Jackson National Life Insurance Company, et al., 77418-77422 [E6-22009]
Download as PDF
<![CDATA[
77418
Federal Register / Vol. 71, No. 247 / Tuesday, December 26, 2006 / Notices
e-mail at DLC@nrc.gov. Determinations
on requests for reasonable
accommodation will be made on a caseby-case basis.
*
*
*
*
*
This notice is distributed by mail to
several hundred subscribers; if you no
longer wish to receive it, or would like
to be added to the distribution, please
contact the Office of the Secretary,
Washington, DC 20555 (301–415–1969).
In addition, distribution of this meeting
notice over the Internet system is
available. If you are interested in
receiving this Commission meeting
schedule electronically, please send an
electronic message to dkw@nrc.gov.
Dated: December 20, 2006.
R. Michelle Schroll,
Office of the Secretary.
[FR Doc. 06–9868 Filed 12–21–06; 10:58 am]
BILLING CODE 7590–01–M
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–27603; File No. 812–13320]
Jackson National Life Insurance
Company, et al.
December 19, 2006.
The Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
amended order under Section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) granting exemptions from the
provisions of Sections 2(a)(32), 22(c)
and 27(i)(2)(A) of the Act and Rule
22c–1 thereunder to permit the
recapture of contract enhancements
applied to purchase payments made
under certain deferred variable annuity
contracts.
AGENCY:
Jackson National Life
Insurance Company (‘‘Jackson
National’’), Jackson National Separate
Account—I (the ‘‘JNL Separate
Account’’), and Jackson National Life
Distributors LLC (‘‘Distributor,’’ and
collectively, ‘‘Applicants’’).
SUMMARY OF APPLICATION: Applicants
seek an order under Section 6(c) of the
Act to amend an existing order, and
exempting them from the provisions of
Sections 2(a)(32), 22(c), and 27(i)(2)(A)
of the Act and Rule 22c–1 thereunder,
to the extent necessary to permit the
recapture, under specified
circumstances, of certain contract
enhancements applied to purchase
payments made under the deferred
variable annuity contracts described
herein that Jackson National will issue
through the JNL Separate Account (the
sroberts on PROD1PC70 with NOTICES
APPLICANTS:
VerDate Aug<31>2005
16:15 Dec 22, 2006
Jkt 211001
‘‘Contracts’’) as well as other contracts
that Jackson National may issue in the
future through its existing or future
separate accounts (‘‘Other Accounts’’)
that are substantially similar in all
material respects to the Contracts
(‘‘Future Contracts’’). Applicants also
request that the order being sought
extend to any other National
Association of Securities Dealers, Inc.
(‘‘NASD’’) member broker-dealer
controlling or controlled by, or under
common control with, Jackson National,
whether existing or created in the
future, that serves as distributor or
principal underwriter for the Contracts
or Future Contracts (‘‘Affiliated BrokerDealers’’) and any successors in interest
to the Applicants.
The application was filed
on June 23, 2006, and amended on
December 18, 2006.
FILING DATE:
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the Secretary of
the Commission and serving Applicants
with a copy of the request, personally or
by mail. Hearing requests should be
received by the Commission by 5:30
p.m. on January 12, 2007, and should be
accompanied by proof of service on
Applicants, in the form of an affidavit
or, for lawyers, a certificate of service.
Hearing requests should state the nature
of the writer’s interest, the reason for the
request, and the issues contested.
Persons may request notification of a
hearing by writing to the Secretary of
the Commission.
Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090.
Applicants: c/o Jackson National Life
Insurance Company, 1 Corporate Way,
Lansing, Michigan 48951, Attn:
Anthony L. Dowling, Esq.; copies to
Joan E. Boros, Esq., Jorden Burt LLP,
1025 Thomas Jefferson Street, NW.,
Suite 400 East, Washington, DC 20007–
0805.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Ellen J. Sazzman, Senior Counsel, at
(202) 551–6762, or Harry Eisenstein,
Branch Chief, at (202) 551–6795, Office
of Insurance Products, Division of
Investment Management.
The
following is a summary of the
Application. The complete Application
is available for a fee from the SEC’s
Public Reference Branch, 100 F Street,
NE., Washington, DC 20549 ((202) 551–
8090).
SUPPLEMENTARY INFORMATION:
PO 00000
Frm 00053
Fmt 4703
Sfmt 4703
Applicants’ Representations
1. Jackson National is a stock life
insurance company organized under the
laws of the state of Michigan in June
1961. Its legal domicile and principal
business address is 1 Corporate Way,
Lansing, Michigan 48951. Jackson
National is admitted to conduct life
insurance and annuity business in the
District of Columbia and all states
except New York. Jackson National is
ultimately a wholly owned subsidiary of
Prudential plc (London, England).
2. The JNL Separate Account was
established by Jackson National on June
14, 1993, pursuant to the provisions of
Michigan law and the authority granted
under a resolution of Jackson National’s
Board of Directors. Jackson National is
the depositor of the JNL Separate
Account. The JNL Separate Account
meets the definition of a ‘‘separate
account’’ under the federal securities
laws and is registered with the
Commission as a unit investment trust
under the Act (File No. 811–8664). The
JNL Separate Account will fund the
variable benefits available under the
Contracts. The offering of the Contracts
will be registered under the Securities
Act of 1933 (the ‘‘1933 Act’’).
3. The Distributor is a wholly owned
subsidiary of Jackson National and
serves as the distributor of the
Contracts. The Distributor is registered
with the Commission as a broker-dealer
under the Securities Exchange Act of
1934 (the ‘‘1934 Act’’) and is a member
of the NASD. The Distributor enters into
selling group agreements with affiliated
and unaffiliated broker-dealers. The
Contracts are sold by licensed insurance
agents, where the Contracts may be
lawfully sold, who are registered
representatives of broker-dealers that are
registered under the 1934 Act and are
members of the NASD.
4. The Contracts require a minimum
initial premium payment of $5,000 or
$10,000 under most circumstances
depending on the contract ($2,000 for a
qualified plan contract). Subsequent
payments may be made at any time
during the accumulation phase. Each
subsequent payment must be at least
$500 ($50 under an automatic payment
plan). Prior approval of Jackson
National is required for aggregate
premium payments of over $1,000,000.
5. The Contracts permit owners to
accumulate contract values on a fixed
basis through allocations to one of six
fixed accounts (the ‘‘Fixed Accounts’’),
including four ‘‘Guaranteed Fixed
Accounts’’ which offer guaranteed
crediting rates for specified periods of
time (currently, 1, 3, 5, or 7 years), and
two ‘‘DCA+ Fixed Accounts’’ (used in
E:\FR\FM\26DEN1.SGM
26DEN1
sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 71, No. 247 / Tuesday, December 26, 2006 / Notices
connection with dollar cost averaging
transfers, each of which from time to
time offers special crediting rates).
6. The Contracts also permit owners
to accumulate contract values on a
variable basis, through allocations to
one or more of the investment divisions
of the JNL Separate Accounts (the
‘‘Investment Divisions,’’ collectively
with the Fixed Accounts, the
‘‘Allocation Options’’). The 67
Investment Divisions listed in Exhibit E
to the Application for an Amended
Order currently are expected to be
offered under most of the Contracts, but
additional Investment Divisions may be
offered in the future and some of those
listed could be eliminated or combined
with other Investment Divisions in the
future. Similarly, Future Contracts may
offer additional or different Investment
Divisions.
