costs. Many of the burdens that are currently reduced for issuers of
In-Force Alternative Disclosure Contracts are also expected to be
reduced under the proposed summary prospectus framework; in particular,
we expect reductions in costs associated with printing and mailing the
contract summary prospectus and underlying portfolio company
prospectuses to investors.\729\ However, to the extent that the option
for summary prospectus does not fully mitigate unexpected future costs
related to the Commission's position on Alternative Disclosure
Contracts, insurers that experience these unexpected costs may seek to
extinguish outstanding contracts with few remaining investors and
consolidate investor assets. While insurers cannot terminate
outstanding contracts, they could encourage investors to exchange old
contracts for new ones or they may offer to buy out contracts.
---------------------------------------------------------------------------

    \729\ See supra section III.C.1.b.
---------------------------------------------------------------------------

    At the same time, we believe that the Commission's position with
respect to Alternative Disclosure Contracts will provide investors more
pertinent information to monitor their contract,

either under the current regulatory requirements or under the proposed
optional summary prospectus regime, compared to the alternative
disclosures that they would receive under the circumstances that the
Staff Letters identify. For example, investors would either receive, or
have access to online, the contract prospectus under the standard
prospectus delivery regime or the proposed summary prospectus regime,
respectively. Moreover, as explained in detail above, we believe the
proposed optional summary prospectus regime, if relied on by insurers,
would provide significant benefits for investors in terms of
facilitating the review and understanding of available
disclosures.\730\
---------------------------------------------------------------------------

    \730\ See supra section III.C.1.a.i(a).
---------------------------------------------------------------------------

3. Changes to Forms N-3, N-4, and N-6
a. Benefits and Costs for Investors
    The proposed amendments to Forms N-3, N-4, and N-6 are intended to
reflect the evolution of variable contract features including, in
particular, the prevalence of optional benefits that insurers offer
under these contracts, and to provide greater consistency among the
forms.
    For example, under the proposed amendments, the statutory
prospectus would include the same Key Information Table, tabular
presentation of optional benefits, and tabular appendix of information
about underlying portfolio companies that appears in the summary
prospectus. This means that all variable contract investors, not just
investors in contracts that use the summary prospectus, would have
access to information as presented in summary prospectuses. Further,
the proposed amendments would require additional information about
standard and optional benefits that a contract may offer. There is no
current form requirement regarding optional benefits. The proposed
amendments would also increase consistency of disclosure presentation
requirements among variable contracts that register on different form
types. This increased consistency could help investors compare variable
contracts across products that register across different form types.
    Certain investors who are considering variable annuities may also
be considering variable life insurance (and vice versa). We believe a
consistent presentation and common disclosure of elements that we
consider useful in explaining variable contracts' features and risks
could reduce investor confusion and promote investor understanding
across types of variable products. Also, we believe that more
uniformity of disclosures across variable contract types may make it
easier for investors to compare similar products.
    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. First, these amendments would prescribe the ordering and
location of the Overview of the Variable Annuity Contract, the Key
Information Table, and the Fee Table. In particular, the proposed
amendments would place this information at the beginning of the
prospectus, and could benefit investors to the extent that this
placement makes information about a variable contract's key features,
costs, and risks more readily available. We do not anticipate that
these proposed changes would impose substantial costs on investors. We
acknowledge that investors familiar with the current ordering of
information on Forms N-3, N-4, and N-6 could bear one-time costs
associated with adjusting to the proposed presentation of information
on these forms.
    Second, we are proposing amendments to the General Instructions
that would provide new guidance in each of the forms that addresses
when a single prospectus may be used to describe multiple contracts and
when multiple prospectuses may be included in a single registration
statement. To the extent that ensuring that prospectuses and
registration statements cover contracts with similar features, costs,
and risks facilitates investors' understanding of contract
characteristics, these proposed amendments may benefit investors.
Similarly, to the extent that the proposed guidance results in
presentation of information that investors are unaccustomed to,
investors may bear costs associated with adjusting to a new
presentation of variable contract information. While we do not have
information available to quantify these benefits, we believe that these
proposed amendments are consistent with current industry practice and
we therefore do not expect these benefits to be substantial.
    For Form N-3 and Form N-4 registrants, we propose to relocate the
AUV tables from the prospectus to the SAI, and shorten the time period
covered by the AUV tables. Further, we propose to include an
instruction permitting registrants to omit AUV tables altogether if
they provide each investor with an annual account statement that
discloses, with respect to each class of accumulation units the
investor holds, the actual performance of each subaccount during the
prior fiscal year. Accumulation unit values and the number of
accumulation units outstanding permit investors to derive summary
information about the performance of the variable contracts covered by
a statutory prospectus. While shortening the time period covered by the
AUV tables could impose costs on investors by reducing the amount of
historical AUV information available on a statutory prospectus, we do
not believe these costs will be substantial. This is because we believe
the proliferation in combinations of contract changes has generated a
proliferation in separate classes of accumulation units disclosed on
statutory prospectuses, rendering the current AUV tables less useful
for investors.\731\ To the extent Form N-3 and Form N-4 registrants
choose to omit AUV tables altogether and instead provide individual
investors with the prescribed annual account statement, this option
should benefit investors by providing them with customized annual
performance information that reflects the impact of insurance-related
costs. However, permitting Form N-3 and N-4 registrants to omit AUV
tables may impose costs on current investors and investors who are not
currently account holders, to the extent that such investors could make
use of historical summary performance information as part of their
decision to make additional investments or their decision to choose
between insurers or variable products.
---------------------------------------------------------------------------

    \731\ See supra section II.D.3.d.
---------------------------------------------------------------------------

b. Benefits and Costs for Insurers
    The proposed form amendments would increase consistency of
disclosure presentation requirements among variable contracts that
register on different form types. We anticipate that this increased
consistency among Forms N-3, N-4, and N-6 could have the benefit of
reducing costs among sponsors that register variable contracts on
multiple of these registration form types. For example, we anticipate
that this would make the production of registration statements simpler,
in that form instructions and content requirements would in many cases
be the same (except in cases where structural differences or product
differences that the different form types indicate would lead to
requirements that would differ across the form types).\732\
---------------------------------------------------------------------------

    \732\ In 2017, four of the 62 (6%) insurers that registered
separate accounts registered separate accounts on all three forms
(N-3, N-4, and N-6). Forty (65%) registered separate accounts on two
forms. Overall, 44 (71%) insurers registered separate accounts on
more than one form.

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

    For Form N-3 and Form N-4 registrants, we propose to relocate the
AUV tables from the prospectus to the SAI, where they are more
appropriately located with certain detailed information that
traditionally appears in the SAI. We also propose to decrease the time
periods for which the required information must be presented from 10
years to 5 years. Further, we propose to include an instruction
permitting registrants to omit AUV tables altogether if they provide
each investor with an annual account statement that discloses, with
respect to each class of accumulation units the investor holds, the
actual performance of each subaccount during the prior fiscal year. The
proposed amendments should reduce the costs related to preparing
registration statement disclosure of information relating to the
contract's accumulation unit values for Form N-3 and Form N-4
registrants. We estimate the implementation costs for each of the three
registrant types, while netting the reduced burden for Form N-3 and
Form N-4 registrants, below.
    Form N-3 Estimates. We estimate that there are currently five
insurer separate accounts that file Form N-3. We estimate that these
separate accounts will incur, in the aggregate, 152 hours additional
internal annual burden hours, at an internal time cost equivalent of
$51,072.\733\ While we are revising our estimate of the methodology
used to estimate external costs associated with Form N-3 as discussed
below,\734\ these changes in external cost estimates are not
attributable to the proposed amendments to Form N-3.
---------------------------------------------------------------------------

    \733\ See infra note 778.
    \734\ See infra note 780.
---------------------------------------------------------------------------

    Form N-4 Estimates. We estimate that there are currently 435
insurer separate accounts that file Form N-4. We estimate that these
separate accounts will incur, in the aggregate, 13,320 additional
internal annual burden hours, at an internal time cost equivalent of
$4,475,345.\735\ We do not estimate any change to the external costs
associated with the proposed amendments to Form N-4.\736\
---------------------------------------------------------------------------

    \735\ See infra note 789.
    \736\ See infra section IV.B.
---------------------------------------------------------------------------

    Form N-6 Estimates. We estimate that there are currently 238
insurer separate accounts that file Form N-6. We estimate that these
separate accounts will incur, in the aggregate, 3,048 additional
internal annual burden hours, at an internal time cost equivalent of
$1,024,128.\737\ We do not estimate any change to the external costs
associated with the proposed amendments to Form N-6.\738\
---------------------------------------------------------------------------

    \737\ See infra note 805.
    \738\ See infra section IV.C.
---------------------------------------------------------------------------

    In addition to these implementation costs, these proposed changes
to forms could impose costs related to proposed changes presentation of
information. In particular, the proposed amendments may impose costs on
insurers to the extent that they limit insurers' flexibility in
choosing the placement of information within the statutory
prospectuses. While we do not have data necessary to quantify these
costs, we do not expect them to be substantial.
4. Inline XBRL
    The proposed amendments would require certain information from
variable contract statutory prospectuses to be filed with the
Commission in Inline XBRL. Inline XBRL is a specification of XBRL that
is both human-readable and machine-readable for purposes of validation,
aggregation, and analysis. The proposed Inline XBRL requirement is
expected to benefit investors, filers, the Commission, and other data
users, including third-party analysts, investment professionals,
academic researchers, and other regulators. The availability of
information from statutory prospectuses in Inline XBRL could enable
variable contract investors, generally through information
intermediaries such as third-party data aggregators (or by reviewing
the disclosures directly), to capture and analyze disclosure
information more quickly and at a lower cost, as well as to search and
analyze the information dynamically, facilitate comparison of
information across filers and reporting periods, and lead to better-
informed investment decisions and potential gains in the efficiency of
capital formation and allocation. These improvements could occur as a
result of a reduction in the information barriers faced by investors
and in the costs of collecting and analyzing disclosures. These
benefits are expected to be greatest in instances of forms filed by a
large number of registrants and for information from variable contract
disclosures that is not aggregated by third-party sources today and
therefore requires greater effort to extract and analyze on the part of
investors. To the extent that some of the variable contract investors
and third-party information providers also review disclosures of mutual
funds and ETFs, those investors and information providers will have
familiarity with using Inline XBRL to view and analyze disclosures from
having reviewed prospectus risk/return summaries filed in Inline XBRL
under the recently adopted Inline XBRL requirements for mutual funds
and ETFs.\739\
---------------------------------------------------------------------------

    \739\ See Inline XBRL Adopting Release, supra note 613.
---------------------------------------------------------------------------

    Variable contract registrants would incur costs to tag and review
the required information in Inline XBRL. Some filers may perform the
tagging in-house while others may retain outside service providers. We
expect the outside service providers to pass along their costs to
filers. Various XBRL preparation solutions have been developed and used
by operating companies and open-end fund filers, and some evidence
suggests that, for operating companies, XBRL tagging costs have
decreased over time.\740\ Inline XBRL is a specification of XBRL that
allows filers to embed XBRL data directly into an HTML document,
eliminating the need to tag a copy of the information in a separate
XBRL exhibit,\741\ making Inline XBRL preparation more efficient, of
higher quality, and less costly than filing an HTML document and a
separate XBRL document duplicating the data. For filers that are
required to report information for other investment products they
offer, such as open-end funds, in Inline XBRL, before they would be
required to file information about variable contracts in Inline XBRL,
filing information about variable contracts in Inline XBRL under the
proposed amendments would likely incur lower costs of compliance than
filers adopting Inline XBRL for the first time.
---------------------------------------------------------------------------

