Jackson National Life Insurance Company, et al., 45487-45492 [E9-21140]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 169 (Wednesday, September 2, 2009)]
[Notices]
[Pages 45487-45492]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-21140]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28890; File No. 812-13584]


Jackson National Life Insurance Company, et al.

August 27, 2009.
AGENCY: The Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an 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.

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    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:  Summary of Application: Applicants seek an order under 
Section 6(c) of the Act to exempt certain transactions 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 in the application that Jackson National has issued \1\ and 
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 Financial Industry Regulatory 
Authority (``FINRA'') 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.
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    \1\ The existing contract referred to in the application is 
registered under the Securities Act of 1933 File No. 333-155675.

DATES:  Filing Date: The application was filed on October 9, 2008, and 
amended on February 10, 2009, April 23, 2009, and August 26, 2009.
    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 September 21, 2009, 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, Attn: Joan E. Boros, Esq., Jorden Burt LLP, 1025 
Thomas Jefferson Street, NW., Suite 400 East, Washington, DC 20007-
5208; copies to Anthony L. Dowling, Esq., Jackson National Life 
Insurance Company, 1 Corporate Way, Lansing, Michigan 48951.

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 may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at https://www.sec.gov/search/search.htm or 
by calling (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 registration statement relating to 
the offering of the Contracts was filed 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 FINRA. 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

[[Page 45488]]

lawfully sold, who are registered representatives of broker-dealers 
that are registered under the 1934 Act and are members of FINRA.
    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 but before the contract 
anniversary after the owner's 85th birthday. 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 ``Fixed Account Options'' which 
offer guaranteed crediting rates for specified periods of time 
(currently, 1, 3, 5, or 7 years), and two ``DCA+ Fixed Account 
Options'' (used in connection with dollar cost averaging transfers, 
each of which from time to time offers special crediting rates). In 
addition, if certain optional guaranteed minimum withdrawal benefits 
are elected, automatic transfers of an owner's contract value may be 
allocated to a ``Guaranteed Minimum Withdrawal Benefit (`GMWB') Fixed 
Account.'' The GMWB Fixed Account also offers a guaranteed crediting 
rate for a specified period.
    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 Account (the ``Investment 
Divisions,'' collectively with the Fixed Account and the GMWB Fixed 
Account, the ``Allocation Options''). Under most of the Contracts, 93 
Investment Divisions currently are expected to be offered but 
additional Investment Divisions may be offered in the future and some 
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 Account 
Options 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. If certain 
optional guaranteed minimum withdrawal benefits are elected, automatic 
transfers may be required to and from the GMWB Fixed Account according 
to non-discretionary formulas. These automatic transfers also do not 
count against the 15 free transfers permitted each year and are without 
charge.
    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 withdrawal charges, recapture 
charges, or other charges or adjustments to such withdrawals).
    9. The owner may also be offered certain optional endorsements (for 
fees described in the application) that can change the death benefit 
paid to the beneficiary. First, an ``Earnings Protection Benefit 
Endorsement'' generally 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).
    10. Second, the owner of a Contract may be offered six optional 
death benefits (State variations may apply) that would replace the base 
death benefit. The optional death benefits include: (i) A 5% Roll-Up 
death benefit, (ii) a 6% Roll-Up death benefit, (iii) a Highest 
Quarterly Anniversary Value death benefit, (iv) a Combination 5% Roll-
Up and Highest Quarterly Anniversary Value death benefit, (v) a 
Combination 6% Roll-Up and Highest Quarterly Anniversary Value death 
benefit, and (vi) a death benefit available in conjunction with the 
purchase of the LifeGuard Freedom Guaranteed Minimum Withdrawal 
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, there are nine 
different Guaranteed Minimum Withdrawal Benefit (``GMWB'') optional 
endorsements. Three variations of the GMWB allow, subject to specific 
conditions, partial withdrawals prior to the income date that, in 
total, equal the benefit's Guaranteed Withdrawal Balance (``GWB''). The 
guarantee is effective if gross partial withdrawals taken within any 
one contract year do not exceed a specified percentage of the GWB. Six 
variations of the GMWB generally allow, subject to specific conditions, 
partial withdrawals prior to the income date for the longer of the 
duration of the owner's life or until total periodic withdrawals equal 
the GWB.
    13. Jackson National will add an additional amount to the owner's 
contract value (a ``Contract Enhancement'') for the initial premium 
payment, and for each subsequent premium payment received prior to the 
first contract anniversary following the owner's 85th birthday. Premium 
payments will not be accepted on or after the first contract 
anniversary following the owner's 85th birthday. If the owner is age 85 
at issue, premium payments will not be accepted on or after the first 
contract anniversary. All Contract Enhancements are paid from Jackson 
National's general account assets. The Contract Enhancement is equal to 
6% of the premium payment if the adjusted premium, as defined below, is 
less than $100,000 at the time the premium payment is received. The 
Contract Enhancement is equal to 8% of the premium payments if adjusted 
premium is greater than or equal to $100,000 at the time the premium 
payment is received. The adjusted premium is determined at the time 
each premium payment is processed and is equal to (a) the sum of all 
premium payments processed prior to the receipt of the current premium 
payment plus the current premium payment less (b) the sum of all 
partial withdrawals processed prior to the receipt of the current 
premium payment (including any applicable withdrawal charges, recapture 
charges and other charges or adjustments to such withdrawals).
    14. During the first contract year only, at the time that a 
subsequent premium payment is received that causes the adjusted premium 
to equal or exceed $100,000 when it was less than $100,000 before the 
receipt of the premium payment, a retroactive Contract Enhancement will 
be added to