7. Transfers among the Investment
Divisions are permitted. The first 15
transfers in a contract year are free;
subsequent transfers cost $25. Certain
transfers to, from and among the Fixed
Accounts are also permitted during the
Contracts’ accumulation phase, but are
subject to certain adjustments and
limitations. Dollar cost averaging and
rebalancing transfers are offered at no
charge and do not count against the 15
free transfers permitted each year.
8. If the owner dies during the
accumulation phase of the Contracts,
the beneficiary named by the owner is
paid a death benefit by Jackson
National. The Contracts’ base death
benefit, which applies unless an
optional death benefit has been elected,
is a payment to the beneficiary of the
greater of: (i) Contract value on the date
Jackson National receives proof of death
and completed claim forms from the
beneficiary or (ii) the total premiums
paid under that Contract minus any
prior withdrawals (including any
applicable charges and adjustments for
such withdrawals, annual contract
maintenance charges, transfer charges,
any applicable charges due under any
optional endorsement and premium
taxes).
9. The owner may also be offered
certain optional endorsements (for fees
described below) that can change the
death benefit paid to the beneficiary.
First, an ‘‘Earnings Protection Benefit
Endorsement’’ is offered to owners who
are no older than age 75 when their
Contracts are issued. This endorsement
would add to the death benefit
otherwise payable an amount equal to a
specified percentage (that varies with
the owner’s age at issue) of earnings
under the Contract up to a cap of 250%
of remaining premiums (premiums not
previously withdrawn) excluding
VerDate Aug<31>2005
16:15 Dec 22, 2006
Jkt 211001
remaining premiums paid in the 12
months prior to the date of death (other
than the initial premium if the owner
dies in the first contract year).
10. Second, the owner of a Contract
who is age 79 or younger may be offered
the following five optional death
benefits (state variations may apply) that
would replace the base death benefit: (i)
A ‘‘4% Roll-Up’’ death benefit, (ii) a
‘‘5% Roll-Up’’ death benefit, (iii) a
‘‘Highest Anniversary Value’’ death
benefit, (iv) a ‘‘Combination 4% Roll-Up
and Highest Anniversary Value’’ death
benefit or (v) a ‘‘Combination 5% RollUp and Highest Anniversary Value’’
death benefit.
11. The Contracts offer fixed and
variable versions of the following four
types of annuity payment or ‘‘income
payment’’: Life income, joint and
survivor, life annuity with 120 or 240
monthly payments guaranteed to be
paid (although not guaranteed as to
amount if variable), and income for a
specified period of 5 to 30 years.
Jackson National may also offer other
income payment options. The Contracts
may also offer an optional Guaranteed
Minimum Income Benefit (‘‘GMIB’’)
endorsement.
12. In addition to the Earnings
Protection Benefit, GMIB, and optional
death benefit endorsements described
above and the optional contract
enhancement endorsements described
below, additional optional
endorsements are offered with the
Contracts, several of which relate to
withdrawals: (i) An endorsement that
expands the percentage of premiums
(that remain subject to a withdrawal
charge) that may be withdrawn in a
contract year with no withdrawal charge
imposed from 10% to 20%; (ii) an
endorsement that reduces the
withdrawal charges applicable under
the Contract and shortens the period for
which withdrawal charges are imposed
from seven years to five years or four
years; and (iii) eight different
Guaranteed Minimum Withdrawal
Benefit (‘‘GMWB’’) endorsements. Three
variations of the GMWB generally allow,
subject to specific conditions, partial
withdrawals prior to the income date
that, in total, equal the amount of net
premium payments made (if elected
after issue, the contract value, less any
recapture charges will be used instead
of the net premium payment at issue).
The guarantee is effective if gross partial
withdrawals taken within any one
contract year do not exceed a specified
percentage of net premium payments.
13. If one of the optional contract
enhancement endorsements is elected,
each time an owner makes a premium
payment during the first contract year,
PO 00000
Frm 00054
Fmt 4703
Sfmt 4703
77419
Jackson National will add an additional
amount to the owner’s contract value (a
‘‘Contract Enhancement’’). All Contract
Enhancements are paid from Jackson
National’s general account assets. The
Contract Enhancement is equal to 2%,
3%, 4%, or 5% of the premium
payment. At issue, a Contract owner can
choose only one of the Contract
Enhancement endorsements. An owner
may not elect the 3%, 4%, or 5%
Contract Enhancements if the 20%
additional free withdrawal endorsement
is elected. Jackson National will allocate
the Contract Enhancement to the Fixed
Accounts and/or Investment Divisions
in the same proportion as the premium
payment allocation. The Contract
Enhancement is not credited to any
premiums received after the first
contract year. If the 5% Contract
Enhancement is elected, no premiums
will be accepted after the first year.
14. There is an asset-based charge for
each of the Contract Enhancements. The
2% Contract nhancement has a 0.395%
charge that applies for five years. The
asset-based charges for the other
Contract Enhancements apply for seven
years and are 0.42%, 0.56%, and
0.695%, respectively, for the 3%, 4%,
and 5% Contract Enhancements. These
charges will also be assessed against any
amounts an owner has allocated to the
Fixed Accounts, resulting in a lower
annual credited interest rate that would
apply to the Fixed Account if the
Contract Enhancement had not been
elected.
15. Jackson National will recapture all
or a portion of any Contract
Enhancements by imposing a recapture
charge whenever an owner: (i) Makes a
total withdrawal within the recapture
charge period (five years after a first
year payment in the case of the 2%
Contract Enhancement and seven years
after a first year payment in the case of
the other Contract Enhancements) or a
partial withdrawal of corresponding
premiums within the recapture charge
period in excess of those permitted
under the Contracts’ free withdrawal
provisions (including free withdrawals
permitted by a 20% additional free
withdrawal endorsement), unless the
withdrawal is made for certain healthrelated emergencies specified in the
Contracts; (ii) elects to receive payments
under an income option within the
recapture charge period; or (iii) returns
the Contract during the free-look period.
16. The amount of the recapture
charge varies, depending upon which
Contract Enhancement is elected and
when the charge is imposed, as follows:
E:\FR\FM\26DEN1.SGM
26DEN1
77420
Federal Register / Vol. 71, No. 247 / Tuesday, December 26, 2006 / Notices
CONTRACT ENHANCEMENT RECAPTURE CHARGE
[As a percentage of first year premium payments]
sroberts on PROD1PC70 with NOTICES
Completed Years Since Receipt of Premium ..
Recapture Charge (2% Credit) ........................
Recapture Charge (3% Credit) ........................
Recapture Charge (4% Credit) ........................
Recapture Charge (5% Credit) ........................
17. The recapture charge percentage
will be applied to the corresponding
premium reflected in the amount
withdrawn or the amount applied to
income payments that remain subject to
a withdrawal charge. The amount
recaptured will be taken from the
Investment Divisions and the Fixed
Accounts in the same proportion as the
withdrawal charge.
