments (failure to pay
premiums generally triggers a lapse and terminates the contract). In
addition, the expenses associated with the death benefit for a
variable life insurance contract tend to be higher than those for a
variable annuity (in proportion to contract cash value). Higher
expenses more quickly erode a variable life insurance contract's
cash value, which if insufficient to pay policy charges, will cause
the contract to lapse.
---------------------------------------------------------------------------

    Although current Form N-6 requires risk disclosures to be presented
in a summary section at the front of the statutory prospectus, we
propose to require for each registration form that the risk section be
provided after the Key Information Table and Fee Table. While the Key
Information Table would include a condensed discussion of contract
risks, proposed Item 5 would give registrants the flexibility to
describe the principal risks of investing in the contract in more
detail than what could reasonably appear in a table meant to summarize
the contract's key risks and features. While we are not proposing to
limit the length of the summary of principal risks in response to
proposed Item 5, we believe that the utility of a summary would be
undermined by the long, complex descriptions we sought to avoid when we
adopted the summary principal risk section as part of Form N-6.\445\
---------------------------------------------------------------------------

    \445\ See Registration Form for Insurance Company Separate
Accounts Registered as Unit Investment Trusts that Offer Variable
Life Insurance Policies, Investment Company Act Release No. 23066
(Mar. 13, 1998) [63 FR 13988 (Mar. 23, 1998)] (``Form N-6 Proposing
Release''), at n.8 (noting that ``[v]ariable life insurance
prospectuses generally disclose [information required under the item
as proposed], particularly risk information, in the context of long,
often complex descriptions of the policy. The Commission believes
that the proposed narrative summary will help achieve more effective
communication of risks.'').
---------------------------------------------------------------------------

    We request comment generally on the proposal to include a new item
requiring disclosure of principal risks in the prospectus, and
specifically on the following issues:

     Should we require the summary of principal risks of
investing in a contract to be disclosed in a single location in the
prospectus? Should we instead permit registrants the flexibility to
disclose risks in conjunction with the specific contract feature to
which they pertain, thus providing greater context for the risk(s)?
     Should the summary of principal risks disclosures be
required to follow the Key Information Table and Fee Table, or
should we require or permit the disclosures to be provided elsewhere
in the prospectus?
     Does the proposed item appropriately describe the types
of risks to be summarized, or should the list of risks be revised?
     Would cross-referencing the risk section in the Key
Information Table provide useful layered disclosure for investors,
or are there limitations in this approach? How might they be
resolved?
     Should we impose a page limit, or other length limit,
on responses to the proposed item? If so, what limit would be
appropriate? Should we instead allow registrants the flexibility to
determine how much disclosure is appropriate? Are there any
organizing principles we might consider to encourage registrants to
avoid overly-lengthy disclosure?
     Should we make any other changes regarding proposed
prospectus disclosures describing risks associated with the
contract?
     Should we require the Item 5 disclosures to also be
included in the Initial Summary Prospectus and Updating Summary
Prospectus?

f. General Description of Registrant, Depositor, and Investment
Options/Portfolio Companies (Item 6 of Forms N-3, N-4, and N-6)
    We propose to amend Item 5 of current Forms N-3 and N-4, and Item 4
of current Form N-6, which we would re-designate as Item 6 in each of
the registration forms. Reflecting the more up-to-date requirements of
the parallel item of current Form N-6, we are proposing to amend Forms
N-3 and N-4 to relocate certain information from the prospectus to the
SAI: (1) With respect to the depositor, a description of the general
nature of its business, its date and form of organization and the state
or other jurisdiction under which it is organized, and information
relating to persons controlling the depositor; and (2) with respect to
the registrant, its date and form of organization and classification
pursuant to section 4 of the Investment Company Act, and whether there
are sub-accounts of the registrant.\446\ In addition, for consistency
with Form N-6 and our newer registration forms,\447\ in Forms N-3 and
N-4 we are proposing to relocate the requirement to identify and state
the principal business address of any person who provides significant
administrative or business affairs

management services, and a description of those services, from the
prospectus to the SAI.\448\
---------------------------------------------------------------------------