    \740\ See, e.g., XBRL Costs for Small Companies Have Declined
45%, According to AICPA Study, Aug. 15, 2018, available at https://www.aicpa.org/press/pressreleases/2018/xbrl-costs-have-declined-according-to-aicpa-study.html (stating that '' the cost of XBRL
formatting for small reporting companies has declined 45 percent
since 2014, according to an updated pricing survey . . . 68.6
percent of the companies paid $5,500 or less on an annual basis (as
compared to 29.9 percent of companies in the 2014 survey) for fully
outsourced creation and filing solutions for their XBRL filings.
Meanwhile, 11.8 percent of the companies paid annual costs between
$5,500 to as much as $8,000 for their full-service outsourced
solutions.'')
    \741\ Inline XBRL Adopting Release, supra note 613, at n.78 and
accompanying and following text.
---------------------------------------------------------------------------

    Similar to the risk/return summary requirements for mutual funds
and ETFs, the proposed amendments would require variable contract
registrants to submit to the Commission in Inline XBRL certain
information from registration statements, post-effective amendments,
and prospectuses with certain information that varies from the
registration statement (rule 497 forms of

prospectuses or ``stickers'') filed on Forms N-3, N-4, and N-6. Similar
to the risk/return summary requirements for mutual funds and ETFs, the
Interactive Data File would be submitted as a post-effective amendment
to the registration statement. As with risk/return summary Inline XBRL
requirements for funds, the Interactive Data File for a post-effective
amendment under rule 485(b)(1)(i), (ii), (v), or (vii) would be
submitted with the filing, which may make the filing incrementally more
efficient.
    Nevertheless, we recognize that some registrants affected by the
proposed requirement likely would incur initial costs to acquire the
necessary expertise and/or software as well as ongoing costs of tagging
required information in Inline XBRL, and that any fixed costs of
complying with the Inline XBRL requirement may have a relatively
greater impact on smaller filers. On an ongoing basis, registrants are
expected to expend time to review the tagged information in Inline XBRL
using their in-house staff. Some registrants may also incur an initial
cost to license filing preparation software with Inline XBRL
capabilities from a software vendor, and some may also incur an ongoing
licensing cost. Other registrants may incur an initial cost to modify
their existing filing preparation software to accommodate Inline XBRL
preparation. Some registrants would incur the costs of filing agent
services to rely on a filing agent to prepare their Inline XBRL
filings. Initial costs involving investments in expertise and
modifications to disclosure preparation solutions, or switching to a
different software vendor or outside service provider may result in a
higher compliance cost during the first year of using Inline XBRL than
in subsequent years. While the costs of compliance with the Inline XBRL
requirement are likely to vary across registrants, on average we
estimate that direct compliance costs for a variable contract
registrant on Forms N-3, N-4, and N-6, respectively, will be
approximately $21,960, $15,012, and $15,012 per year, respectively, in
the first three years under the proposed amendments.\742\
---------------------------------------------------------------------------

    \742\ For purposes of the PRA, during the first three years
under the proposed Inline XBRL amendments to Form N-3, the average
annual internal cost burden is estimated to be $20,160 (the
monetized burden of in-house Inline XBRL preparation) and the
average annual external cost burden per registrant (the additional
cost of services of outside software vendors or filing agents) is
estimated to be $1,800 ($900 + ($300 x 3)). $20,160 + $1,800 =
$21,960. See infra notes 819 and 830.
    For purposes of the PRA, during the first three years under the
proposed Inline XBRL amendments to Form N-4, the average annual
internal cost burden is estimated to be $14,112 and the average
annual external cost burden per registrant is estimated to be $900.
$14,112 + $900 = $15,012. See infra notes 822 and 829 and
accompanying text.
    For purposes of the PRA, during the first three years under the
proposed Inline XBRL amendments to Form N-6, the average annual
internal cost burden is estimated to be $14,112 and the average
annual external cost burden per registrant is estimated to be $900.
$14,112 + $900 = $15,012. See infra notes 825 and 829 and
accompanying text.
---------------------------------------------------------------------------

    The compliance dates under the proposed amendments are expected to
give registrants additional time to obtain the necessary expertise and
software, and mitigate the impact of transition on all filers,
including smaller filers. However, we also expect that filers may
realize benefits from the Inline XBRL requirement to the extent that
making disclosures available in a structured format reduces some of the
information barriers that make it costly for variable contract
registrants to find appropriate sources of new investors, as discussed
in section III.D below.
    By making it easier to perform automated comparisons of disclosures
across variable contracts, the proposed amendments also might affect
sales agents. As we noted in section II.B.2 above, sales agents play a
significant role in the distribution of variable contract products. For
non-captive sales agents that independently compare variable contract
products for recommendation to investors and prepare their own sales
materials, we believe that those sales agents could benefit from the
easier access and enhanced usability of information about variable
contracts in a structured format, which may enable them to select
variable contract offerings that are better tailored to investors'
demands. Because having the required data in a structured format
facilitates the analysis, aggregation, and comparison of information
about variable contracts, the proposed amendments might increase
competition for investor capital among sales agents offering variable
contract products of individual insurers or a narrow range of variable
contract products.\743\
---------------------------------------------------------------------------

    \743\ Requiring variable contract registrants to file certain
key information in Inline XBRL could facilitate comparisons of
information across registrants which could increase competition
among variable contract registrants for investor capital. Also,
requiring variable contract registrants to file certain key
information in Inline XBRL could reduce barriers to entry for third-
party aggregators and induce competition among firms that supply
information about variable contracts to investors. These
possibilities are discussed in greater detail below.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    This section describes the effects we expect the proposed rule to
have on efficiency, competition, and capital formation.
    Efficiency. To investors, the costs of purchasing a variable
contract are more than just the dollar cost of the contract and include
the value of an individual's time spent gaining an understanding of the
contract as well as various aspects of the contract including optional
benefits and fee structures, both prior to contract purchase and during
the free look period following purchase. Further, for those investors
who do not gain a full understanding of the contract, there could be a
cost stemming from a potential mismatch between an investor's goals and
the purchased contract. Depending on the size of an individual's
potential purchase, certain of these additional costs could be
considerable in comparison to the monetary costs associated with
contract purchase and could discourage investors from considering
variable contracts even in circumstances where investment in a variable
contract would be beneficial.
    For their part, insurers only supply variable contracts to the
extent they expect the benefits derived from providing the contracts to
be greater than cost of supplying the contract.\744\ For insurers,
costs include not only those costs associated with producing and
servicing variable contracts, but also those costs associated with
meeting various statutory and regulatory obligations.\745\
---------------------------------------------------------------------------

    \744\ Insurers who expect the benefits derived from supplying
contracts to be equal to the cost of supplying the contract would be
indifferent between supplying and not supplying the contract.
    \745\ See supra section III.B.2.
---------------------------------------------------------------------------

    These costs borne by both insurers and individuals are examples of
market ``frictions.'' Market frictions have the effect of reducing the
benefits from contracting between market participants.\746\ Rules that
reduce costs for investors, insurers, or both, reduce market frictions.
The proposed rule offers the opportunity for both insurers and
investors to reduce their costs associated with variable contracts.
Summary prospectuses provide information in a concise, user-friendly
way that may allow investors to better understand variable products.
The summary prospectus framework offers opportunities for insurers to
reduce the costs of producing and delivering required disclosures to
investors.\747\
---------------------------------------------------------------------------

    \746\ If market frictions are sufficiently large, market
frictions could eliminate exchange altogether.
    \747\ For example, as discussed above, greater investor
understanding of variable products could lead to a better match
between investor goals and purchased variable contracts. In other
words, investment efficiency could increase.

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

    Similarly, the proposed amendments to registration forms would make
key information more salient for investors and would make the
presentation of this information more consistent across variable
contract types. Additional consistency across forms may also reduce
compliance burdens for insurers that are required to file using
multiple form types, as would reducing the amount of historical AUV
information required to be disclosed. The resulting decrease in market
frictions should lead to greater efficiency by reducing barriers that
insurers may face in supplying variable contracts to investors, and
reducing barriers investors may face in evaluating variable contracts
sold to them by insurers, particularly during the free look
period.\748\ In addition, requiring variable contract registrants to
file certain key information in Inline XBRL would enable investors,
third-party information providers, Commission staff, and other data
users to capture and analyze that information more quickly and
efficiently than is possible using the same information provided in a
static, text-based format.
---------------------------------------------------------------------------

    \748\ As noted above, there may be investors who prefer to rely
on statutory prospectuses when making an investment decision who may
not take the steps necessary to access the statutory prospectus. To
the extent there are both investors who prefer to rely on statutory
prospectuses when making an investment decision and who do not take
the steps necessary to access the statutory prospectus, the
increased barrier (the steps necessary to access the statutory
prospectus) could lead to reduced efficiency in investor evaluation
of variable contracts.
---------------------------------------------------------------------------

    These increases in efficiency could manifest as a higher likelihood
that investors' make investment decisions that are informationally
efficient. First, it may increase the likelihood that investors choose
a level of participation in variable contracts that is consistent with
their overall financial needs and objectives--a level that may be
higher or lower than current levels. The proposal may help promote
investment in variable contracts by investors who would benefit from
them. Second, an increase in the informational efficiency of investor
decisions could make it more likely that investors that invest in
variable contracts choose the contracts that best meet their needs and
reject those that do not. Third, improved access to information
resulting from more concise disclosure could facilitate more efficient
investor allocation of assets across portfolio companies within
variable contracts. Finally, access to clearer information about the
contract terms may reduce the chances that an investor surrenders a
variable contract when the costs of surrender do not justify the
benefits of surrender.
    Furthermore, we considered the potential impact of our position on
Alternative Disclosure Contracts on efficiency. We recognize that our
position likely will cause insurers issuing new contracts and issuers
with variable contracts outstanding to incur additional costs due to
the proposed disclosure obligations that they may not have anticipated.
To the extent that these unexpected costs drive insurers to take
actions to encourage investors to exchange old contracts for new
contracts or to buy out existing contracts, the Commission's position
may result in inefficiencies. In particular, insurer resources that are
used to encourage exchanges or to buy out contract holders are
resources that insurers may have put to other productive uses. However,
we believe that this reduction in efficiency may be offset by the
expected increase in informational efficiency associated with the
enhanced disclosures that would be afforded to contract holders in lieu
of the alternative disclosures described in the Staff Letters.
    Competition. If the proposed rule increases efficiency of exchange
in the variable contracts market, then we may observe a change in
investment in variable contracts. For example, if there are individuals
who currently do not invest in variable contracts (or invest less than
they would have) because the costs other than the price of the contract
(e.g., the ongoing printing and mailing expenses passed through to
investors from insurers) are too high, then to the extent the proposed
rule lowers those costs we would expect to observe more people entering
the variable contract market. Conversely, there may be investors who,
because of the burden, choose not to read statutory prospectuses. To
the extent those investors are more likely to read summary
prospectuses, those investors may decide, as a result, that other
investments or products are better suited to their investment goals.
This could result in fewer investments in variable contracts. If there
are insurers who limit their participation in the variable contract
market, or limit the portfolio companies they offer as a result of the
costs of current prospectus delivery requirements, those insurers may
increase participation or increase the number of portfolio companies
they offer as a result of this proposal. To the extent that competition
in a market is related to the size of the market, the net effect of
these potential changes in investor demand for, and insurer supply of,
variable contracts could affect competition in the variable contract
market.
    The proposed rule could also affect competition by requiring that
information about the variable contract be presented in a concise,
user-friendly way in the summary prospectus, which could allow
investors to compare information across products. Requiring variable
contract registrants to file certain key information in Inline XBRL
could further facilitate comparisons of information across registrants
by making it easier for investors (directly or through third-party data
aggregators) to extract and aggregate information through automated
means for analysis and comparison, which could increase competition
among variable contract registrants for investor capital, particularly
in combination with the proposed free look period. For example, the
proposed rule requires insurers to distill certain key product
information into tables. The presentation of this information in a
table facilitates comparison across different products. Greater
comparison across different variable products could lead to greater
competition. Furthermore, by reducing the costs associated with
aggregating data across variable contracts, the proposed Inline XBRL
requirement could reduce barriers to entry for third-party data
aggregators and induce competition among firms that supply information
about variable contracts to investors, including other third-party
aggregators and sales agents.
    The effect on competition between insurers could be limited,
however, to the extent variable contract investors continue to rely on
an agent to help them select and customize their variable insurance
products and do not have access to broad comparisons of variable
contracts enabled by the proposed Inline XBRL requirements at the time
of sale or during the free look period.\749\ Agents generally only
provide their customers with a subset of all available variable
insurance products available in the general marketplace. Thus, while
the product information in summary prospectuses would facilitate
comparison across products offered by the agent, the effect would
likely be limited to the agent's set of products rather than to the
broader market.
---------------------------------------------------------------------------