18. Recapture charges will be waived
upon death, but will be applied upon
electing to commence income payments,
even in a situation where the
withdrawal charge is waived. Partial
withdrawals will be deemed to remove
premium payments on a first-in first-out
basis (the order that entails payment of
the lowest withdrawal and recapture
charges).
19. Jackson National does not assess
the recapture charge on any payments
paid out as: Death benefits; withdrawals
taken under free withdrawal provisions;
withdrawals necessary to satisfy the
required minimum distribution of the
Internal Revenue Code; if permitted by
the owner’s state, withdrawals of up to
$250,000 from the JNL Separate
Account or from the Fixed Accounts in
connection with the owner’s terminal
illness or if the owner needs extended
hospital or nursing home care as
provided in the Contract; or if permitted
by the owner’s state, withdrawals of up
to 25% of contract value (12.5% for
each of two joint owners) from the JNL
Separate Account or from the Fixed
Accounts in connection with certain
serious medical conditions specified in
the Contract.
20. The contract value will reflect any
gains or losses attributable to a Contract
Enhancement described above. Contract
Enhancements, and any gains or losses
attributable to a Contract Enhancement,
distributed under the Contracts will be
considered earnings under the Contract
for tax purposes and for purposes of
calculating free withdrawal amounts.
21. The Contracts have a ‘‘free-look’’
period of ten days after the owner
receives the Contract (or any longer
period required by state law). Contract
value is returned upon exercise of freelook rights by an owner unless state law
requires the return of premiums paid.
VerDate Aug<31>2005
16:15 Dec 22, 2006
Jkt 211001
0
2%
3%
4%
4.5%
1
2%
3%
4%
3.75%
2
1.25%
2%
2.5%
3.25%
3
1.25%
2%
2.5%
2.75%
The Contract Enhancement recapture
charge reduces the amount returned.
22. The JNL Separate Account
consists of sub-accounts, each of which
will be available under the JNL Separate
Account. The sub-accounts are referred
to as ‘‘Investment Divisions.’’ The JNL
Separate Account currently consists of
67 Investment Divisions, and each
Investment Division will invest in
shares of a corresponding series
(‘‘Series’’) of JNL Series Trust (‘‘Trust’’),
or JNL Variable Fund LLC (‘‘Fund’’)
(collectively the ‘‘Trust and Fund’’). Not
all Investment Divisions may be
available.
23. The Trust and Fund are open-end
management investment companies
registered under the Act and their
shares are registered under the 1933
Act. Jackson National Asset
Management, LLC (‘‘JNAM’’) serves as
the investment adviser for all of the
Series of the Trust and Fund. JNAM has
retained sub-advisers for each Series.
Jackson National, at a later date, may
determine to create additional
Investment Divisions of the JNL
Separate Account to invest in any
additional Series, or other such
underlying portfolios or other
investments as may now or in the future
be available. Similarly, Investment
Division(s) of the JNL Separate Account
may be combined or eliminated from
time to time. Any changes to the
Investment Divisions offered will be
effected in compliance with the terms of
the Contracts and with applicable state
and federal laws.
24. In addition to the Contract
Enhancement charges and the Contract
Enhancement recapture charges, the JNL
Contracts may have the following
charges: Mortality and expense risk
charge of 1.00%–1.45% depending on
the version of the Contract (as an annual
percentage of average daily account
value); administration charge of 0.15%
(as an annual percentage of average
daily account value); contract
maintenance charge of $35 per year
(waived if contract value is $50,000 or
more at the time the charge is imposed);
Earnings Protection Benefit charge of
0.30% (as an annual percentage of daily
account value—only applies if related
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
4
0.5%
2%
2.5%
2%
5
0
1%
1.25%
1.25%
6
0
1%
1.25%
1%
7+
0
0
0
0
optional endorsement is elected); GMIB
charge of 0.60% per year (0.15% per
quarter) of the ‘‘GMIB Benefit Base’’;
GMWB charge ranging from 0.20% to
1.71% per year (0.1000% to 0.4250%
per quarter) of the ‘‘Guaranteed
Withdrawal Balance’’ depending upon
age at election and upon which (if any)
GMWB endorsement is elected; 20%
additional free withdrawal benefit
charge of 0.30% or 0.40% depending on
the Contract (as an annual percentage of
daily account value—only applies if
related optional endorsement is
elected); five-year withdrawal charge
period charge of 0.30% (as an annual
percentage of daily account value—only
applies if related optional endorsement
is elected); four-year withdrawal charge
period charge of 0.40% (as an annual
percentage of daily account value—only
applies if related optional endorsement
is elected); optional death benefit charge
ranging from 0.25% to 0.55% (as an
annual percentage of daily account
value—only applies if related optional
endorsement is elected) depending
upon which (if any) optional death
benefit endorsement is elected; transfer
fee of $25 for each transfer in excess of
15 in a contract year (for purposes of
which dollar cost averaging and
rebalancing transfers are excluded);
commutation fee that applies only upon
withdrawals from income payments for
a fixed period, measured by the
difference in values paid upon such a
withdrawal due to using a discount rate
of 1% greater than the assumed
investment rate used in computing the
amounts of income payments; and a
withdrawal charge that applies to total
withdrawals, partial withdrawals in
excess of amounts permitted to be
withdrawn under the Contract’s free
withdrawal provisions (or the 20%
additional free withdrawal
endorsement) and on the income date
(the date income payments commence)
if the income date is within a year of the
date the Contract was issued.
25. The withdrawal charges shown in
the table below apply to differing
versions of Contracts. The amount of the
withdrawal charge depends upon the
contribution year of the premium
withdrawn as follows:
E:\FR\FM\26DEN1.SGM
26DEN1
77421
Federal Register / Vol. 71, No. 247 / Tuesday, December 26, 2006 / Notices
WITHDRAWAL CHARGE
[As a percentage of premium payments]
Completed Years Since Receipt of Premium ..
Withdrawal Charge (Base Schedule for Offerings under File Nos. 333–70472 and 333–
132128) ........................................................
Withdrawal Charge (Base Schedule for Offering under File No. 333–119656) ..................
Withdrawal Charge if Five-Year Period is
elected (Optional Schedule for Offerings
under File No. 333–70472) ..........................
Withdrawal Charge if Four-Year Period is
elected (Optional Schedule for Offering
under File No. 333–132128) ........................
sroberts on PROD1PC70 with NOTICES
26. The withdrawal charge is waived
upon withdrawals to satisfy the required
minimum distribution of the Internal
Revenue Code (if the withdrawal
requested exceeds the required
minimum distribution, the withdrawal
charge will not be waived on the
required minimum distribution) and, to
the extent permitted by state law, the
withdrawal fee is waived in connection
with withdrawals of: (i) Up to $250,000
from the Investment Divisions or the
Fixed Accounts of the Contracts in
connection with the terminal illness of
the owner of a Contract, or in
connection with extended hospital or
nursing home care for the owner; and
(ii) up to 25% (12.5% each for two joint
owners) of contract value in connection
with certain serious medical conditions
specified in the Contract.