    \446\ Proposed Item 6(a) and (b) of Forms N-3 and N-4; proposed
Item 22(a) and (b) of Form N-3; proposed Item 20 of Form N-4; see
also Item 5(a) and 5(b) of current Forms N-3 and N-4.
    \447\ See, e.g., Item 17(c) of current Form N-6; Item 19(h) of
Form N-1A.
    \448\ See proposed Item 25(g) of Form N-3; proposed Item 21(c)
of Form N-4.
---------------------------------------------------------------------------

    We are also proposing to amend the information required by the
current item in Forms N-4 and N-6 regarding portfolio companies (and
for Form N-3, investment options).\449\ As discussed below, we are
moving the summary of certain information about the portfolio companies
and investment options to an appendix of the prospectus.\450\
Therefore, with respect to Forms N-4 and N-6, we propose to revise this
item to replace the current requirement to briefly describe each
portfolio company \451\ with a requirement to state that certain
information about the portfolio companies is available in the appendix
and to cross-reference or link to that appendix, to further state that
more detailed information is available in the portfolio companies'
prospectuses, and to explain how investors may obtain copies of those
prospectuses.\452\
---------------------------------------------------------------------------

    \449\ Item 5(c) through (e) of current Form N-3; Item 5(c) and
(d) of current Form N-4; Item 4(c) and (d) of current Form N-6.
    \450\ See infra section II.D.2.r (discussing proposed Item 19 of
Form N-3, proposed Item 18 of Forms N-4 and N-6).
    \451\ See Item 5(c) of current Form N-4; Item 4(c) of current
Form N-6.
    \452\ Proposed Item 6(c) of Forms N-4 and N-6.
---------------------------------------------------------------------------

    Proposed Item 19 of Form N-3 similarly would require a comparable
appendix of investment options, but only if the appendix were included
in a summary prospectus.\453\ Registrants would also include more
detailed disclosures about investment options as required by proposed
Item 20. Proposed Item 20 would generally include the disclosures
required by current Item 5(c) through (e) regarding investment
objectives and policies and principal risk factors associated with
investing, as well as additional disclosures regarding the performance
of each investment option.\454\ Similar to Forms N-4 and N-6, proposed
Item 6 would require a Form N-3 registrant to state that certain
information about the investment options is available in the appendix
(pursuant to proposed Item 19) or elsewhere in the prospectus (pursuant
to proposed Item 20), and provide cross-references or links as
appropriate.
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    \453\ Instruction 1(a) to proposed Item 19 of Form N-3; see also
supra text accompanying note 204 and note 241.
    \454\ See infra text following note 525 (discussing the
disclosure requirements of proposed Item 20 of Form N-3).
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    We request comment generally on the amendments we propose to make
to the required prospectus disclosures describing the registrant,
depositor, and portfolio companies, and specifically on the following
issues:

     Should we streamline the disclosures relating to the
depositor and registrant as proposed? Would these proposed
amendments reduce any information that would be important to
investors? Should we maintain any existing disclosures or require
additional disclosures as to the depositor and registrant?
     Should we relocate the requirement to disclose
information relating to service providers to the SAI as proposed?
     Should we make any other changes to the form regarding
required prospectus disclosures describing the registrant,
depositor, and/or portfolio companies?
g. Charges (Item 8 of Form N-3, Item 7 of Forms N-4 and N-6)
    We propose to amend Item 7 of current Form N-3 and Item 6 of
current Form N-4 (which we would re-title, and re-designate as Item 8
(in the case of Form N-3) and Item 7 (in the case of Form N-4) to
reflect the more up-to-date requirements of the parallel item of
current Form N-6.\455\
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    \455\ See Item 5 of current Form N-6.
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    Paragraph (a) would expand the disclosure requirements of the
current item in Forms N-3 and N-4 to include certain additional
disclosure requirements that currently appear in the parallel item of
Form N-6. The proposed amended items would require a registrant to
provide a brief description of charges deducted from ``any other
source'' (in addition to charges specifically deducted from purchase
payments, investor accounts or assets of the registrant, which is
currently required). These additional charges could include, for
example, contract loan charges and optional benefit charges. In
addition, we are proposing to require that the registrant describe: (1)
The frequency of deductions (e.g., daily, monthly or annually) for any
recurring charges; and (2) where it is possible to identify what is
provided in consideration for a particular charge (e.g., use of sales
load to pay distribution costs), an explanation of what consideration
is provided. We believe these additional disclosures could help
alleviate investor confusion about costs by more specifically
describing the types of charges that might be incurred under a variable
annuity contract.
    In addition, Instruction 1 to subparagraph (a) of the proposed
amended item in Forms N-3 and N-4 would include a new requirement for
the registrant to describe the factors affecting the computation of the
amount of the sales load.\456\ For contracts with a deferred sales
load, Instruction 1 would require the registrant to describe the sales
load as a percentage of the applicable measure of purchase payments (or
other basis) that the deferred sales load may represent, rather than
the amount withdrawn or surrendered. Additionally, registrants would
identify any events that would cause the deduction of a deferred sales
load (e.g., surrender or partial surrender). The description of any
deferred sales load would include how the deduction will be allocated
if the investor has allocated contract value among multiple sub-
accounts and when, if ever, the sales load will be waived (e.g., if the
contract provides a free withdrawal amount).
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    \456\ This instruction is based on Instruction 1 to Item 5(a) of
current Form N-6.
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    We are also proposing new Instruction 4 to subparagraph (a) of the
amended item of Forms N-3 and N-4.\457\ If the contract's charge for
premium taxes or other taxes varies according to jurisdiction, proposed
Instruction 4 would clarify for the registrant that identifying the
range of current premium taxes or other taxes in this paragraph is
sufficient.
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    \457\ This instruction is based on Instruction 3 to Item 5(a) of
current Form N-6.
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    We also propose to revise the item related to charges in each form
to clarify that the required disclosures should relate to ``current''
charges.\458\ Disclosure of ``maximum'' charges would be redundant
because those charges are encompassed in the fee table that would be
included in the prospectus.\459\
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    \458\ See proposed Item 8(a) of Form N-3; proposed Item 7(a) of
Forms N-4 and N-6.
    \459\ See Item 4 of proposed Forms N-3, N-4, and N-6.
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    Finally, we are proposing to amend the item of Form N-6 relating to
charges in two respects. First, we are proposing to relocate
disclosures on commissions paid to dealers from the SAI \460\ to the
prospectus.\461\ We believe that this disclosure, which is currently
required in the prospectus under Forms N-3 and N-4,\462\ is more
appropriate in the prospectus due to potential conflict of interest
concerns. In addition, we also propose to require a description of the
types of operating expenses for which the registrant is
responsible,\463\ which

Forms N-3 and N-4 currently require in the prospectus.\464\ Operating
expenses paid by the registrant can be significant, and we believe this
is appropriate disclosure for an item discussing contract charges.
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    \460\ Item 20(d) of current Form N-6.
    \461\ Proposed Item 7(b) of Form N-6.
    \462\ See Item 7(d) of current Form N-3; Item 6(d) of current
Form N-4.
    \463\ Proposed Item 7(e) of Form N-6. If organizational expenses
of the registrant are to be paid out of its assets, this item also
would require an explanation of how the expenses will be amortized
and the period over which the amortization will occur.
    \464\ See Item 7(f) of current Form N-3; Item 6(f) of current
Form N-4.
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    We request comment generally on the amendments we propose to make
to the required prospectus disclosures regarding contract charges and
specifically on the following issues:

     Will investors find the information resulting from the
expanded disclosure requirements of the proposed amendments useful
(e.g., new requirements in Forms N-3 and N-4 that the registrant
describe the frequency of deductions for any recurring charges and,
where it is possible to identify what is provided in consideration
for a particular charge, an explanation of what consideration is
provided)?
     Is the proposed new instruction in Forms N-3 and N-4
that would permit a registrant to disclose a range of charges for
premium or other taxes (if these would vary according to
jurisdiction) appropriate? Instead, should the prospectus specify
each of these charges individually?
     Should we require prospectus disclosure of additional
information regarding contract charges?
     In the context of Form N-6 registrants, are there
reasons that disclosures on commissions paid to dealers should not
be located in the prospectus (and instead should be located in the
SAI)? Will the new requirement in Form N-6 to provide a description
of the types of operating expenses for which the registrant is
responsible better help investors to understand contract charges?
     Are there any instructions that we should not include?
Are there any additional instructions we should include?
h. General Description of the Contracts (Item 9 of Form N-3, Item 8 of
Forms N-4 and N-6)
    We propose to amend Item 8 of current Form N-3, Item 7 of current
Form N-4, and Item 6 of current Form N-6 (which we would re-designate
as Items 9, 8, and 8, respectively) to reflect the more up-to-date
requirements of Form N-6 (in the case of the amendments to Forms N-3
and N-4) and also to harmonize this disclosure item with other proposed
amendments to the forms. Except as described below, we do not intend
these proposed amendments to significantly alter current disclosure
obligations.
    We propose to remove the current instruction to subparagraph (a) of
Forms N-3 and N-4, which states that the registrant need not repeat
rights that are described elsewhere in the prospectus, and replace it
with a new instruction to subparagraph (a) in each of the forms \465\
that requires registrants to disclose all material state variations and
intermediary-specific variations (e.g., certain contract features that
may vary by distribution channel). Due to differences in state
insurance law, there may be significant variations in a contract based
on the state in which a contract is offered. We have also observed that
certain contract features may not be available through certain
intermediaries.
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    \465\ This new instruction would also appear in Form N-6.
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    We also propose to revise current subparagraph (b) of Forms N-3 and
N-4 regarding contract provisions and limitation in two ways.\466\
First, we would require registrants to briefly describe any provisions
and limitations for minimum contract value and the consequences of
falling below that amount, because those consequences in some cases can
be significant.\467\ Second, we are proposing to modify the current
requirement in Forms N-3 and N-4 regarding exchanges of contracts to
more broadly describe provisions or limitations on conversion or
exchange of the contract for another contract (which could include a
fixed or variable annuity or life insurance contract) as currently
required by Form N-6.\468\
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    \466\ In addition, subparagraph (b)(iii) of current Forms N-3
and N-4 would be re-designated as subparagraph (b)(5) and revised to
replace ``exchanges'' with ``buyout offers'' of variable annuity
contracts, including interests of participations therein.
    \467\ Proposed Item 9(b)(1) of Form N-3; proposed Item 8(b)(1)
of Form N-4. For example, some contracts specify that if the
contract's value falls below a certain threshold, the contract
terminates and an investor's contract value is returned.
    \468\ Proposed Item 9(b)(4) of Form N-3 and related proposed
instruction; proposed Item 8(b)(4) of Form N-4 and related proposed
instruction; see also Item 8(b)(3) and related instruction of
proposed Form N-6; Item 6(b)(3) of current Form N-6.
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    We also propose to revise the disclosure requirement in each
registration form to clarify that the existing requirement to describe
any provisions and limitations on transfer of contract value between
sub-accounts includes transfer programs, such as dollar cost averaging,
portfolio rebalancing, asset allocation programs, and automatic
transfer programs.\469\
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    \469\ Proposed Item 9(b)(3) of Form N-3; proposed Item 8(b)(3)
of Form N-4; proposed Item 8(b)(2) of Form N-6.
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    We are also proposing to newly require in each registration form a
description of the obligations under the contract that the insurer's
general account funds (e.g., death benefits, living benefits, or other
benefits available under the contract) and include a statement that
these amounts are subject to the insurer's claims-paying ability and
financial strength.\470\ While some of this information would appear in
the Key Information Table,\471\ this item would require registrants to
provide more detailed disclosure later in the prospectus.