    \749\ See IRI Fact Book, supra note 8, at 176.
---------------------------------------------------------------------------

    We recognize that any fixed costs of compliance with the proposed
requirements, including Inline XBRL requirements, could have a
relatively greater impact on small filers. However, the overall
magnitude of such costs, discussed in greater detail in Section IV
below, and thus the magnitude of the

associated competitive effects, is expected to be modest.
    Finally, we also considered the potential impact of our position on
Alternative Disclosure Contracts on competition between insurers.
Above, we discussed the possibility that, because contracts whose
issuers are not operating in the manner described in the Staff Letters
as of the effective date of final summary prospectus rules could not
provide alternative disclosures after such date, the Commission's
position could cause these insurers to experience future costs of
disclosure obligations that they may not have anticipated. The
Commission's position thus may place at a competitive advantage those
insurers with a greater proportion of contracts that operate in the
manner described in the Staff Letters as of the effective date of final
summary prospectus rules.
    Capital Formation. As discussed in connection with the potential
effects of the proposed rule on competition, if the proposed rule
increases the efficiency of exchange in the variable contracts market,
then we may observe a change in investment in variable contracts.
Greater investment in variable contracts could lead to increased demand
for securities held by the portfolio companies that underlie the
variable contracts (or held directly by the separate account in the
case of a Form N-3 registrant).\750\ The increased demand for
securities could, in turn, facilitate capital formation. Diminished
investment, however, could lead to reduced demand for such securities.
We would expect either of these effects to be small. We further note
that to the extent increased or decreased investment in variable
contracts reflects substitution from other investment vehicles, the
effect on capital formation would be attenuated.
---------------------------------------------------------------------------

    \750\ This would be true to the extent funds invested in
variable contracts would not otherwise have been invested in
securities.
---------------------------------------------------------------------------

    The proposed Inline XBRL requirements could increase the efficiency
of capital formation to the extent that making disclosures available in
a structured format reduces some of the information barriers that make
it costly for variable contract registrants to find appropriate sources
of new investors. Smaller registrants in particular may benefit more
from enhanced exposure to investors. If reporting the disclosures in a
structured format increases the availability, or reduces the cost of
collecting and analyzing, key information about variable contracts,
smaller variable contract registrants may benefit from improved
coverage by third-party information providers and data aggregators.
    To the extent that the proposed rule reduces costs for some
variable contract registrants, we would expect reduced costs to
increase the portion of investor money that is retained as the
investor's contract value, rather than used to cover expenses,
resulting, over time, in a net positive effect on the level of capital
invested through variable contracts. Furthermore, to the extent that
reductions in expenses have a positive effect on the performance of
variable contracts and attract new investors or additional capital from
existing investors, the proposed rule may result in greater capital
formation. We expect this effect to be small. The opposite would be
expected to hold for those variable contract registrants that
experience cost increases under the proposed rule.

E. Reasonable Alternatives

1. Mandating Summary Prospectuses
    Proposed new rule 498A would permit the use of two distinct types
of contract summary prospectuses: (1) An initial summary prospectus
covering variable contracts currently offered to new investors; and (2)
an updating summary prospectus for existing investors. Alternatively,
the Commission could mandate the use of summary prospectuses. Summary
prospectuses may provide substantial net benefits to investors because
they are shorter, simpler, and designed to make salient the most
important variable contract terms. A mandatory regime would ensure that
those benefits are available to all investors, not just those who have
invested in variable contracts offered by insurers that would elect to
deliver summary prospectuses.\751\
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    \751\ As discussed above, we understand that some investors who
prefer statutory prospectuses may experience costs if they are given
summary prospectuses and need to request statutory prospectuses.
Under a mandatory regime, this cost would be borne by all investors
who prefer statutory prospectuses, not just those who have invested
in variable contracts offered by insurers that would elect to
deliver summary prospectuses. Regardless, as noted above, we believe
the number of investors who would prefer statutory prospectuses, as
well as the number of insurers that would not elect to deliver
summary prospectuses, to be a minority.
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    We believe that insurers will only choose to rely on the optional
summary prospectus regime should benefits outweigh the costs. While we
believe that reliance on the proposed summary prospectus regime would
yield cost savings for insurers, we acknowledge that these cost savings
will vary across insurers and there may be insurers that do not expect
benefits in excess of the expected costs of relying on summary
prospectuses. Imposing a mandatory summary prospectus regime would
entail imposing net costs on these insurers.
    Based on our analysis of cost savings above, our expectation is
that most insurers will choose to rely on summary prospectuses. Based
on these factors, we believe making the use of summary prospectuses
voluntary for insurers strikes the appropriate balance between offering
insurers flexibility in choosing delivery methods on one hand, and
making variable contract disclosures more digestible by the majority of
investors, on the other.
2. Summary Prospectuses Delivered With Statutory Prospectuses
    The proposed rule would require the variable contract statutory
prospectus, as well as the contract's SAI, to be publicly accessible,
free of charge, at a website address specified on the cover of the
summary prospectus. As we discuss above, investors who wish to use
statutory prospectuses as well as summary prospectuses will bear an
additional burden of accessing statutory prospectuses online.
Alternatively, the proposed rule could require insurers to provide both
summary and statutory prospectuses together in paper or, if the
investor has elected to receive the document electronically, in
electronic form. This alternative would offer the benefit, for those
investors choosing to receive the documents in paper, that any investor
wishing to use both summary and statutory prospectuses in his or her
decision making would not be required to bear the additional burden of
accessing statutory prospectuses online.
    While providing both summary and statutory prospectuses together
would eliminate the necessity of those investors who wish to use both
summary and statutory prospectuses having to bear the burden of
accessing statutory prospectuses online, we have decided not to propose
this alternative for two reasons. First, rather than reducing printing
and mailing costs, this alternative would create additional printing
and mailing costs. We believe that the increased printing and mailing
costs would cause few insurers to choose to provide both summary and
statutory prospectuses. Thus, de facto, the potential benefits of
layered disclosure would likely not be available to most investors.
    Second, the proposed summary prospectuses would provide investors
with key information relating to the

contract's terms, benefits, and risks in a concise and more reader-
friendly document. We are concerned that variable contract investors
may not read or understand the disclosures they currently receive. If
investors were to receive both summary and statutory prospectuses, the
increase in materials received could lead to potentially fewer
investors reading either of the documents.\752\
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    \752\ We note that this effect is mitigated to the extent that
investors want to receive the additional disclosure. For example,
those investors who currently read statutory prospectuses in
consideration of their investment decisions may find the incremental
burden associated with receiving the additional disclosure in the
form of summary prospectuses to be small.
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3. Contract-Specific Updating Summary Prospectuses
    The proposed variable contract summary prospectus regime would
require that the initial summary prospectus only describe a single
contract that the registrant currently offers for sale, but would
permit an updating summary prospectus to describe more than one
contract covered in the statutory prospectus to which the updating
summary prospectus relates. As an alternative, we could have proposed
that the updating summary prospectus describe only a single contract.
    Relative to the baseline, this alternative would be no different
from the proposal in terms of the economic impacts related to the
proposed initial summary prospectus, but would differ in economic
effects related to the updating summary prospectus. An updating summary
prospectus that describes solely the contract held by an investor could
be easier for that investor to consume than an updating summary
prospectus that describes more than one contract, and therefore could
be more beneficial to investors than the proposed approach. The
magnitude of this increase in benefits depends on the extent to which
information about multiple contracts confuses investors or causes
investors not to read the information, which, in turn, likely depends
on the number of changes to contracts and the number of different
contracts that would be presented in the updating summary prospectus.
We acknowledge that this alternative would permit investors to easily
focus on key information on a single contract. However, we
preliminarily expect this increase in benefits to be limited because,
based on our current understanding of variable contracts, there are a
limited number of changes to contracts in any given year, and many of
those changes (such as changes to the available portfolio companies or
the addition of new optional benefits) typically apply to similar
contracts in the same prospectus. Accordingly, although the section of
the updating prospectus that describes changes to the contracts would
cover multiple contracts, the number changes concerning any individual
contract is expected to be relatively brief, thus minimizing the amount
of inapplicable information the investor would read.
    Under this alternative, insurers would be required to produce and
deliver to investors a separate updating summary prospectus for each
contract. An insurer could limit the costs associated with printing and
mailing by only delivering those updating summary prospectuses to an
investor that holds the contracts they describe. However, such a
process would likely entail systems upgrades and changes to back-office
operations needed to tailor mailings on an investor-by-investor
basis.\753\
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    \753\ We understand that the process involved in drafting and
printing an updating summary prospectus that only describes the
changes made to a single contract (and then distributing a tailored
updating summary prospectus to each investor based on their
particular contract) is quite complex. In contrast, the same process
with respect to the initial summary prospectus is relatively
straightforward since the document, which would only describe the
currently available contract, would be provided all new investors.
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4. Do Not Provide Updating Summary Prospectuses
    We considered two closely-related alternative approaches to the
proposed summary prospectus regime in which only initial contract
purchasers would receive a summary prospectus, and afterwards,
investors who make additional purchase payments or who reallocate
contract value would either (1) receive no updating summary prospectus
or (2) receive only a notice that the statutory prospectus is available
online. Such an alternative would likely yield larger cost savings for
insurers because insurers would not be required to produce, print, and
mail updating summary prospectuses and would instead incur only costs
associated with providing the initial summary prospectus when an
investor first purchases the contract or reallocates contract value.
    However, under either of these alternatives, investors would not
benefit from the ongoing layered disclosure provided by the updating
summary prospectus. As discussed above, the Commission believes that
the updating summary prospectus's brief description of any important
changes to the contract that occurred within the prior year allow
investors to better focus their attention on new or updated information
relating to the contract. Relatedly, the updating summary prospectus
would include certain information required in the initial summary
prospectus that we consider most relevant to investors when making
additional investment decisions or otherwise monitoring their
contracts, and investors would not have access to this concise
presentation of key information under either alternative. For these
reasons, we have not proposed this alternative.
5. Inline XBRL
    The proposed amendments would require variable contract registrants
to file certain information from statutory prospectuses with the
Commission in Inline XBRL.
    As an alternative, we could allow but not require variable contract
registrants to file the information in Inline XBRL. Compared to the
proposed amendments, a fully voluntary Inline XBRL program would lower
costs for those filers, particularly filers that do not already file
information in Inline XBRL. However, a voluntary program would reduce
the usability of the required data. If the information were not
submitted by the registrant in a structured, machine-readable format,
investors and other data users who wish to instantly analyze,
aggregate, and compare the data would be required to incur the costs of
paying a third-party provider to manually rekey the data, review the
data for data quality problems during the duplication process, and
disseminate the data to the users. Alternatively, investors or data
users unwilling to pay a third-party provider would incur the time to
do that process themselves. In either scenario, the data would not be
usable in as timely a manner if it were made machine-readable. In
addition, under a voluntary program, data that is not submitted in
Inline XBRL would not be validated, thus decreasing the overall data
quality of the data submitted. Poor data quality reduces any data
user's ability to meaningfully analyze, aggregate, and compare data.
    Under the proposed amendments, filing the information in Inline
XBRL would be required for Key Information Table, Fee Table, Principal
Risks of Investing in the Contract, Other Benefits Available Under the
Contract, and/or Portfolio Companies [Investment Options] Available
Under the Contract. The information proposed to be filed in Inline XBRL
largely parallels the information that is required of mutual funds and
ETFs, and we believe is likely to be of greatest utility for investors
and