Applicants’ Legal Analysis
1. Applicants state that Section 6(c) of
the Act authorizes the Commission to
exempt any person, security or
transaction, or any class or classes of
persons, securities or transactions from
the provisions of the Act and the rules
promulgated thereunder if and to the
extent that such exemption is necessary
or appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act. Applicants request that the
Commission, pursuant to Section 6(c) of
the Act, grant the exemptions requested
below with respect to the Contracts and
any Future Contracts funded by the JNL
Separate Account or Other Accounts
that are issued by Jackson National and
underwritten or distributed by the
Distributor or Affiliated Broker-Dealers.
Applicants undertake that Future
Contracts funded by the Separate
Account or Other Accounts, in the
future, will be substantially similar in
all material respects to the Contracts.
Applicants believe that the requested
exemptions are appropriate in the
public interest and consistent with the
VerDate Aug<31>2005
16:15 Dec 22, 2006
Jkt 211001
0
1
2
3
4
5
6
7+
8.5%
8%
7%
6%
5%
4%
2%
0
8%
8%
7%
6%
0
0
0
0
8%
7%
6%
4%
2%
0
0
0
8%
7%
5.5%
3.5%
0
0
0
0
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act.
2. Applicants state that Subsection (i)
of Section 27 of the Act provides that
Section 27 does not apply to any
registered separate account funding
variable insurance contracts, or to the
sponsoring insurance company and
principal underwriter of such account,
except as provided in paragraph (2) of
the subsection. Paragraph (2) provides
that it shall be unlawful for such a
separate account or sponsoring
insurance company to sell a contract
funded by the registered separate
account unless such contract is a
redeemable security. Section 2(a)(32)
defines ‘‘redeemable security’’ as any
security, other than short-term paper,
under the terms of the which the holder,
upon presentation to the issuer, is
entitled to receive approximately his
proportionate share of the issuer’s
current net assets, or the cash equivalent
thereof.
3. Applicants submit that the
recapture of the Contract Enhancement
in the circumstances set forth in its
Application would not deprive an
owner of his or her proportionate share
of the issuer’s current net assets. A
Contract owner’s interest in the amount
of the Contract Enhancement allocated
to his or her contract value upon receipt
of a premium payment is not fully
vested until five or seven complete
years following a premium. Until or
unless the amount of any Contract
Enhancement is vested, Jackson
National retains the right and interest in
the Contract Enhancement amount,
although not in the earnings attributable
to that amount. Thus, Applicants urge
that when Jackson National recaptures
any Contract Enhancement it is simply
retrieving its own assets, and because a
Contract owner’s interest in the Contract
Enhancement is not vested, the Contract
owner has not been deprived of a
proportionate share of the JNL Separate
Account’s assets, i.e., a share of the JNL
PO 00000
Frm 00056
Fmt 4703
Sfmt 4703
Separate Account’s assets proportionate
to the Contract owner’s contract value.
4. In addition, Applicants represent
that it would be patently unfair to allow
a Contract owner exercising the freelook privilege to retain the Contract
Enhancement amount under a Contract
that has been returned for a refund after
a period of only a few days. If Jackson
National could not recapture the
Contract Enhancement, individuals
could purchase a Contract with no
intention of retaining it and simply
return it for a quick profit. Furthermore,
Applicants state that the recapture of
the Contract Enhancement relating to
withdrawals or receiving income
payments within the first five or seven
years of a premium contribution is
designed to protect Jackson National
against Contract owners not holding the
Contract for a sufficient time period. It
would provide Jackson National with
insufficient time to recover the cost of
the Contract Enhancement, to its
financial detriment.
5. Applicants represent that it is not
administratively feasible to track the
Contract Enhancement amount in the
JNL Separate Account after the Contract
Enhancement(s) is applied.
Accordingly, the asset-based charges
applicable to the JNL Separate Account
will be assessed against the entire
amounts held in the JNL Separate
Account, including any Contract
Enhancement amounts. As a result, the
aggregate asset-based charges assessed
will be higher than those that would be
charged if the Contract owner’s contract
value did not include any Contract
Enhancement.
6. Applicants submit that the
provisions for recapture of any Contract
Enhancement under the Contracts do
not violate Sections 2(a)(32) and
27(i)(2)(A) of the Act. Sections 26(e) and
27(i) were added to the Act to
implement the purposes of the National
Securities Markets Improvement Act of
1996 and Congressional intent. The
application of a Contract Enhancement
E:\FR\FM\26DEN1.SGM
26DEN1
sroberts on PROD1PC70 with NOTICES
77422
Federal Register / Vol. 71, No. 247 / Tuesday, December 26, 2006 / Notices
to premium payments made under the
Contracts should not raise any questions
as to compliance by Jackson National
with the provisions of Section 27(i).
However, to avoid any uncertainty as to
full compliance with the Act,
Applicants request an Amended Order
providing exemption from Section
2(a)(32) and 27(i)(2)(A), to the extent
deemed necessary, to permit the
recapture of the Contract Enhancements,
including the 5% Contract
Enhancement under the circumstances
described herein and in the Application,
without the loss of relief from Section
27 provided by Section 27(i).
7. Applicants state that Section 22(c)
of the Act authorizes the Commission to
make rules and regulations applicable to
registered investment companies and to
principal underwriters of, and dealers
in, the redeemable securities of any
registered investment company to
accomplish the same purposes as
contemplated by Section 22(a). Rule
22c–1 under the Act prohibits a
registered investment company issuing
any redeemable security, a person
designated in such issuer’s prospectus
as authorized to consummate
transactions in any such security, and a
principal underwriter of, or dealer in,
such security, from selling, redeeming,
or repurchasing any such security
except at a price based on the current
net asset value of such security which
is next computed after receipt of a
tender of such security for redemption
or of an order to purchase or sell such
security.
8. Applicants state that it is possible
that someone might view Jackson
National’s recapture of the Contract
Enhancements as resulting in the
redemption of redeemable securities for
a price other than one based on the
current net asset value of the JNL
Separate Account. Applicants contend,
however, that the recapture of the
Contract Enhancement does not violate
Rule 22c–1. The recapture of some or all
of the Contract Enhancement does not
involve either of the evils that Section
22(c) and Rule 22c–1 were intended to
eliminate or reduce as far as reasonably
practicable, namely: (i) The dilution of
the value of outstanding redeemable
securities of registered investment
companies through their sale at a price
below net asset value or repurchase at
a price above it, and (ii) other unfair
results, including speculative trading
practices. To effect a recapture of a
Contract Enhancement, Jackson
National will redeem interests in a
Contract owner’s contract value at a
price determined on the basis of the
current net asset value of the JNL
Separate Account. The amount
VerDate Aug<31>2005
16:15 Dec 22, 2006
Jkt 211001
recaptured will be less than or equal to
the amount of the Contract
Enhancement that Jackson National paid
out of its general account assets.
Although Contract owners will be
entitled to retain any investment gains
attributable to the Contract
Enhancement and to bear any
investment losses attributable to the
Contract Enhancement, the amount of
such gains or losses will be determined
on the basis of the current net asset
values of the JNL Separate Account.
Thus, no dilution will occur upon the
recapture of the Contract Enhancement.
