Variable Insurance Products (“VIPs”) often provide various insurance features, such as living benefits and death benefits.  The level of benefits provided and the fees for those benefits may need to change frequently in response to changing market conditions.  Historically, material changes to these benefits, like other material changes, were required to be disclosed in post-effective amendments filed pursuant to rule 485(a) under the Securities Act.  These filings would be subject to staff review and comment.  However, the staff will not object if, instead of making a filing under rule 485(a) of the Securities Act of 1933 to change disclosure regarding certain terms of these benefits, the fund instead makes use of a rate sheet supplement.

A rate sheet is a short document that can be used to provide disclosure regarding items such as current fees,[1] withdrawal rates, and crediting rates associated with various contract benefits (for new sales) that change so frequently as to make filing of post-effective amendments with each change impractical.  Instead, disclosure of changes solely to the numeric value of these fees and rates can then be accomplished by filing a rate sheet supplement under rule 497 of the Securities Act.[2] 

The staff will not object to the use of a rate sheet if the rate sheet uses one of two approaches:

• Under alternative one, a rate sheet must establish a rate for a set period (by disclosing a start date and an end date).  This end date cannot be superseded by a subsequent filing. 
• Under alternative two, a fund must specify a rate that applies beginning on a specified date without specifying an end date.  Under this second approach, the supplement must prominently disclose that the rate can be superseded at any time and identify how and when (i.e., how far in advance of the change) investors will be notified of the current rates.[3]  A fund must file a superseding rate sheet a reasonable time prior to its effective date.

For VIPs using rate sheets, the prospectus should describe how the rate sheet works; that the fees and rates may change; how to obtain the current rates; and how existing contract owners can obtain the rate applicable to them (e.g., non-EDGAR website or phone number).  Historic rates should be disclosed in an appendix to the prospectus. 

The rate sheet should identify its purpose (e.g., to update a fee or withdrawal rate information), the date of applicability and whether it can be superseded (if applicable), and clearly disclose the rider fees or withdrawal percentages just as though they were included in the body of the filing.  The rate sheet should also describe how a current investor can obtain the rate applicable to him or her. 

The rate sheet supplement itself should be on top of the prospectus and delivered to new contract owners with the prospectus.  Because a rate sheet could become lost or otherwise separated from the prospectus, the body of the prospectus should not identify the rates applicable on the date of the prospectus; instead, it should make clear that the rate sheet discloses the current rates.

Finally, the staff believes that best practice would have current rates also identified on the fund’s website.  In that case, the prospectus and rate sheet should state that information about current rates is available on the insurance company’s website at a specified internet address.

VIPs wishing to make use of a rate sheet should make a rule 485(a) filing the first time a rate sheet is used so that the staff can review and comment on the form of the rate sheet proposed to be used and the way it is described in the body of the prospectus.[4]  A filing under rule 485(a) should also be made for any material changes to the prospectus disclosure relating to the rate sheet, or the rate sheet itself other than to change the applicable date, and the numeric values of the fees or rates disclosed on the rate sheet.[5]

The staff believes that highlighting disclosure of VIP features that are both material and subject to frequent change by use of a rate sheet can ease administrative burdens for VIPs, and can also allow investors to more easily find this information and make more informed investment decisions.

The delivery obligation with respect to a rate sheet supplement is the same as the delivery obligation associated with any other change to a VIP’s prospectus.

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We hope that this ADI will assist registrants in preparing their filings.  We also welcome feedback on this ADI and on any disclosure matters.  If you have any questions or feedback, please contact:

Disclosure Review and Accounting Office

Phone: 202.551.6921

Email: IMDRAO@sec.gov