others that seek to use the information in a structured format to
assist with decisions about variable products. As another alternative,
we could require variable contract registrants to file all, or a larger
subset, of the information from the statutory prospectus, rather than
only the information covered by the proposed amendments, in Inline
XBRL. Compared to the proposed amendments, this alternative would
improve the timeliness and usability of the required disclosure
information, but potentially impose additional costs on registrants. To
the extent that the other required disclosures in the affected forms
contain information that is more specific to individual registrants
without any comparability or aggregation utility, the benefits of
having those additional required disclosures in a structured format may
be lower than the more limited subset of disclosures required to be
filed in Inline XBRL under the proposed amendments.
    The proposed amendments provide filers with an 18-month transition
period after the effective date of the amendments to give registrants
sufficient time to update their prospectuses and to prepare new
registration statements that comply with the amendments, including with
the Inline XBRL tagging requirement. As an alternative, we could
provide filers with a shorter or longer transition period. Compared to
the proposed amendments, a longer transition period would cause filers
to defer Inline XBRL compliance costs and may ease the transition for
filers, particularly smaller filers and filers that encounter
challenges in acquiring expertise and software solutions needed to
prepare Inline XBRL filings. However, a longer transition period also
could defer the benefits of making the information available in a
structured format to investors in variable contracts, compared to the
proposed amendments. Conversely, compared to the proposed amendments, a
shorter transition period would cause filers to incur Inline XBRL
compliance costs earlier and may make the transition more difficult for
smaller filers and filers that lack expertise and software solutions
needed to prepare Inline XBRL filings. It also would allow investors to
realize the benefits of access to key information in a structured
format earlier than under the proposed amendments. Based on the state
of the Inline XBRL standard today, and to allow filers the flexibility
of additional time to comply, we are providing all filers with a
transition period.
    As another alternative, we could require the disclosures to be
filed in another structured format, such as the XBRL or XML format.
Compared to the proposed Inline XBRL requirement, the use of the XBRL
format entails complete duplication of the data, which can adversely
affect the quality and usability of the structured data as well as the
efficiency and cost of preparation and review of the structured data.
Compared to the proposed requirement to use Inline XBRL, the
alternative to requiring the use of XML could result in lower costs for
filers. However, compared to the proposed amendments, XML would provide
less flexibility in tagging complex information as well as less
extensive data quality validation capabilities. In addition, neither
the XBRL nor XML options are human-readable. As a result, investors and
other data users would not have the benefits of having a document that
is both machine-readable and human-readable, or the benefits of the
Inline Viewer when accessing the filing, such as enhanced search
features, filtering capabilities, and built-in definitional references.
Investors and other data users would need to access two different
documents to view and analyze the same data. Filers would also have
diminished data quality benefits. Because Inline XBRL embeds structured
data directly into an HTML document, filers would not need to review a
separate structured data document to identify and correct data quality
errors. Moreover, by using an Inline XBRL viewer, filers can more
easily identify discrepancies in their data before filing.
6. Alternatives to Form N-3, N-4, and N-6 Amendments
    The Commission is proposing amendments to Forms N-3, N-4, and N-6.
Collectively, these amendments are meant to update and enhance the
disclosures to investors in variable annuity contracts, and to
implement the proposed summary prospectus regime. An alternative would
be for the Commission to propose a subset of the proposed amendments to
the registration forms. Fewer amendments to the registration forms
could be less costly for registrants, because registrants would be
required to make fewer changes to their disclosure. However, the
proposed form amendments also simplify certain current disclosure
requirements, and so the net economic effects of proposing only a
subset of the proposed amendments would depend on the particular subset
of proposed amendments. As described in Section II.D. above, we believe
that the form amendments that we propose promote investor understanding
of variable contracts by presenting information in a clear manner and
by reflecting industry developments. Proposing only a subset of these
amendments could result in less investor understanding relative to the
understanding resulting from the proposed amendments. For this reason,
we have not proposed this alternative. However, we request comment
above about each of the proposed amendments, and will assess, based on
the comments we receive, if any of the proposed amendments would not
further the goals of this rulemaking proposal.
    Additionally, the Commission is proposing a new General Instruction
in each of Forms N-3, N-4, and N-6 that is meant to encourage the use
of disclosure effectiveness principles in variable contract disclosure.
Specifically, proposed General Instruction C.3.(c) in each form 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.\754\ As an alternative to this proposed instruction, we could
propose to mandate the use of any of these presentation methods.
Investors might gain a clearer understanding of the features and risks
of variable contracts as a result. We are concerned, however, that
mandating a particular presentation method (besides the presentation
methods that the proposed form amendments would specifically require,
about which we request comment above) could provide less flexibility to
registrants to describe variable contracts in the manner they think is
most appropriate. Moreover, there could be a risk that mandating the
use of certain presentation methods could unintentionally obscure, or
not clearly explain, certain variable contract features and risks.
---------------------------------------------------------------------------

    \754\ See supra note 399.
---------------------------------------------------------------------------

    Also, the Commission is 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 (and the requirement for cross-references in electronic
versions of the summary prospectus and/or statutory prospectus to link
directly to the location in the statutory prospectus where the topic is
discussed in more detail). As an alternative to this proposed
instruction, we could propose to require that, where a topic is
summarized in the prospectus and is discussed in more detail elsewhere
in the prospectus, the summarized topic must include a cross-reference
(and a hyperlink in electronic document versions) to the location

prospectus where the topic is discussed in more detail. This
alternative requirement would make use of the layered disclosure
approach that underlies the rulemaking proposal in a manner that could
make information in the prospectus more accessible to investors and
leverage technology in a way that could further assist investors in
navigating the prospectus. We believe, however, that adding additional
cross-references and hyperlinks would increase costs for insurers and
could lead to greater uncertainty among registrants about where cross-
references and hyperlinks are required (i.e., whether a topic is
summarized in one part of the prospectus and then discussed in more
detail later could be viewed as a subjective determination). Further,
we note that the benefits of cross-references and hyperlinks might be
limited, given that proposed rule 498A would require electronic
versions of the statutory prospectus to include a table of contents
that would allow the reader to move directly between it and the related
sections of the document.
7. Requiring All Variable Contracts (Including Currently Discontinued
Contracts) To Prepare Updated Registration Statements and Deliver
Statutory or Summary Prospectuses
    Instead of permitting contracts whose issuers are currently
operating in the manner that the Staff Letters describe to continue to
operate in such manner, the Commission could require issuers of all
contracts to prepare updated registration statements and comply with
either the current standard prospectus delivery requirements or the
optional summary prospectus regime. In this scenario, investors in In-
Force Alternative Disclosure Contracts would benefit from the increased
disclosure, either from receiving the statutory prospectus or the
optional initial and updating summary prospectuses, while continuing to
have access (either upon request or online, under the summary
prospectus regime) to the financial statements they were receiving as
part of the Staff Letters' alternative disclosures. Moreover, as
explained in detail above, the optional summary prospectus regime, if
relied on, could provide significant additional benefits for investors
in terms of facilitating the review and understanding of available
disclosures.\755\ At the same time, the optional summary prospectus
regime also permits insurers to satisfy delivery obligations for the
underlying company prospectuses by making those documents available
online, which could create a burden for investors who prefer to use
those prospectuses when making allocation decisions and who received
paper versions of those documents under the Staff Letters.
---------------------------------------------------------------------------

    \755\ See supra section III.C.1.a.i(a).
---------------------------------------------------------------------------

    With respect to the impact on insurers, under this alternative,
issuers of In-Force Alternative Disclosure Contracts would incur
significant costs to update their registration statements, most of
which have not been updated for many years.\756\ As noted above, we
also believe that amendments to the forms will result in a net increase
in the burden associated with preparing an initial registration
statement and post-effective amendments, which could further add to the
cost of preparing these documents for these contract issuers. We
estimated the cost of amendments to the forms above as $2.60 per
contract.\757\
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    \756\ In addition, we recognize that there are a number of
contracts whose registration statements were prepared using
predecessor forms to the current disclosure forms (Forms N-4 and N-
6). For those contracts, updating a registration statement could be
especially burdensome, particularly considering that these contracts
are only offered to a limited number of investors.
    \757\ See supra section III.E.6.b.
---------------------------------------------------------------------------

    In addition, issuers of In-Force Alternative Disclosure Contracts
would no longer incur costs to deliver financial statements, which we
estimated at $0.27 per contract. However, they would incur printing and
mailing costs to deliver the contract statutory prospectus, which we
estimated at $0.53 per contract. Still, the proposed optional summary
prospectus framework would likely mitigate those increases by only
requiring delivery of a shorter summary prospectus, as described above.
We estimated the cost of delivering the summary prospectus to be $0.35
per contract. Moreover, the proposed summary prospectus regime also
permits electronic delivery of underlying portfolio company
prospectuses, which, if relied on, may further mitigate costs that an
insurer would incur if it were not able to operate in the manner that
the Staff Letters describe. We estimated the cost of delivery of the
portfolio company summary prospects to be $0.53 per contract.
    On balance, given the burdens associated with preparing an updated
registration statement and compliance with either standard prospectus
delivery requirements or the proposed optional summary prospectus
regime, we believe contracts whose issuers currently are operating in
the manner that the Staff Letters describe should be permitted to
continue doing so.
8. Alternatives to Commission's Position on Alternative Disclosure
Contracts
    As discussed above, the Commission is taking the position that,
should it adopt the proposed summary prospectus framework, Alternative
Disclosure Contracts (contracts operating in the manner described in
the Staff Letters as of the effective date of any final summary
prospectus rules) would be permitted to continue to operate in such a
manner after the final rules' effective date. Under the proposed
approach, all other current and future contracts would be subject to
the proposed optional summary prospectus regime.\758\ We discuss below
two alternatives to the Proposed Framework, which would impose
different disclosure requirements than either the current baseline
(including the contracts whose issuers operate in the manner that the
Staff Letters describe) or the Proposed Framework. We have considered
the economic effects of these alternatives against the baseline set
forth in section III.B. In addition, we also discuss how the economic
effects of each alternative would likely differ from those of the
Proposed Framework.
---------------------------------------------------------------------------