Applicants also submit that the second
harm that Rule 22c–1 was designed to
address, namely, speculatively trading
practices calculated to take advantage of
backward pricing, will not occur as a
result of the recapture of the Contract
Enhancement. Because neither of the
harms that Rule 22c–1 was meant to
address is found in the recapture of the
Contract Enhancement, Rule 22c–1
should not apply to any Contract
Enhancement. However, to avoid any
uncertainty as to full compliance with
Rule 22c–1, Applicants request an
Amended Order granting an exemption
from the provisions of Rule 22c–1 to the
extent deemed necessary to permit them
to recapture the Contract Enhancement
under the Contracts.
9. Applicants submit that extending
the requested relief to encompass Future
Contracts and Other Accounts is
appropriate in the public interest
because it promotes competitiveness in
the variable annuity market by
eliminating the need to file redundant
exemptive applications prior to
introducing new variable annuity
contracts. Investors would receive no
benefit or additional protection by
requiring Applicants to repeatedly seek
exemptive relief that would present no
issues under the Act not already
addressed in the Application.
Applicants submit, for the reasons
stated herein, that their exemptive
request meets the standards set out in
Section 6(c) of the Act, namely, that the
exemptions requested are appropriate in
the public interest and consistent with
the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act and that,
therefore, the Commission should grant
the requested order.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–22009 Filed 12–22–06; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54943; File No. SR–Amex–
2006–90]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of a Proposed Rule Change as
Revised by Amendment Nos. 1 and 2
Thereto Relating to the Listing and
Trading of Notes Linked to the
Performance of the Hang Seng China
Enterprises Index
December 15, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, as
amended (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on September 22, 2006, the American
Stock Exchange LLC (‘‘Amex’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by Amex. On
November 15, 2006, Amex submitted
Amendment No. 1 to the proposed rule
change.3 On December 12, 2006, Amex
submitted Amendment No. 2 to the
proposed rule change.4 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade notes linked to the performance of
the Hang Seng China Enterprises Index
(‘‘Index’’). The text of the proposed rule
change (including Appendix A) is
available on Amex’s Web site at https://
www.amex.com, at Amex’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Amex included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item III below. Amex has prepared
summaries, set forth in Sections A, B,
1 15
U.S.C. 78s(b)(l).
CFR 240. 19b–4.
3 Amendment No. 1 supersedes and replaces the
original rule filing in its entirety.
4 Amendment No. 2 supersedes and replaces the
original rule filing and Amendment No. 1 in their
entirety.
2 17
E:\FR\FM\26DEN1.SGM
26DEN1
]]>Agencies
[Federal Register Volume 71, Number 247 (Tuesday, December 26, 2006)]
[Notices]
[Pages 77418-77422]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22009]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27603; File No. 812-13320]
Jackson National Life Insurance Company, et al.
December 19, 2006.
AGENCY: The Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an amended order under Section 6(c)
of the Investment Company Act of 1940 (the ``Act'') granting exemptions
from the provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the
Act and Rule 22c-1 thereunder to permit the recapture of contract
enhancements applied to purchase payments made under certain deferred
variable annuity contracts.
-----------------------------------------------------------------------
APPLICANTS: Jackson National Life Insurance Company (``Jackson
National''), Jackson National Separate Account--I (the ``JNL Separate
Account''), and Jackson National Life Distributors LLC
(``Distributor,'' and collectively, ``Applicants'').
SUMMARY OF APPLICATION: Applicants seek an order under Section 6(c) of
the Act to amend an existing order, and exempting them from the
provisions of Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and
Rule 22c-1 thereunder, to the extent necessary to permit the recapture,
under specified circumstances, of certain contract enhancements applied
to purchase payments made under the deferred variable annuity contracts
described herein that Jackson National will issue through the JNL
Separate Account (the ``Contracts'') as well as other contracts that
Jackson National may issue in the future through its existing or future
separate accounts (``Other Accounts'') that are substantially similar
in all material respects to the Contracts (``Future Contracts'').
Applicants also request that the order being sought extend to any other
National Association of Securities Dealers, Inc. (``NASD'') member
broker-dealer controlling or controlled by, or under common control
with, Jackson National, whether existing or created in the future, that
serves as distributor or principal underwriter for the Contracts or
Future Contracts (``Affiliated Broker-Dealers'') and any successors in
interest to the Applicants.
Filing Date: The application was filed on June 23, 2006, and amended on
December 18, 2006.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Secretary of the
Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on January 12, 2007, and should be accompanied
by proof of service on Applicants, in the form of an affidavit or, for
lawyers, a certificate of service. Hearing requests should state the
nature of the writer's interest, the reason for the request, and the
issues contested. Persons may request notification of a hearing by
writing to the Secretary of the Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants: c/o Jackson National Life
Insurance Company, 1 Corporate Way, Lansing, Michigan 48951, Attn:
Anthony L. Dowling, Esq.; copies to Joan E. Boros, Esq., Jorden Burt
LLP, 1025 Thomas Jefferson Street, NW., Suite 400 East, Washington, DC
20007-0805.
FOR FURTHER INFORMATION CONTACT: Ellen J. Sazzman, Senior Counsel, at
(202) 551-6762, or Harry Eisenstein, Branch Chief, at (202) 551-6795,
Office of Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application is available for a fee from the
SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 20549
((202) 551-8090).
Applicants' Representations
1. Jackson National is a stock life insurance company organized
under the laws of the state of Michigan in June 1961. Its legal
domicile and principal business address is 1 Corporate Way, Lansing,
Michigan 48951. Jackson National is admitted to conduct life insurance
and annuity business in the District of Columbia and all states except
New York. Jackson National is ultimately a wholly owned subsidiary of
Prudential plc (London, England).
2. The JNL Separate Account was established by Jackson National on
June 14, 1993, pursuant to the provisions of Michigan law and the
authority granted under a resolution of Jackson National's Board of
Directors. Jackson National is the depositor of the JNL Separate
Account. The JNL Separate Account meets the definition of a ``separate
account'' under the federal securities laws and is registered with the
Commission as a unit investment trust under the Act (File No. 811-
8664). The JNL Separate Account will fund the variable benefits
available under the Contracts. The offering of the Contracts will be
registered under the Securities Act of 1933 (the ``1933 Act'').
3. The Distributor is a wholly owned subsidiary of Jackson National
and serves as the distributor of the Contracts. The Distributor is
registered with the Commission as a broker-dealer under the Securities
Exchange Act of 1934 (the ``1934 Act'') and is a member of the NASD.
The Distributor enters into selling group agreements with affiliated
and unaffiliated broker-dealers. The Contracts are sold by licensed
insurance agents, where the Contracts may be lawfully sold, who are
registered representatives of broker-dealers that are registered under
the 1934 Act and are members of the NASD.
4. The Contracts require a minimum initial premium payment of
$5,000 or $10,000 under most circumstances depending on the contract
($2,000 for a qualified plan contract). Subsequent payments may be made
at any time during the accumulation phase. Each subsequent payment must
be at least $500 ($50 under an automatic payment plan). Prior approval
of Jackson National is required for aggregate premium payments of over
$1,000,000.
