Discussion to make the requirements of proposed Form N-6 easy to follow, this release addresses items in the order in which they appear in the form. General Instructions The proposed General Instructions to form N-6 provide guidance on the use and content of the form. They are similar to the general Instructions to forms N-4 and N-1A. The general Instructions to form N-6 would consist of: (i) Definitions; (ii) Filing and Use of Form N-6; (iii) Preparation of the registration Statement; and (iv) Incorporation by reference. They reflect the recent amendments to form N-1A that updated and reorganized the general Instructions to make them easier to use. 21 Proposed General Instruction A would define certain terms used throughout Form N-6, providing clarity and avoiding repeated references throughout the form. Proposed General Instruction b on the filing and use of Form N-6 would incorporate the user-friendly, question-and-answer format of Form N-1A.
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20 This should result in better, clearer disclosure to investors. Reducing Complex and Lengthy Prospectus Disclosure. Proposed Form N-6 would streamline variable life prospectus disclosure by adopting a two-part format consisting of a simplified prospectus, designed to contain essential information that assists an investor in making an investment decision, and an sai, containing more resume extensive information and detailed discussion of matters. Standardized fee information. Mutual funds and variable annuities are required to provide a uniform, tabular presentation of fees and charges that is intended to improve investor understanding of fees and charges and increase comparability. Proposed Form N-6 would impose a similar requirement on variable life insurance registrants, in order to improve the disclosure to investors of the often complex charges associated with variable life insurance policies and increase, to the greatest extent possible, the comparability of charges among policies. Integrated Disclosure document. Proposed Form N-6 would provide variable life insurance registrants with an integrated form for Investment Company Act and Securities Act registration, eliminating unnecessary paperwork and duplicative reporting. Proposed Form N-6 is designed to promote more effective communication of information about variable life insurance policies. The proposal would advance commission efforts to improve investment company prospectus disclosure beginning with the adoption of the two-part disclosure format for mutual funds in 1983. Proposed Form N-6, if adopted, would represent a significant step toward the commission's goal of better, clearer, more concise disclosure for all investors.
As part of its commitment, the commission recently adopted rule amendments to require the use of plain English principles list in drafting prospectuses and to provide other guidance on improving the readability of prospectuses. 17 The commissions plain English principles reflect fundamentals of clear communication and contemplate disclosure documents that: * Present information in an easily readable format; * Use everyday language that investors can easily understand; and * Eliminate repetition of disclosure that lengthens a document and overwhelms. Goals of Proposed Form n - 6 The proposed Form N-6 is another significant step to improve disclosure to investment company investors. If adopted, form N-6 would have the following benefits. tailored Registration Form. Proposed Form N-6 would eliminate requirements in the current registration forms that are not relevant to variable life insurance. 18 Proposed Form N-6 also would include items that are specifically addressed to variable life insurance products, such as descriptions of contractual provisions relating to premiums, death benefits, cash values, surrenders and withdrawals, and loans. 19 * Plain English. The commissions recently adopted plain English rule would apply to the front and back cover pages and the risk/benefit summary in the variable life insurance prospectus.
12 In gps the past few years, the commission has taken significant steps to improve investment company disclosure. In 1995, the commission issued a release requesting comment on ways to improve risk disclosure and comparability of general mutual fund risk levels. 13 Today, the commission is adopting a comprehensive revision of Form N-1A, the mutual fund disclosure form, to provide a standardized risk/return summary at the beginning of every mutual fund prospectus, require mutual funds to prepare disclosure documents using plain English, and eliminate prospectus clutter. 14 The commission also is adopting a new rule to permit mutual funds to provide investors with a profile, a disclosure document summarizing key information about a fund, including the fund's investment strategies, risks, performance, and fees, in a concise, standardized format. A fund that makes a profile available will be able to offer investors a choice of the amount of information that they wish to consider before making an investment decision. 15 The commission's investment company disclosure initiatives are part of its broad undertaking to bring sweeping revisions to prospectus disclosure for all public companies. 16 The commission is committed to making all prospectuses simpler, clearer, and more useful, and to eliminating jargon and boilerplate.
9 Improved Communication to Investors The commission is committed to improving the disclosure provided to variable life insurance investors. Toward that end, the commission has developed Form N-6, which it proposes today for public comment. Unlike the current forms, proposed Form N-6 is specifically tailored to variable life insurance. The proposed requirements of the form focus on information that is essential to a decision to invest in a particular variable life insurance policy, and the form is intended to enhance the comparability of information about variable life insurance policies. The proposal seeks to promote more effective communication of information about variable life insurance policies. Today's proposal is the latest Commission action in its continuing effort and long-standing commitment to improve the quality of disclosure available to investment company investors. In 1983, the commission introduced the innovative two-part disclosure format for mutual funds. 10 This format was extended to variable annuities in 1985. 11 Subsequently, the commission adopted a number of other initiatives to improve investment company disclosure, including uniform fee tables for mutual funds and variable annuities.
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Portfolio companies, as mutual funds, use form N-1A to register under the Investment Company Act and to register their shares under the securities Act. 6, variable life separate accounts, as unit investment trusts, register under the Investment Company Act on Form N-8B-2 and register their securities under the securities Act on Form S-6. Forms N-8B-2 and S-6 were designed for non-separate account unit investment trusts and were adopted before the establishment of the first separate account to fund variable life insurance policies. While much of their required disclosure is useful, the forms request some information that is not typically of consequence to a buyer of variable life insurance. More importantly, many matters that would be significant to a buyer of a variable life insurance policy are not addressed at all by the forms. Over time, the commission staff has sought to deal with these shortcomings on a piecemeal basis by developing disclosure standards that require a description of the important features of the variable life insurance policy and the separate account.