    \758\ We refer to this combination of the optional summary
prospectus regime and the Commission's position on Alternative
Disclosure Contracts as ``the Proposed Framework.''
---------------------------------------------------------------------------

    If the Commission were to adopt either of these alternatives, the
Commission could take the position, as it does in the Proposed
Framework, that Alternative Disclosure Contracts would be permitted to
continuing operating in the manner described in the Staff Letters.
Alternatively, the Commission could determine that the adopted
alternative applies to all contracts, including contracts that would be
Alternative Disclosure Contracts under the Commission's position. In
describing the economic effects of each alternative, we take into
account the different effects that would occur if the Commission were
to determine that the adopted alternative were to replace the
Commission's position on Alternative Disclosure Contracts for contracts
that otherwise would be subject to that position.
    Besides the economic effects described below with respect to
existing contracts, to the extent the alternatives create benefits or
costs that are different from the benefits and costs of operating in
the manner described in the Staff Letters (which would effectively be
the same costs and benefits for Alternative Disclosure Contracts under
the Proposed Framework), they could affect the creation of new variable
contracts in the future. For example, if contract fees

and charges are established with the expectation that an insurer could
provide alternative disclosures if a product launch is unsuccessful or
the number of contract investors diminishes over time, then to the
extent the benefits and costs of the alternatives are different from
the benefits and costs of operating in the manner described in the
Staff Letters, the alternatives could affect fees and charges for
future variable contracts. Similarly, they may affect insurers'
willingness to offer new variable products in the first place.
a. Approach 1 To Applying the Proposed Framework to Discontinued
Contracts
    As an alternative to applying the Proposed Framework to
discontinued contracts, the Commission could 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 certain conditions (``Approach 1,'' as
discussed in more detail in section II.C above). The Commission could
determine that these alternative requirements apply to all contracts,
including In-Force Alternative Disclosure Contracts, or the Commission
could take the position that Alternative Disclosure Contracts would be
permitted to continuing operating in the manner described in the Staff
Letters, as in the Proposed Framework.
    Codification of Approach 1 would be similar to the proposed summary
prospectus regime in certain respects, in terms of the information that
is either (1) delivered to all investors, (2) made available online, or
(3) delivered to those investors who so request.\759\ For example,
under both the proposed summary prospectus regime and Approach 1, the
updated audited financial statements of the registrant would be
available online and would be delivered (in paper or electronically) to
investors upon request, and also filed with the Commission.\760\ Under
both frameworks, portfolio company prospectuses and shareholder reports
would be delivered to all investors, or (if the insurer were to rely
upon the proposed new option to satisfy portfolio company prospectus
delivery requirements \761\) made available online and delivered (in
paper or electronically) upon request.
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    \759\ See supra Table 4.
    \760\ In the case of variable life insurance contracts, the
financial statements instead would be the updated audited financial
statements of the depositor. See supra note 368.
    \761\ Under Approach 1, registrants would be permitted to use
the optional method to satisfy portfolio company prospectus delivery
requirements as provided under proposed rule 498A.
---------------------------------------------------------------------------

    As discussed in section II.C, the Staff Letters identified a set of
circumstances in which the staff would not recommend enforcement action
once the registration statement is no longer updated, including that
financial statements, as well as portfolio company prospectuses and
shareholder reports, are delivered to all investors. If the Commission
were to codify Approach 1 and In-Force Alternative Disclosure Contracts
were required to comply with the conditions of Approach 1 (rather than
choosing to follow the conditions set forth in the Staff Letters, as in
the Proposed Framework), codification of Approach 1 may yield reduced
printing and mailing costs compared to the baseline because:

     Unlike the circumstances described in the Staff
Letters, under Approach 1, insurers would make financial statements
available online and would only deliver them to investors (in paper
or electronically) upon request. We estimate that issuers of In-
Force Alternative Disclosure Contracts currently incur $0.27 per
contract to print and mail financial statements.\762\
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    \762\ We estimate that financial statements require
significantly less be spent on printing and mailing costs than
statutory prospectuses given the smaller size of the documents.
Accordingly, we estimate that each financial statement requires 50%
of the printing and mailing costs associated with statutory
prospectuses. $0.53 x 50% = $0.27.
---------------------------------------------------------------------------

     Under Approach 1, insurers could avail themselves of
the proposed option to satisfy portfolio company prospectus delivery
requirements by making prospectuses and shareholder reports
available online and only delivering them to investors on request.
This option, however, is not currently available for issuers of In-
Force Alternative Disclosure Contracts. We estimate that issuers of
In-Force Alternative Disclosure Contracts currently incur $0.53 per
contract to deliver portfolio company prospectuses.\763\
---------------------------------------------------------------------------

    \763\ See supra note 716.

Existing contracts that could be discontinued in the future, and that
may have anticipated the option to operate in accordance with the Staff
Letters, would likewise experience the same reduction in expected
future costs.
    In addition, if the Commission were to codify Approach 1, a
registrant relying on the conditions of Approach 1 would not be
required to create and maintain a current registration statement and
make the statutory prospectus and SAI available online. This is
consistent with the circumstances described in the Staff Letters, and
thus would not represent a change for In-Force Alternative Disclosure
Contracts or contracts that may become discontinued in the future.
However, the Proposed Framework requires that all insurers offering
variable contracts (other than In-Force Alternative Disclosure
Contracts affected by the Commission's position) must create and
maintain a current registration statement and make the statutory
prospectus and SAI available online (as well to deliver initial summary
prospectuses and updating summary prospectuses). Accordingly, for
insurers sponsoring contracts that could be discontinued in the future,
these provisions of Approach 1 would produce lower costs for insurers
than the Proposed Framework.
    However, under Approach 1, insurers are required to deliver an
annual notice to investors, which would include information that is
comparable to information that would be included in an updating summary
prospectus. An equivalent condition is not included in the
circumstances that the Staff Letters describe. So, if In-Force
Alternative Disclosure Contracts are required to comply with the
conditions of Approach 1 (rather than adhering to the conditions set
forth in the Staff Letters, as in the Proposed Framework), this would
impose new costs on insurers sponsoring In-Force Alternative Disclosure
Contracts. Likewise, issuers of contracts that may become discontinued
in the future who may have expected that they could operate in the
future in the manner described in the Staff Letters may experience
unexpected costs compared to the baseline. Because of the similarities
between information in this notice and in the updating summary
prospectus, however we believe the costs under Approach 1 for issuers
of contracts that may become discontinued in the future of producing,
printing, and mailing these notices would be approximately equal to the
costs associated with producing, printing, and mailing updating summary
prospectuses, or about $0.35 per prospectus.\764\
---------------------------------------------------------------------------

    \764\ See supra note 702.
---------------------------------------------------------------------------

    Investors may also incur costs and benefits under Approach 1
compared to both the baseline and the Proposed Framework. Specifically,
as noted, investors would receive an annual notice providing disclosure
of any material changes, as well as the same key information and
portfolio company tables provided in an updating summary prospectus. If
In-Force Alternative Disclosure Contracts are required to comply with
the conditions of Approach 1 (rather than adhering to the conditions
set forth in the Staff Letters, as in the Proposed Framework), this
notice would benefit investors in those

contracts, relative to the baseline, by annually providing disclosures
that are not delivered to them as part of the alternative disclosures
described in the Staff Letters. Likewise, investors in contracts that
may be discontinued in the future would incur benefits of enhanced
disclosure in the future that they would not have received under the
baseline.
    Additionally, because the annual notice would be similar in content
to the updating summary prospectus, Approach 1 would result in
investors in contracts that previously relied on the summary prospectus
regime receiving consistent disclosures for the full life of their
contract. This represents a benefit to investors relative to the
circumstances that the Staff Letters describe, under which investors
receive a prospectus annually until the issuer begins to provide the
alternative disclosures (and, similarly, investors in contracts that
are not In-Force Alternative Disclosure Contracts receive a different
set of disclosures than investors in In-Force Alternative Disclosure
Contracts). This benefit to investors would similarly be present under
the proposed summary prospectus regime, because an insurer choosing to
use a summary prospectus would presumably do so for the full life of
the contract.
    Approach 1 also permits insurers to use the new optional portfolio
company prospectus delivery method. To the extent that In-Force
Alternative Disclosure Contracts are required to comply with the
conditions of Approach 1 and insurers choose this option, the need to
go to a website to access portfolio company prospectuses (or request
electronic or paper copies) would create a burden for all investors
relative to the baseline (including investors in In-Force Alternative
Disclosure Contracts, and investors in contracts that could be
discontinued in the future) who prefer to use these prospectuses when
making allocation decisions. However, the impact of this burden may be
mitigated by the inclusion of the portfolio company information table
in the annual notice. The summary prospectus regime provides for the
same optional approach to portfolio company prospectus delivery, and
therefore the impact on investors in contracts that do not operate
under the conditions of Approach 1 would be the same under the Proposed
Framework.
    Similarly, under Approach 1, insurers would not deliver financial
statements to investors as they currently do if they are the issuers of
In-Force Alternative Disclosure Contracts, but rather would make the
statements available online (and deliver electronic or paper copies
where requested by an investor). To the extent that In-Force
Alternative Disclosure Contracts are required to comply with the
conditions of Approach 1, investors in In-Force Alternative Disclosure
Contracts who currently choose to rely on those financial statements
would therefore face a burden in accessing them that they do not
currently face under the baseline. Similarly, investors in contracts
that may be discontinued in the future (and that would no longer be
permitted to operate in the manner that the Staff Letters describe) may
incur a future, unexpected burden to access those statements, though
they would face this same burden under the proposed summary prospectus
regime. Finally, because insurers under Approach 1 would not maintain
an updated registration statement, this alternative may limit the
potential liability of insurers to investors under certain liability
provisions otherwise available under federal securities laws.\765\
---------------------------------------------------------------------------

    \765\ See supra notes 372 and 373 and accompanying text.
---------------------------------------------------------------------------

b. Approach 2 To Applying the Proposed Framework to Discontinued
Contracts
    As a second alternative approach to applying the Proposed Framework
to discontinued contract, the Commission could adopt final rules with a
different set of conditions for relief from the requirements to update
the variable contract registration statement and deliver updated
contract prospectuses to existing investors (``Approach 2,'' as
discussed in more detail in section II.C above). As with Approach 1,
the Commission could determine that these alternative requirements
apply to all contracts, including In-Force Alternative Disclosure
Contracts, or the Commission could take the position that Alternative
Disclosure Contracts would be permitted to continue operating in the
manner described in the Staff Letters, as in the Proposed Framework.
    Approach 2 would be identical to Approach 1 in terms of how
financial statements and portfolio company prospectuses are delivered
or made available to investors. In addition, Approach 2 and Approach 1
both would involve delivery of an annual notice to investors that
includes information that is comparable to information that would be
included in an updating summary prospectus. Approach 2 differs from
Approach 1 chiefly in that, under Approach 2, a registrant would need
to create and maintain a current registration statement and make the
statutory prospectus and SAI available online. 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. We note, however, that updating the
registration statement to reflect a material change to the offering
\766\ would entail some burden relative to the baseline (i.e., the
Staff Letters), which is not conditioned on any updating of the
registration statement. For example, the registrant (and related
service providers) would have to confirm the continued accuracy of the
information in the registration statement as would the registrant's
auditor as part of the auditor's attestation process.
---------------------------------------------------------------------------

    \766\ See supra note 385.
---------------------------------------------------------------------------