5. The Contracts permit owners to accumulate contract values on a
fixed basis through allocations to one of six fixed accounts (the
``Fixed Accounts''), including four ``Guaranteed Fixed Accounts'' which
offer guaranteed crediting rates for specified periods of time
(currently, 1, 3, 5, or 7 years), and two ``DCA+ Fixed Accounts'' (used
in
[[Page 77419]]
connection with dollar cost averaging transfers, each of which from
time to time offers special crediting rates).
6. The Contracts also permit owners to accumulate contract values
on a variable basis, through allocations to one or more of the
investment divisions of the JNL Separate Accounts (the ``Investment
Divisions,'' collectively with the Fixed Accounts, the ``Allocation
Options''). The 67 Investment Divisions listed in Exhibit E to the
Application for an Amended Order currently are expected to be offered
under most of the Contracts, but additional Investment Divisions may be
offered in the future and some of those listed could be eliminated or
combined with other Investment Divisions in the future. Similarly,
Future Contracts may offer additional or different Investment
Divisions.
7. Transfers among the Investment Divisions are permitted. The
first 15 transfers in a contract year are free; subsequent transfers
cost $25. Certain transfers to, from and among the Fixed Accounts are
also permitted during the Contracts' accumulation phase, but are
subject to certain adjustments and limitations. Dollar cost averaging
and rebalancing transfers are offered at no charge and do not count
against the 15 free transfers permitted each year.
8. If the owner dies during the accumulation phase of the
Contracts, the beneficiary named by the owner is paid a death benefit
by Jackson National. The Contracts' base death benefit, which applies
unless an optional death benefit has been elected, is a payment to the
beneficiary of the greater of: (i) Contract value on the date Jackson
National receives proof of death and completed claim forms from the
beneficiary or (ii) the total premiums paid under that Contract minus
any prior withdrawals (including any applicable charges and adjustments
for such withdrawals, annual contract maintenance charges, transfer
charges, any applicable charges due under any optional endorsement and
premium taxes).
9. The owner may also be offered certain optional endorsements (for
fees described below) that can change the death benefit paid to the
beneficiary. First, an ``Earnings Protection Benefit Endorsement'' is
offered to owners who are no older than age 75 when their Contracts are
issued. This endorsement would add to the death benefit otherwise
payable an amount equal to a specified percentage (that varies with the
owner's age at issue) of earnings under the Contract up to a cap of
250% of remaining premiums (premiums not previously withdrawn)
excluding remaining premiums paid in the 12 months prior to the date of
death (other than the initial premium if the owner dies in the first
contract year).
10. Second, the owner of a Contract who is age 79 or younger may be
offered the following five optional death benefits (state variations
may apply) that would replace the base death benefit: (i) A ``4% Roll-
Up'' death benefit, (ii) a ``5% Roll-Up'' death benefit, (iii) a
``Highest Anniversary Value'' death benefit, (iv) a ``Combination 4%
Roll-Up and Highest Anniversary Value'' death benefit or (v) a
``Combination 5% Roll-Up and Highest Anniversary Value'' death benefit.
11. The Contracts offer fixed and variable versions of the
following four types of annuity payment or ``income payment'': Life
income, joint and survivor, life annuity with 120 or 240 monthly
payments guaranteed to be paid (although not guaranteed as to amount if
variable), and income for a specified period of 5 to 30 years. Jackson
National may also offer other income payment options. The Contracts may
also offer an optional Guaranteed Minimum Income Benefit (``GMIB'')
endorsement.
12. In addition to the Earnings Protection Benefit, GMIB, and
optional death benefit endorsements described above and the optional
contract enhancement endorsements described below, additional optional
endorsements are offered with the Contracts, several of which relate to
withdrawals: (i) An endorsement that expands the percentage of premiums
(that remain subject to a withdrawal charge) that may be withdrawn in a
contract year with no withdrawal charge imposed from 10% to 20%; (ii)
an endorsement that reduces the withdrawal charges applicable under the
Contract and shortens the period for which withdrawal charges are
imposed from seven years to five years or four years; and (iii) eight
different Guaranteed Minimum Withdrawal Benefit (``GMWB'')
endorsements. Three variations of the GMWB generally allow, subject to
specific conditions, partial withdrawals prior to the income date that,
in total, equal the amount of net premium payments made (if elected
after issue, the contract value, less any recapture charges will be
used instead of the net premium payment at issue). The guarantee is
effective if gross partial withdrawals taken within any one contract
year do not exceed a specified percentage of net premium payments.
13. If one of the optional contract enhancement endorsements is
elected, each time an owner makes a premium payment during the first
contract year, Jackson National will add an additional amount to the
owner's contract value (a ``Contract Enhancement''). All Contract
Enhancements are paid from Jackson National's general account assets.
The Contract Enhancement is equal to 2%, 3%, 4%, or 5% of the premium
payment. At issue, a Contract owner can choose only one of the Contract
Enhancement endorsements. An owner may not elect the 3%, 4%, or 5%
Contract Enhancements if the 20% additional free withdrawal endorsement
is elected. Jackson National will allocate the Contract Enhancement to
the Fixed Accounts and/or Investment Divisions in the same proportion
as the premium payment allocation. The Contract Enhancement is not
credited to any premiums received after the first contract year. If the
5% Contract Enhancement is elected, no premiums will be accepted after
the first year.
14. There is an asset-based charge for each of the Contract
Enhancements. The 2% Contract nhancement has a 0.395% charge that
applies for five years. The asset-based charges for the other Contract
Enhancements apply for seven years and are 0.42%, 0.56%, and 0.695%,
respectively, for the 3%, 4%, and 5% Contract Enhancements. These
charges will also be assessed against any amounts an owner has
allocated to the Fixed Accounts, resulting in a lower annual credited
interest rate that would apply to the Fixed Account if the Contract
Enhancement had not been elected.
15. Jackson National will recapture all or a portion of any
Contract Enhancements by imposing a recapture charge whenever an owner:
(i) Makes a total withdrawal within the recapture charge period (five
years after a first year payment in the case of the 2% Contract
Enhancement and seven years after a first year payment in the case of
the other Contract Enhancements) or a partial withdrawal of
corresponding premiums within the recapture charge period in excess of
those permitted under the Contracts' free withdrawal provisions
(including free withdrawals permitted by a 20% additional free
withdrawal endorsement), unless the withdrawal is made for certain
health-related emergencies specified in the Contracts; (ii) elects to
receive payments under an income option within the recapture charge
period; or (iii) returns the Contract during the free-look period.
16. The amount of the recapture charge varies, depending upon which
Contract Enhancement is elected and when the charge is imposed, as
follows:
[[Page 77420]]
Contract Enhancement Recapture Charge
[As a percentage of first year premium payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Completed Years Since Receipt of Premium........................ 0 1 2 3 4 5 6 7+
Recapture Charge (2% Credit).................................... 2% 2% 1.25% 1.25% 0.5% 0 0 0
Recapture Charge (3% Credit).................................... 3% 3% 2% 2% 2% 1% 1% 0
Recapture Charge (4% Credit).................................... 4% 4% 2.5% 2.5% 2.5% 1.25% 1.25% 0
Recapture Charge (5% Credit).................................... 4.5% 3.75% 3.25% 2.75% 2% 1.25% 1% 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
17. The recapture charge percentage will be applied to the
corresponding premium reflected in the amount withdrawn or the amount
applied to income payments that remain subject to a withdrawal charge.