The commission believes that these standards should be codified in a more appropriately designed form. Another shortcoming of Forms N-8B2 and S-6 is that they do not reflect fundamental improvements that the commission has made essay to other investment company registration forms, such as Form N-4 for variable annuities and Form N-1A for mutual funds, which facilitate clearer and more concise. 7 As a result, variable life insurance prospectuses are often unnecessarily lengthy and complex. When Form N-4 was considered in the 1980s, the commission indicated that it did not expect to propose separate registration forms for variable life insurance registrants until it had acquired more experience with variable life insurance policies. 8 The commission now believes that the benefits of its prospectus improvement initiatives should be extended to unit investment trust separate accounts that offer variable life insurance policies. These benefits include a two-part registration form, consisting of a simplified prospectus designed to contain essential information that assists an investor in making an investment decision, and a statement of Additional Information (sai containing more extensive information and detailed discussion of matters included in the. They also include the use of a single integrated form for both Investment Company Act and Securities Act registration, eliminating unnecessary paperwork and duplicative reporting.
Variable life insurance was introduced in the early 1970s. During the years from the end of World War ii to the late 1960s, there was a significant decline in the share of savings dollars invested with life insurance companies. In an effort to counteract this trend, insurers began to offer a greater variety of products, including equity-based products such as variable life insurance. 1, in recent years, variable life insurance has become an increasingly important segment of the insurance industry. By the end of 1996, variable life insurance accounted for almost one quarter.
Life insurance sales, up from 6 four years earlier. 2, throughout the 1990s, assets in variable life products have grown steadily, from.3 billion in 1990 to more than 33 billion in December 1997. 3, current Forms for Variable life Insurance registration. A separate account funding a variable life insurance policy most commonly is registered as a unit investment trust under the Investment Company Act. 4, separate accounts registered as unit investment trusts are divided into sub-accounts, each of which invests in a different open-end management investment company, or mutual fund (Portfolio company). 5, both separate account unit investment trusts and the portfolio companies in which they invest are registered as investment companies under the Investment Company Act, and their securities are registered under the securities Act. Investors in variable life insurance policies receive the prospectuses for both the separate account unit investment trust and the portfolio companies.
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Table of contents,. Introduction and executive summary, variable life entry Insurance. Variable life insurance is similar to traditional life insurance, except that the cash value and/or death benefit vary based on the investment performance of the assets in which the premium payments are invested. Under a general traditional life insurance policy, premium payments are allocated to an insurers general account and invested, consistent with state law requirements, to enable the insurer to meet its death benefit and cash value guarantees. The investment return on assets in the general account has little or no direct effect on the cash value or the death benefit received. Premium payments under a variable life policy, in contrast, are invested in an insurance company separate account, which generally is not subject to state law investment restrictions. A variable life policyholder typically is offered a variety of investment options (. G., equity, bond, and money market mutual funds). Death benefits and cash values are directly related to performance of the separate account, although typically there is a guaranteed minimum death benefit.
Supplementary information: The securities and Exchange commission (Commission) is proposing for comment a new Form N-6 (17 cfr 239.17c; 17 cfr 274.11d) for insurance company separate accounts that are registered as unit investment trusts and that offer variable life insurance policies. The form would be used by these separate accounts to register under the Investment Company Act of 1940 (15. 80a-1 et seq.) (Investment Company Act) and to offer their securities under the securities Act of 1933 (15. 77a et seq.) (Securities Act). For these registrants, the proposed form would replace forms N-8B-2 (17 cfr 274.12) and S-6 (17 cfr 239.16 currently used by all unit investment trusts to register under the Investment Company Act and to offer their securities under the securities Act. The commission also is proposing technical amendments to rules 134b, 430, 430A, marriage 495, 496, and 497 under the securities Act (17 cfr 230.134b, 230.430, 230.430A, 230.495, 230.496, 230.497 rules 8b-11 and 8b-12 under the Investment Company Act (17 cfr 270.8b-11, 270.8b-12 and Form N-8B-2 (17. Finally, the commission is requesting comment on whether it should rescind Form N-1 (17 cfr 274.11 the registration form used by insurance company separate accounts that are registered as open-end management investment companies and that offer variable life insurance policies.
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The proposed form also would minimize prospectus disclosure about technical and legal matters, improve disclosure of fees and charges, and streamline the registration process by replacing two forms that were not specifically designed for variable life insurance policies business with a single form tailored to these. Dates: Comments must be received on or before july 1, 1998. Addresses: Comments should be submitted in triplicate to jonathan. Katz, secretary, securities and Exchange commission, 450 Fifth Street,. Comments also may be submitted electronically at the following E-mail address. All comment letters should refer to file. S7-9-98; this file number should be included on the subject line if E-mail is used. All comments received will be available for public inspection and copying in the commissions Public Reference room, 450 Fifth Street,. Electronically submitted comments also will be posted on the commissions Internet site (c.gov).
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Securities and exchange commission 17 cfr parts 230, 239, 270, and 274 ( Release nos. 33-7514; ic-23066; File. Rin: 3235-AG37, registration Form for Insurance company separate Accounts Registered as Unit Investment Trusts word that Offer Variable life Insurance policies. Agency: Securities and Exchange commission. Summary: The securities and Exchange commission is proposing a new Form N-6 for insurance company separate accounts that are registered as unit investment trusts and that offer variable life insurance policies. The form would be used by these separate accounts to register under the Investment Company Act of 1940 and to offer their securities under the securities Act of 1933. For these registrants, the proposed form would replace form N-8B-2, currently used by all unit investment trusts to register under the Investment Company Act, and Form S-6, currently used by all unit investment trusts to offer their securities under the securities Act. The proposed form would focus prospectus disclosure on essential information that would assist an investor in deciding whether to invest in a particular variable life insurance policy.