    Accordingly, issuers of contracts that may become discontinued in
the future may incur certain unexpected future costs associated with
this requirement; likewise, should Approach 2 apply to In-Force
Alternative Disclosure Contracts, issuers of those contracts would
incur these new costs compared to the baseline. In addition, because
issuers of In-Force Alternative Disclosure Contracts do not maintain a
current registration statement or make the statutory prospectus and SAI
available online, should Approach 2 apply to In-Force Alternative
Disclosure Contracts, insurers may incur initial costs to update the
registration statement, which may not have been updated in years, and
those costs may be significant.
    The remaining conditions under Approach 2 are identical to those
under Approach 1, and would produce equivalent economic effects, so
that the aggregate impact is an increase in costs incurred by
registrants under the proposed summary prospectus framework (assuming
the effects of the Commission's position on Alternative Disclosure
Contracts).
    Under Approach 2, investors would receive an annual notice
identical to the notice they receive under Approach 1. As described
above, investors would benefit from this ongoing disclosure, compared
to the alternative disclosures that they receive under the
circumstances that the Staff Letters identify, as well as from the
consistency with the disclosures provided in an updating summary
prospectus. Like the proposed summary prospectus regime, Approach 2
would further benefit investors, relative to both the

circumstances that the Staff Letters identify and Approach 1, by
requiring an insurer to provide online (and deliver in paper or
electronically upon request) copies of the contract statutory
prospectus and SAI. Additionally, as under the summary prospectus
regime and unlike either Approach 1 or the circumstances that the Staff
Letters identify, under Approach 2, insurers would maintain an updated
registration statement due to the forward incorporation of the separate
account and depositor financial statements. As a result, under Approach
2, investors would benefit from certainty as to the liability of
insurers for statements made in the registration statement. The costs
for investors under Approach 2 relative to the circumstances that the
Staff Letters identify and the summary prospectus regime would be
similar to those faced by investors under Approach 1.

F. Request for Comments

    Throughout this release, we have discussed the anticipated benefits
and costs of the proposed rule and its potential effect on efficiency,
competition, and capital formation. While we do not have comprehensive
information on all aspects of variable contract industry reporting, we
are using the data currently available in considering the effects of
the proposed rule. We request comment on all aspects of this initial
economic analysis, including on whether the analysis has (1) identified
all benefits and costs, including all effects on efficiency,
competition, and capital formation; (2) given due consideration to each
benefit and cost, including each effect on efficiency, competition, and
capital formation; and (3) identified and considered reasonable
alternatives to the proposed new rule. We request and encourage any
interested person to submit comments regarding the proposed rule, our
analysis of the potential effects of the rules and other matters that
may have an effect on the proposed rules. We request that commenters
identify sources of data and information with respect to variable
contracts in general, but also with respect to variable life products
in particular, as well as provide data and information to assist us in
analyzing the economic consequences of the proposed rules. We are also
interested in comments on the qualitative benefits and costs we have
identified and any benefits and costs we may have overlooked. We urge
commenters to be as specific as possible.
    Comments on the following questions are of particular interest.

     We have characterized a goal of variable contract
investors as seeking to address the risk that they may outlive their
retirement assets. Have we correctly characterized that goal of
variable contract investors? What other products or investments,
purchased either with or without the aid of investment
professionals, are available to investors to achieve that goal?
     Under the proposed rule, to what extent would insurers
choose to meet their disclosure obligation by providing investors
with summary prospectuses while making statutory and other documents
available on a website? The benefits of the proposed rule for
insurers are linked to the extent they would be replacing printing
and mailing paper statutory prospectuses with summary prospectuses.
To what extent do investors currently elect to receive prospectuses
via electronic delivery rather in paper? To what extent do investors
who elect to receive prospectuses via electronic delivery also
request paper copies of prospectuses?
     Should we, as we have proposed, allow insurers to
provide summary prospectuses by delivering them, in paper, at no
charge? Would investors prefer that these materials be provided in
this manner? Would the summary prospectus be more useful if provided
in another manner? Would investors be more aware or less aware of
the availability of the information in summary prospectuses and
other documents if provided only electronically on a website at no
charge?
     Would any positive or negative effect of the proposed
rule on investors be disproportionately greater for certain
investors than for others? If so, which investors would be
disproportionately affected, to what extent, and how would such
effects manifest? What, if any, additional measures could help
mitigate any such disproportionate effects? Please provide
supportive data to the extent available.
     Should we require the website on which the statutory
prospectus and other documents are made accessible to incorporate
safeguards to protect the anonymity of its visitors? For example,
should we require similar conditions to those provided in rule 14a-
16 under the Exchange Act relating to internet availability of proxy
materials? Why or why not? If so, what specific requirements should
we consider?
     To what extent would the proposed rule reduce burdens
such as printing and mailing costs borne by insurers? Would these
burden reductions ultimately accrue to investors in the form of
lower total expenses? Please provide supportive data to the extent
available.
     To what extent might reduced burdens (e.g., printing
and mailing cost savings) borne by insurers be passed on to existing
investors? Under what circumstances, and in what form, would
insurers pass benefits through to existing investors?
     To what extent would the proposed rule affect the
ability of investors to understand the investment risks of variable
contracts and to efficiently allocate capital? Would investors be
more likely to allocate additional capital to variable products?
What would be the effect on insurer competition for investor
capital?
     To what extent do investors use statutory prospectus
information to compare alternative variable product investments? To
what extent should we expect that to change if insurers provide
summary prospectuses rather than statutory prospectuses?
     Our estimates rely on several assumptions, such as 95%
of insurers will choose to use a summary prospectus, all insurers
who use a summary prospectus will choose to use the new optional
delivery method for portfolio company prospectuses, and 15% of
investors currently elect to receive electronic delivery of
disclosure documents. Do commenters agree with these and other
assumptions included in our analysis of the economic consequences of
the proposed rule? Why or why not? Please provide supportive data to
the extent possible.
     We estimate above that a maximum of approximately 2.68
million variable annuity contracts are In-Force Alternative
Disclosure Contracts. Do commenters believe this estimate is
reasonable? Why or why not? Please provide supportive data to the
extent possible.
     This proposed rule would allow insurers and investors
to take advantage of a summary disclosure regime designed to
increase investor understanding of variable contract products
through greater readability of and access to disclosures. Do
commenters believe there are effective means by which we could
measure the effectiveness of this rule if adopted? Why or why not?
Please provide specific suggested methodologies.

IV. Paperwork Reduction Act

    Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\767\ We are submitting the proposed
collections of information to the Office of Management and Budget
(``OMB'') for review in accordance with the PRA.\768\ The titles for
the existing collections of information are: (1) ``Form N-3,
Registration Statement under the Securities and Investment Co. Acts for
Insurance Co. Separate Accounts Issuing Variable Annuity Contracts''
(OMB Control No. 3235-0316); (2) ``Form N-4, Registration Statement
under the Securities and Investment Co. Acts for Insurance Co. Separate
Accounts Issuing Variable Annuity Contracts'' (OMB Control No. 3235-
0318); (3) ``Form N-6 under the Investment Company Act of 1940 and the
Securities Act of 1933, Registration Statement of Variable Life
Insurance Separate Accounts Registered as Unit Investment Trusts'' (OMB
Control No. 3235-0503); and ``Mutual Fund Interactive Data'' (OMB
Control No. 3235-0642) (which we propose to

re-title as ``Registered Investment Company Interactive Data'').
---------------------------------------------------------------------------

    \767\ 44 U.S.C. 3501-3521.
    \768\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    We are also submitting a new collection of information for proposed
rule 498A under the Securities Act to be used by separate accounts
offering variable annuity or variable life insurance contracts that
choose to send or give a summary prospectus (either an initial summary
prospectus or an updating summary prospectus) to investors. The title
for this new collection of information would be ``Summary Prospectus
for Variable Annuity and Variable Life Insurance Contracts.'' The
Commission also intends to use a Feedback Flier to obtain information
from investors about a sample variable annuity summary prospectus under
the proposal.\769\
---------------------------------------------------------------------------

    \769\ See Appendix C. The Commission has determined that this
usage is in the public interest and will protect investors, and
therefore is not subject to the requirements of the Paperwork
Reduction Act of 1995. See section 19(e) and (f) of the Securities
Act. Additionally, for the purpose of developing and considering any
potential rules relating to this rulemaking, the agency may gather
information from and communicate with investors or other members
from the public. See section 19(e)(1) and (f) of the Securities Act.
---------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number.
    The proposed amendments to Forms N-3, N-4, and N-6, if adopted,
would update and enhance the required disclosures provided to variable
contract investors. For example, the proposed amendments would
summarize certain key information about the contract at the beginning
of the prospectus, as well as update the presentation of fee
information and require additional information about standard and
optional benefits that a contract may offer. They also would
standardize presentation requirements to make the information more
accessible to retail investors, while retaining key elements of the
disclosure that is available today.
    In addition, we are proposing to amend Forms N-3, N-4, and N-6,
along with certain rules that effectuate the Commission's requirements
regarding the use of Inline XBRL format for the submission of certain
required disclosures,\770\ to require the use of the Inline XBRL format
for the submission of certain required disclosures in variable contract
statutory prospectuses. This aspect of our proposal is intended to
harness technology to allow investors (directly and through their
investment professionals), data aggregators, financial analysts,
Commission staff, and other data users to efficiently analyze and
compare the available information about variable contracts, as their
particular needs and circumstances may require.
---------------------------------------------------------------------------

    \770\ Specifically, we propose to amend rules 485 and 497 of
Regulation C (OMB Control No. 3235-0074), which describes the
procedures to be followed in preparing and filing registration
statements with the Commission, and rules 11 and 405 of Regulation
S-T (OMB Control No. 3235-0424), which specifies the requirements
that govern the electronic submission of documents. However, the
additional collection of information burden that will result from
these changes, as well as the burdens that will result from the
proposed amendments to the General Instructions of Forms N-3, N-4,
and N-6, are included in our burden estimates the ``Registered
Investment Company Fund Interactive Data'' collection of
information, and do not impose any separate burden aside from that
described in our discussion of the burden estimates for this
collection of information.
---------------------------------------------------------------------------

    Proposed rule 498A, if adopted, would permit a person to satisfy
its prospectus delivery obligations under the Securities Act for a
variable contract by providing a summary prospectus to investors and
making the statutory prospectus available online. The proposed rule
also would consider a person to have met its prospectus delivery
obligations for any portfolio companies associated with a variable
contract if these prospectuses are posted online. Registrants would
also be required to send these documents to the investor upon request.
    Finally, proposed amendments to rule 497, if adopted, would provide
the requirements for filing summary prospectuses with the Commission
and for submitting information to the Commission in Inline XBRL format.
These amendments would not constitute a separate collection of
information under rule 497. The burden required by these amendments is
part of the collection of information under proposed rule 498A, and--
for filings of Interactive Data Files--would be part of the re-titled
``Registered Investment Company Interactive Data'' collection of
information.