The amount recaptured will be taken from the Investment Divisions and
the Fixed Accounts in the same proportion as the withdrawal charge.
18. Recapture charges will be waived upon death, but will be
applied upon electing to commence income payments, even in a situation
where the withdrawal charge is waived. Partial withdrawals will be
deemed to remove premium payments on a first-in first-out basis (the
order that entails payment of the lowest withdrawal and recapture
charges).
19. Jackson National does not assess the recapture charge on any
payments paid out as: Death benefits; withdrawals taken under free
withdrawal provisions; withdrawals necessary to satisfy the required
minimum distribution of the Internal Revenue Code; if permitted by the
owner's state, withdrawals of up to $250,000 from the JNL Separate
Account or from the Fixed Accounts in connection with the owner's
terminal illness or if the owner needs extended hospital or nursing
home care as provided in the Contract; or if permitted by the owner's
state, withdrawals of up to 25% of contract value (12.5% for each of
two joint owners) from the JNL Separate Account or from the Fixed
Accounts in connection with certain serious medical conditions
specified in the Contract.
20. The contract value will reflect any gains or losses
attributable to a Contract Enhancement described above. Contract
Enhancements, and any gains or losses attributable to a Contract
Enhancement, distributed under the Contracts will be considered
earnings under the Contract for tax purposes and for purposes of
calculating free withdrawal amounts.
21. The Contracts have a ``free-look'' period of ten days after the
owner receives the Contract (or any longer period required by state
law). Contract value is returned upon exercise of free-look rights by
an owner unless state law requires the return of premiums paid. The
Contract Enhancement recapture charge reduces the amount returned.
22. The JNL Separate Account consists of sub-accounts, each of
which will be available under the JNL Separate Account. The sub-
accounts are referred to as ``Investment Divisions.'' The JNL Separate
Account currently consists of 67 Investment Divisions, and each
Investment Division will invest in shares of a corresponding series
(``Series'') of JNL Series Trust (``Trust''), or JNL Variable Fund LLC
(``Fund'') (collectively the ``Trust and Fund''). Not all Investment
Divisions may be available.
23. The Trust and Fund are open-end management investment companies
registered under the Act and their shares are registered under the 1933
Act. Jackson National Asset Management, LLC (``JNAM'') serves as the
investment adviser for all of the Series of the Trust and Fund. JNAM
has retained sub-advisers for each Series. Jackson National, at a later
date, may determine to create additional Investment Divisions of the
JNL Separate Account to invest in any additional Series, or other such
underlying portfolios or other investments as may now or in the future
be available. Similarly, Investment Division(s) of the JNL Separate
Account may be combined or eliminated from time to time. Any changes to
the Investment Divisions offered will be effected in compliance with
the terms of the Contracts and with applicable state and federal laws.
24. In addition to the Contract Enhancement charges and the
Contract Enhancement recapture charges, the JNL Contracts may have the
following charges: Mortality and expense risk charge of 1.00%-1.45%
depending on the version of the Contract (as an annual percentage of
average daily account value); administration charge of 0.15% (as an
annual percentage of average daily account value); contract maintenance
charge of $35 per year (waived if contract value is $50,000 or more at
the time the charge is imposed); Earnings Protection Benefit charge of
0.30% (as an annual percentage of daily account value--only applies if
related optional endorsement is elected); GMIB charge of 0.60% per year
(0.15% per quarter) of the ``GMIB Benefit Base''; GMWB charge ranging
from 0.20% to 1.71% per year (0.1000% to 0.4250% per quarter) of the
``Guaranteed Withdrawal Balance'' depending upon age at election and
upon which (if any) GMWB endorsement is elected; 20% additional free
withdrawal benefit charge of 0.30% or 0.40% depending on the Contract
(as an annual percentage of daily account value--only applies if
related optional endorsement is elected); five-year withdrawal charge
period charge of 0.30% (as an annual percentage of daily account
value--only applies if related optional endorsement is elected); four-
year withdrawal charge period charge of 0.40% (as an annual percentage
of daily account value--only applies if related optional endorsement is
elected); optional death benefit charge ranging from 0.25% to 0.55% (as
an annual percentage of daily account value--only applies if related
optional endorsement is elected) depending upon which (if any) optional
death benefit endorsement is elected; transfer fee of $25 for each
transfer in excess of 15 in a contract year (for purposes of which
dollar cost averaging and rebalancing transfers are excluded);
commutation fee that applies only upon withdrawals from income payments
for a fixed period, measured by the difference in values paid upon such
a withdrawal due to using a discount rate of 1% greater than the
assumed investment rate used in computing the amounts of income
payments; and a withdrawal charge that applies to total withdrawals,
partial withdrawals in excess of amounts permitted to be withdrawn
under the Contract's free withdrawal provisions (or the 20% additional
free withdrawal endorsement) and on the income date (the date income
payments commence) if the income date is within a year of the date the
Contract was issued.
25. The withdrawal charges shown in the table below apply to
differing versions of Contracts. The amount of the withdrawal charge
depends upon the contribution year of the premium withdrawn as follows:
[[Page 77421]]
Withdrawal Charge
[As a percentage of premium payments]
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Completed Years Since Receipt of Premium........................ 0 1 2 3 4 5 6 7+
Withdrawal Charge (Base Schedule for Offerings under File Nos. 8.5% 8% 7% 6% 5% 4% 2% 0
333-70472 and 333-132128)......................................
Withdrawal Charge (Base Schedule for Offering under File No. 333- 8% 8% 7% 6% 0 0 0 0
119656)........................................................
Withdrawal Charge if Five-Year Period is elected (Optional 8% 7% 6% 4% 2% 0 0 0
Schedule for Offerings under File No. 333-70472)...............
Withdrawal Charge if Four-Year Period is elected (Optional 8% 7% 5.5% 3.5% 0 0 0 0
Schedule for Offering under File No. 333-132128)...............
--------------------------------------------------------------------------------------------------------------------------------------------------------
26. The withdrawal charge is waived upon withdrawals to satisfy the
required minimum distribution of the Internal Revenue Code (if the
withdrawal requested exceeds the required minimum distribution, the
withdrawal charge will not be waived on the required minimum
distribution) and, to the extent permitted by state law, the withdrawal
fee is waived in connection with withdrawals of: (i) Up to $250,000
from the Investment Divisions or the Fixed Accounts of the Contracts in
connection with the terminal illness of the owner of a Contract, or in
connection with extended hospital or nursing home care for the owner;
and (ii) up to 25% (12.5% each for two joint owners) of contract value
in connection with certain serious medical conditions specified in the
Contract.