A. Form N-3

    Form N-3 is the form used by separate accounts offering variable
annuity contracts that are organized as management investment companies
to register under the Investment Company Act and/or to register and
offer their securities under the Securities Act. Form N-3, including
the proposed amendments, contains collection of information
requirements. Compliance with the disclosure requirements of Form N-3
is mandatory. Responses to the disclosure requirements are not
confidential. We currently estimate for Form N-3 a total hour burden of
2500 hours, and a total annual external cost burden of $164,144.\771\
The hour and cost burden estimates for preparing and filing reports on
Form N-3 are based on the Commission's experience with the contents of
the form. The number of burden hours and cost may vary depending on,
among other things, the complexity of the filing and whether
preparation of the form is performed by internal staff or outside
counsel.
---------------------------------------------------------------------------

    \771\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
PRA renewal in 2017.
---------------------------------------------------------------------------

    We are proposing amendments to Form N-3 to update and enhance the
disclosures to investors in variable annuity contracts, and to
implement the proposed summary prospectus regime.\772\ We propose to
amend certain disclosure requirements that Form N-3 currently includes:
For example, requirements to disclose the separate account's investment
objectives and risks, management of the registrant, investment advisory
and other services, portfolio managers, and brokerage allocation and
other practices. In addition, Form N-3 as we propose to amend it would
require certain new disclosure requirements regarding, among other
things: An overview of the contract, key information, principal risks,
optional benefits, loans, and the available investment options. We also
propose to eliminate or reduce certain disclosures currently required
by the form, such as disclosure of condensed financial information for
each class of accumulation units of the registrant for the last five
fiscal years, as opposed to the last ten fiscal years as is currently
required.
---------------------------------------------------------------------------

    \772\ See supra section II.D.
---------------------------------------------------------------------------

    Form N-3 generally imposes two types of reporting burdens on
investment companies: (1) The burden of preparing and filing the
initial registration statement; and (2) the burden of preparing and
filing post-effective amendments to a previously-effective registration
statement. Based on a review of Form N-3 filings made with the
Commission, our staff estimates that there will be no initial filings
and that eight post-effective amendments would be made on Form N-3 per
year.\773\ Commission staff further estimates these filings would be
made by five registrants and would

cover an average of three investment options per registration statement
or post-effective amendment filing.\774\ We separately discuss the
additional internal hours and external cost burdens that would apply as
a result of the proposed amendments.
---------------------------------------------------------------------------

    \773\ Commission staff reviewed initial filings and post-
effective amendments for Form N-3 filed with the Commission from
January 1, 2015 to December 31, 2017. There were no initial filings
of Form N-3 during that time period. There were eleven, seven, and
six post-effective amendments filed during 2015, 2016, and 2017,
respectively. Averaging those post-effective amendments over three
years results in an average of eight post-effective amendments per
year. This estimate is based on the following calculation: (11 + 7 +
6)/3 years = 8 per year.
    \774\ In our most recently approved Paperwork Reduction Act
submission, we used the term ``portfolio'' instead of ``investment
option.'' Although these terms have the same meaning in this
context, for purposes of this Paperwork Reduction Act analysis, we
are using the term ``investment option'' to conform with the term
that we propose to use in Form N-3.
    Based on a review of filings with the Commission, we are
increasing our estimate of the current number of investment options
per filing from two to three investment options. There are currently
five registration statements filed with the Commission on Form N-3
that cover 14 investment options. For purposes of this Paperwork
Reduction Act analysis, we assume each registration statement would
cover an average of three investment options. 14 investment options/
5 registration statements = 2.8 investment options per registration
statement.
---------------------------------------------------------------------------

Internal Hour Burden
    The proposed amendments would include certain disclosure changes
and new disclosures, but also would simplify certain current disclosure
requirements in Form N-3. Based on this, we estimate that, on a net
basis, the proposed amendments to Form N-3 would increase the burden of
preparing an initial registration statement on Form N-3 by 5 hours per
investment option per filing. Amortizing this burden over a three-year
period results in an estimated average annual burden of 1.7 hours per
year, at an estimated internal time cost equivalent of $571.\775\
However, because Commission staff estimates there would be no initial
filings using Form N-3, we estimate that the proposed amendments would
result in no change to the total annual hour burden for initial filings
on Form N-3.
---------------------------------------------------------------------------

    \775\ The estimate of 1.7 hours is based upon the following
calculation: (5 + 0 + 0)/3 years = 1.67. We are assuming 0 hours in
years 2 and 3 because, after year 1, the registrant would prepare
and file post-effective amendments to the registration statement,
and the hour burden of this is captured in the paragraph
accompanying infra note 776.
     The internal time cost equivalent of $571 is calculated by
multiplying the hour burden (1.7 hours) by the estimated hourly wage
of $336. The estimated wage figure is based on published rates for
Compliance Attorneys ($352) and Senior Programmers ($319). These
hourly figures are from SIFMA's Management & Professional Earnings
in the Securities Industry 2013, modified to account for an 1,800-
hour work year; multiplied by 5.35 to account for bonuses, firm
size, employee benefits and overheard; and adjusted to account for
the effects of inflation. The estimated wage rate was further based
on the estimate that Compliance Attorneys and Senior Programmers
would divide time equally, resulting in a weighted wage rate of $336
(($352 + $319)/2 = 335.5).
---------------------------------------------------------------------------

    We further estimate a one-time burden of an additional 20 hours per
registration statement to update disclosures that are not related to
the contract's investment options the first time the registration
statement is amended by post-effective amendment following adoption of
the proposed amendments. Subsequently, we estimate an ongoing burden of
an additional 5 hours per registration statement per year to prepare
and file a post-effective amendment to update these disclosures.
Amortizing these burdens over a three-year period results in an
estimated average annual burden of an additional 10 hours per
registration statement to prepare and file the post-effective
amendment, at an estimated internal time cost equivalent of
$3,360.\776\
---------------------------------------------------------------------------

    \776\ The estimate of 15 hours is based upon the following
calculation: (20 hours in year 1 + (5 hours in year 2) + (5 hours in
year 3)/3 years = 10 hours. The internal time cost equivalent of
$3,360 is calculated by multiplying the hour burden (10 hours) by
the estimated hourly wage of $336. See supra note 775.
---------------------------------------------------------------------------

    In addition, we estimate a further burden of 6 hours per contract
investment option to update registration statement disclosures that are
related to the contract's investment options, the first time the
registration statement is amended by post-effective amendment following
adoption of the proposed amendments. Subsequently, we estimate an
ongoing burden of an additional 1.5 hours per investment option per
year to prepare and file a post-effective amendment to update these
disclosures. Amortizing these burdens over a three-year period results
in an estimated average annual burden of an additional 3 hours per
investment option to prepare and file a post-effective amendment, at an
estimated internal time cost equivalent of $3,360.\777\
---------------------------------------------------------------------------

    \777\ The estimate of 3 hours is based upon the following
calculation: (6 hours in year 1 + (1.5 hours in year 2) + (1.5 hours
in year 3)/3 years = 3 hours. The internal time cost equivalent of
$1,008 is calculated by multiplying the hour burden (3 hours) by the
estimated hourly wage of $336. See supra note 775. In our most
recently approved Paperwork Reduction Act submission, we estimated
that a registrant with multiple investment options would experience
a burden of complying with the requirements of Form N-3 that is
proportional to the number of investment options that the registrant
offers. Since many of the disclosure requirements of Form N-3 do not
depend on the number of investment options offered by the
registrant, we have revised that estimate to reflect an incremental
burden per investment option, as opposed to a burden that is
proportional to the number of investment options that the registrant
offers.
---------------------------------------------------------------------------

    In the aggregate, we estimate that the proposed amendments to Form
N-3 would cause registrants to incur an additional annual burden of 152
hours, at an internal time cost equivalent of $51,072.\778\ We estimate
the total annual hour burden as a result of the proposed amendments to
be 1,402 hours.\779\ This decrease in the total annual hour burden is
due to the change in our methodology regarding burdens attributable to
investment options, notwithstanding the increase in the estimated
number of investment options associated with Form N-3 registrants, as
well as the increased burden hours per filing as a result of the
proposed amendments.\780\
---------------------------------------------------------------------------

    \778\ The estimate of 152 hours is based upon the following
calculation: (10 hours per post-effective amendment x 8 post-
effective amendments) + (3 hours per investment option per post-
effective amendment x 3 investment options per registration
statement x 8 post-effective amendments). The estimate of $51,072 is
based upon the following calculation: 152 hours x $336/hour =
$51,072.
    \779\ This estimate is based on the following calculation: 0
initial registration statements + (8 post-effective amendments x
(156.2 hours current burden + 10 hours under proposed amendments)) +
(8 post-effective amendments x 3 hours per investment option x 3
investment options) = approximately 1,402 hours.
    \780\ See supra note 777.
---------------------------------------------------------------------------

External Cost Burden
    Registrants would also bear external costs to prepare and update
registration statements and post-effective amendments on Form N-3, such
as costs for the services of independent auditors, outside counsel, or
consultants.
    In our most recently approved Paperwork Reduction Act submission
for Form N-3, Commission staff estimated the cost burden for preparing
and filing a post-effective amendment to a previously-effective
registration statement is $10,259 per investment option, with a total
annual approved external cost burden of $164,144.\781\ Consistent with
the change in our methodology for estimating burdens attributable to
investment options, we are revising those estimates.
---------------------------------------------------------------------------

    \781\ This estimate is based on the following calculation: 0
initial registration statements + ($10,259 per investment option per
post-effective amendment x 8 post-effective amendments per year x 2
investment options per post-effective amendment) = $164,144.
---------------------------------------------------------------------------

    We estimate that the cost burden for preparing and filing a post-
effective amendment to a previously-effective registration statement
would be $10,259 per registration statement to update disclosures that
are not related to the contract's investment options, and an additional
$3,420 per investment option to update disclosures that are related to
the contract's investment options.\782\ Therefore, we estimate the
total external cost burden as a result of the proposed amendments would
be $164,152, which would represent an increase due to the change in our
methodology for

estimating burdens attributable to investment options.\783\
---------------------------------------------------------------------------

    \782\ See supra note 777. Based on staff experience, we estimate
that the external cost burden to update disclosures associated with
each investment option would be approximately \1/3\ of the cost
burden to update disclosures associated with the registration
statement. $10,259/3 = $3,420. We request comment on this assumption
and this estimate.
    \783\ This estimate is based on the following calculation: 0
initial registration statements + ($10,259 per registration
statement per post-effective amendment x 8 post-effective amendments
per year) + ($3,420 per investment option x 3 investment options x 8
post-effective amendments) = $164,152.
---------------------------------------------------------------------------

B. Form N-4

    Form N-4 is the form used by separate accounts offering variable
annuity contracts that are organized as unit investment trusts to
register under the Investment Company Act and/or to register and offer
their securities under the Securities Act. Form N-4, including the
proposed amendments, contains collection of information requirements.
Compliance with the disclosure requirements of Form N-4 is mandatory.
Responses to the disclosure requirements are not confidential. We
currently estimate for Form N-4 a total hour burden of 343,117 hours,
and a total annual external cost burden of $36,308,889.\784\ The hour
and cost burden estimates for preparing and filing reports on Form N-4
are based on the Commission's experience with the contents of the form.
The number of burden hours and cost may vary depending on, among other
things, the complexity of the filing and whether preparation of the
form is performed by internal staff or outside counsel.
---------------------------------------------------------------------------

    \784\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
PRA renewal in 2015.
---------------------------------------------------------------------------

    We are proposing amendments to Form N-4 to update and enhance the
disclosures to investors in variable annuity contracts, and to
implement the proposed summary prospectus regime.\785\ We propose to
amend certain disclosure requirements that Form N-4 currently requires.
In addition, Form N-4 as we propose to amend it would require certain
new disclosures regarding, among other things: An overview of the
contract, key information, principal risks, optional benefits, loans,
and the available portfolio companies. We also propose to eliminate or
reduce certain disclosures currently required by the form, such as
disclosure of condensed financial information for each class of
accumulation units of the registrant for the last five fiscal years, as
opposed to the last ten fiscal years as is currently required.
---------------------------------------------------------------------------

    \785\ See supra section II.C.
---------------------------------------------------------------------------

    Form N-4 generally imposes two types of reporting burdens on
investment companies: (1) The burden of preparing and filing the
initial registration statement; and (2) the burden of preparing and
filing post-effective amendments to a previously-effective registration
statement. Based on a review of Form N-4 filings made with the
Commission, our staff estimates 35 initial filings on Form N-4 and
1,326 post-effective amendments would be made on Form N-4 per
year.\786\ We separately discuss the additional internal hours and
external cost burdens that would apply as a result of the proposed
amendments.
---------------------------------------------------------------------------

    \786\ Based on a review of initial filings and post-effective
amendments on Form N-4 filed with the Commission from January 1,
2015 to December 31, 2017. There were 34, 44, and 26 initial Form N-
4 filings filed during 2015, 2016, and 2017, respectively. Averaging
those initial Form N-4 filings over three years results in an
average of approximately 35 initial Form N-4 filings per year. This
estimate is based on the following calculation: (34 + 44 + 26)/3
years = 34.67 per year.
    There were 1,315, 1,415, and 1,247 post-effective amendments
filed during 2015, 2016, and 2017, respectively. Averaging those
post-effective amendments over three years results in an average of
approximately 1,326 post-effective amendments per year. This
estimate is based on the following calculation: (1,315 + 1,415 +
1,247)/3 years = 1,325.67 per year.
---------------------------------------------------------------------------

Internal Hour Burden
    The proposed amendments would include certain disclosure changes
and new disclosures, but also would simplify certain current disclosure
requirements in Form N-4. Based on this, we estimate that, on a net
basis, the proposed amendments to Form N-4 would increase the burden of
preparing an initial registration statement on Form N-4 by 5 hours per
initial registration statement. Amortizing this burden over a three-
year period results in an estimated average annual burden of 1.7 hours
per year, at an estimated internal time cost equivalent of $571.\787\
---------------------------------------------------------------------------

    \787\ The estimate of 1.7 hours is based upon the following
calculation: (5 + 0 + 0)/3 years = 1.67. We are assuming 0 hours in
years 2 and 3 because, after year 1, the registrant would prepare
and file post-effective amendments to the registration statement,
and the hour burden of this is captured in the paragraph
accompanying infra note 788. The internal time cost equivalent of
$571 is calculated by multiplying the hour burden (1.7 hours) by the
estimated hourly wage of $336. See supra note 775.
---------------------------------------------------------------------------

    We estimate a one-time burden of an additional 20 hours per
registration statement the first time the registration statement is
amended by post-effective amendment following adoption of the proposed
amendments. Subsequently, we estimate an ongoing burden of an
additional 5 hours per registration statement to prepare and file a
post-effective amendment. Amortizing these burdens over a three-year
period results in an estimated average annual burden of an additional
10 hours per registration statement to prepare and file a post-
effective amendment, at an estimated internal time cost equivalent of
$3,360.\788\
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    \788\ The estimate of 10 hours is based upon the following
calculation: (20 hours in year 1 + (5 hours in year 2) + (5 hours in
year 3)/3 years = 10 hours. The internal time cost equivalent of
$3,360 is calculated by multiplying the hour burden (10 hours) by
the estimated hourly wage of $336. See supra note 775.
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    In the aggregate, we estimate that the proposed amendments to Form
N-4 would cause registrants to incur an additional annual burden of
13,320 hours, at an internal time cost equivalent of $4,475,345.\789\
We estimate the total annual hour burden as a result of the proposed
amendments to be approximately 284,621 hours.\790\ This increase is due
to the increased burden hours per filing as a result of the proposed
amendments.
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    \789\ The estimate of 13,320 hours is based upon the following
calculation. For initial registration statements: 1.7 hours x 35
initial filings on Form N-4 = approximately 60 hours. For post-
effective amendments: 10 hours x 1,326 post-effective amendments =
13,260 hours. 60 + 13,260 = 13,320.
    The estimate of $4,475,345 is based upon the following
calculation. For initial registration statements: $571 x 35 initial
filings on Form N-4 = $19,985. For post-effective amendments: $3,360
x 1,326 post-effective amendments = $4,455,360. $19,985 + $4,455,360
= $4,475,345.
    \790\ This estimate is based on the following calculation. For
initial registration statements: 35 initial filings x (278.5 hours
current burden + 1.7 hours under proposed amendments) = 9,807 hours.
For post-effective amendments: 1,326 post-effective amendments x
(197.25 hours current burden + 10 hours under proposed amendments) =
274,813.5 hours. 9,807 + 274,813.5 = 284,620.5 hours.
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External Cost Burden
    Registrants would also bear external costs to prepare and update
registration statements and post-effective amendments on Form N-4, such
as the services of independent auditors and outside counsel.
    In our most recently approved Paperwork Reduction Act submission
for Form N-4, Commission staff estimated the annual cost burden for
preparing and filing an initial Form N-4 filing is $23,013 per
filing,\791\ with a total approved external cost burden of $4,832,730
annually for initial filings on Form N-4.\792\ In this same submission,
Commission staff estimated that the annual cost burden for preparing
and filing a post-effective amendment to a previously-effective
registration statement is $21,813 per filing, with a total approved
external cost burden of

$31,476,159 annually for post-effective amendments.\793\ The total
estimated annual cost burden for Form N-4 in this submission is
therefore $36,308,889 ($4,832,730 + $31,476,159).
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    \791\ The staff estimated this amount per ``portfolio,'' with
one portfolio per filing, in the most recently approved Paperwork
Reduction Act submission for Form N-4. For purposes of this
Paperwork Reduction Act analysis, we now estimate this amount per
``filing'' to conform with the terminology that we use elsewhere in
this analysis.
    \792\ This estimate is based on the following calculation:
$23,013 per filing x 210 initial filings per year = $4,832,730.
    \793\ This estimate is based on the following calculation:
$21,813 per filing x 1,443 post-effective amendments per year =
$31,476,159.
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    We do not estimate any change to the external costs per filing
associated with the proposed amendments to Form N-4. In the aggregate,
we estimate registrants on Form N-4 would incur annual external costs
of $29,729,493.\794\ This decrease reflects a decrease in the estimated
numbers of filings on Form N-4.
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    \794\ The estimate of $29,729,493 is based upon the following
calculation. For initial registration statements: $23,013 x 35
initial filings on Form N-4 = $805,455. For post-effective
amendments: $21,813 x 1,326 post-effective amendments = $28,924,038.
$805,455 + $28,924,038 = $29,729,493.
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C. Form N-6

    Form N-6 is the form used by separate accounts organized as unit
investment trusts that offer variable life insurance contracts to
register under the Investment Company Act and/or to register and offer
their securities under the Securities Act. Form N-6, including the
proposed amendments, contains collection of information requirements.
Compliance with the disclosure requirements of Form N-6 is mandatory.
Responses to the disclosure requirements are not confidential. We
currently estimate for Form N-6 a total hour burden of 85,269 hours,
and a total annual external cost burden of $5,316,892.\795\ The hour
and cost burden estimates for preparing and filing reports on Form N-6
are based on the Commission's experience with the contents of the form.
The number of burden hours and cost may vary depending on, among other
things, the complexity of the filing and whether preparation of the
form is performed by internal staff or outside counsel.
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    \795\ These estimates are based on the last time the rule's
information collections were approved, pursuant to a submission for
PRA renewal in 2015.
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    We are proposing amendments to Form N-6 to update and enhance the
disclosures to investors in variable life insurance contracts, and to
implement the proposed summary prospectus regime.\796\ We propose to
amend certain disclosure requirements that Form N-6 currently requires
(but to a lesser extent than the proposal would amend the disclosure
requirements that are currently in Form N-3 and Form N-4).\797\ In
addition, Form N-6 as we propose to amend it would require certain new
disclosures regarding, among other things: An overview of the contract,
key information, principal risks, optional benefits, loans, and the
available portfolio companies. We also propose to reduce certain
disclosures currently required by the form (but to a lesser extent than
the proposal would reduce the disclosure requirements in Form N-3 and
N-4).\798\
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    \796\ See supra section II.C.
    \797\ See, e.g., section II.D.4.a (discussing proposed
amendments to conform Part C items of Forms N-3 and N-4 to current
presentation in Form N-6).
    \798\ Form N-6 does not include the requirement to include AUV
tables, whose preparation would be simplified substantially by the
proposed amendments to Forms N-3 and N-4. See ``Accumulation Unit
Value Disclosure'' in supra section II.D.3.d.
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    Form N-6 generally imposes two types of reporting burdens on
investment companies: (1) The burden of preparing and filing the
initial registration statement; and (2) the burden of preparing and
filing post-effective amendments to a previously-effective registration
statement. Based on a review of Form N-6 filings made with the
Commission, our staff estimates 8 initial filings on Form N-6 and 380
post-effective amendments would be made on Form N-6 per year.\799\ We
separately discuss the additional internal hours and external cost
burdens that would apply as a result of the proposed amendments.
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    \799\ Based on a review of initial filings and post-effective
amendments on Form N-6 filed with the Commission from January 1,
2015 to December 31, 2017. There were ten, seven, and six initial
Form N-6 filings filed during 2015, 2016, and 2017, respectively.
Averaging those initial Form N-6 filings over three years results in
an average of approximately eight initial Form N-6 filings per year.
This estimate is based on the following calculation: (10 + 7 + 6)/3
years = 7.67 per year.
    There were 373, 420, and 346 post-effective amendments filed
during 2015, 2016, and 2017, respectively. Averaging those post-
effective amendments over three years results in an average of
approximately 380 post-effective amendments per year. This estimate
is based on the following calculation: (373 + 420 + 346)/3 years =
379.67 per year.
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Internal Hour Burden
    The proposed amendments would include certain disclosure changes
and new disclosures, but also would simplify certain current disclosure
requirements in Form N-6. Based on this, we estimate that, on a net
basis, the proposed amendments to Form N-6 would increase the burden of
preparing an initial registration statement on Form N-6 by 4 hours per
registrant.\800\ Amortizing this burden over a three-year period
results in an estimated average annual burden of 1 hour per year, at an
estimated internal time cost equivalent of $336.\801\
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    \800\ This is a lower estimate than the parallel estimate used
to calculate the increased hour burden of preparing an initial
registration statement on Form N-3 or Form N-4, because we are
proposing relatively fewer amendments to Form N-6 than we are to
Form N-3 or Form N-4 (even taking into account that we do not expect
the proposal to reduce the burden associated with current disclosure
requirements in Form N-6 to the extent that it would in Form N-3 or
Form N-4 (see supra note 798 and accompanying text)).
    \801\ The estimate of 1 hour is based upon the following
calculation: (4 + 0 + 0)/3 years = 1.33. We are assuming 0 hours in
years 2 and 3 because, after year 1, the registrant would prepare
and file post-effective amendments to the registration statement,
and the hour burden of this is captured in the paragraph
accompanying infra note 804. The internal time cost equivalent of
$336 is calculated by multiplying the hour burden (1 hour) by the
estimated hourly wage of $336. See supra note 775.
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    We estimate a one-time burden of an additional 15 hours per
registration statement the first time the registration statement is
amended by post-effective amendment following adoption of the proposed
amendments.\802\ Subsequently, we estimate an ongoing burden of an
additional 4 hours per registration statement to prepare and file a