Applicants' Legal Analysis
1. Applicants state that Section 6(c) of the Act authorizes the
Commission to exempt any person, security or transaction, or any class
or classes of persons, securities or transactions from the provisions
of the Act and the rules promulgated thereunder if and to the extent
that such exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Applicants request
that the Commission, pursuant to Section 6(c) of the Act, grant the
exemptions requested below with respect to the Contracts and any Future
Contracts funded by the JNL Separate Account or Other Accounts that are
issued by Jackson National and underwritten or distributed by the
Distributor or Affiliated Broker-Dealers. Applicants undertake that
Future Contracts funded by the Separate Account or Other Accounts, in
the future, will be substantially similar in all material respects to
the Contracts. Applicants believe that the requested exemptions are
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
2. Applicants state that Subsection (i) of Section 27 of the Act
provides that Section 27 does not apply to any registered separate
account funding variable insurance contracts, or to the sponsoring
insurance company and principal underwriter of such account, except as
provided in paragraph (2) of the subsection. Paragraph (2) provides
that it shall be unlawful for such a separate account or sponsoring
insurance company to sell a contract funded by the registered separate
account unless such contract is a redeemable security. Section 2(a)(32)
defines ``redeemable security'' as any security, other than short-term
paper, under the terms of the which the holder, upon presentation to
the issuer, is entitled to receive approximately his proportionate
share of the issuer's current net assets, or the cash equivalent
thereof.
3. Applicants submit that the recapture of the Contract Enhancement
in the circumstances set forth in its Application would not deprive an
owner of his or her proportionate share of the issuer's current net
assets. A Contract owner's interest in the amount of the Contract
Enhancement allocated to his or her contract value upon receipt of a
premium payment is not fully vested until five or seven complete years
following a premium. Until or unless the amount of any Contract
Enhancement is vested, Jackson National retains the right and interest
in the Contract Enhancement amount, although not in the earnings
attributable to that amount. Thus, Applicants urge that when Jackson
National recaptures any Contract Enhancement it is simply retrieving
its own assets, and because a Contract owner's interest in the Contract
Enhancement is not vested, the Contract owner has not been deprived of
a proportionate share of the JNL Separate Account's assets, i.e., a
share of the JNL Separate Account's assets proportionate to the
Contract owner's contract value.
4. In addition, Applicants represent that it would be patently
unfair to allow a Contract owner exercising the free-look privilege to
retain the Contract Enhancement amount under a Contract that has been
returned for a refund after a period of only a few days. If Jackson
National could not recapture the Contract Enhancement, individuals
could purchase a Contract with no intention of retaining it and simply
return it for a quick profit. Furthermore, Applicants state that the
recapture of the Contract Enhancement relating to withdrawals or
receiving income payments within the first five or seven years of a
premium contribution is designed to protect Jackson National against
Contract owners not holding the Contract for a sufficient time period.
It would provide Jackson National with insufficient time to recover the
cost of the Contract Enhancement, to its financial detriment.
5. Applicants represent that it is not administratively feasible to
track the Contract Enhancement amount in the JNL Separate Account after
the Contract Enhancement(s) is applied. Accordingly, the asset-based
charges applicable to the JNL Separate Account will be assessed against
the entire amounts held in the JNL Separate Account, including any
Contract Enhancement amounts. As a result, the aggregate asset-based
charges assessed will be higher than those that would be charged if the
Contract owner's contract value did not include any Contract
Enhancement.
6. Applicants submit that the provisions for recapture of any
Contract Enhancement under the Contracts do not violate Sections
2(a)(32) and 27(i)(2)(A) of the Act. Sections 26(e) and 27(i) were
added to the Act to implement the purposes of the National Securities
Markets Improvement Act of 1996 and Congressional intent. The
application of a Contract Enhancement
[[Page 77422]]
to premium payments made under the Contracts should not raise any
questions as to compliance by Jackson National with the provisions of
Section 27(i). However, to avoid any uncertainty as to full compliance
with the Act, Applicants request an Amended Order providing exemption
from Section 2(a)(32) and 27(i)(2)(A), to the extent deemed necessary,
to permit the recapture of the Contract Enhancements, including the 5%
Contract Enhancement under the circumstances described herein and in
the Application, without the loss of relief from Section 27 provided by
Section 27(i).
7. Applicants state that Section 22(c) of the Act authorizes the
Commission to make rules and regulations applicable to registered
investment companies and to principal underwriters of, and dealers in,
the redeemable securities of any registered investment company to
accomplish the same purposes as contemplated by Section 22(a). Rule
22c-1 under the Act prohibits a registered investment company issuing
any redeemable security, a person designated in such issuer's
prospectus as authorized to consummate transactions in any such
security, and a principal underwriter of, or dealer in, such security,
from selling, redeeming, or repurchasing any such security except at a
price based on the current net asset value of such security which is
next computed after receipt of a tender of such security for redemption
or of an order to purchase or sell such security.
8. Applicants state that it is possible that someone might view
Jackson National's recapture of the Contract Enhancements as resulting
in the redemption of redeemable securities for a price other than one
based on the current net asset value of the JNL Separate Account.
Applicants contend, however, that the recapture of the Contract
Enhancement does not violate Rule 22c-1. The recapture of some or all
of the Contract Enhancement does not involve either of the evils that
Section 22(c) and Rule 22c-1 were intended to eliminate or reduce as
far as reasonably practicable, namely: (i) The dilution of the value of
outstanding redeemable securities of registered investment companies
through their sale at a price below net asset value or repurchase at a
price above it, and (ii) other unfair results, including speculative
trading practices. To effect a recapture of a Contract Enhancement,
Jackson National will redeem interests in a Contract owner's contract
value at a price determined on the basis of the current net asset value
of the JNL Separate Account. The amount recaptured will be less than or
equal to the amount of the Contract Enhancement that Jackson National
paid out of its general account assets. Although Contract owners will
be entitled to retain any investment gains attributable to the Contract
Enhancement and to bear any investment losses attributable to the
Contract Enhancement, the amount of such gains or losses will be
determined on the basis of the current net asset values of the JNL
Separate Account. Thus, no dilution will occur upon the recapture of
the Contract Enhancement. Applicants also submit that the second harm
that Rule 22c-1 was designed to address, namely, speculatively trading
practices calculated to take advantage of backward pricing, will not
occur as a result of the recapture of the Contract Enhancement. Because
neither of the harms that Rule 22c-1 was meant to address is found in
the recapture of the Contract Enhancement, Rule 22c-1 should not apply
to any Contract Enhancement. However, to avoid any uncertainty as to
full compliance with Rule 22c-1, Applicants request an Amended Order
granting an exemption from the provisions of Rule 22c-1 to the extent
deemed necessary to permit them to recapture the Contract Enhancement
under the Contracts.
9. Applicants submit that extending the requested relief to
encompass Future Contracts and Other Accounts is appropriate in the
public interest because it promotes competitiveness in the variable
annuity market by eliminating the need to file redundant exemptive
applications prior to introducing new variable annuity contracts.
Investors would receive no benefit or additional protection by
requiring Applicants to repeatedly seek exemptive relief that would
present no issues under the Act not already addressed in the
Application.
Applicants submit, for the reasons stated herein, that their
exemptive request meets the standards set out in Section 6(c) of the
Act, namely, that the exemptions requested are appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act and
that, therefore, the Commission should grant the requested order.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-22009 Filed 12-22-06; 8:45 am]
BILLING CODE 8011-01-P