[[Page 45489]]

the contract value equal to 2% of each previous premium payment for 
which a 6% Contract Enhancement was credited and for which no 2% 
retroactive Contract Enhancement has already been added. The Contract 
Enhancement will be applied as of the date of the subsequent premium 
payment and there will be no adjustments to previous contract values. 
For example, if the initial premium payment is equal to $50,000, then 
the initial adjusted premium is equal to $50,000 and the Contract 
Enhancement credited to the contract value is equal to 6% (since the 
adjusted premium is less than $100,000) of the initial premium payment 
(.06*$50,000 = $3,000). If a withdrawal equal to $25,000 is taken at 
the end of the third contract month and a premium payment equal to 
$75,000 is made at the end of the sixth contract month, then the 
adjusted premium at the time the $75,000 subsequent premium payment is 
received is equal to the initial premium less the withdrawal plus the 
subsequent premium payment ($50,000 - $25,000 + $75,000 = $100,000). 
The Contract Enhancement credited to the contract value at the time of 
the subsequent premium payment is equal to 8% (since the adjusted 
premium is equal to or greater than $100,000) of the subsequent premium 
payment plus the retroactive Contract Enhancement of 2% of the initial 
premium payment (.08*$75,000 + .02*$50,000 = $7,000).
    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 (nine 
years after a premium payment) or a partial withdrawal of corresponding 
premiums within the recapture charge period in excess of those 
permitted under the Contracts' free withdrawal provision unless the 
withdrawal is made for certain health-related emergencies specified in 
the Contracts; (ii) elects to receive payments under an income payment 
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 when 
the charge is imposed, as follows:

                                                          Contract Enhancement Recapture Charge
                                                          [As a percentage of premium payments]
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Completed Years Since Receipt of Premium......................      0-1      1-2      2-3      3-4      4-5      5-6      6-7      7-8      8-9       9+
Recapture Charge..............................................       6%    5.50%    4.50%       4%    3.50%       3%       2%       1%     .50%       0%
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    The above specified recapture charge percentages apply in all 
circumstances, whether the Contract Enhancement is 6% at the time of 
the premium payment, or includes the additional 2%. Therefore, the 
recapture charge percentage is not higher for premium payments that 
receive the 8% Contract Enhancement than those that receive the 6% 
Contract Enhancement. For example, if the initial premium is $50,000 
and the Contract Enhancement credited to the contract value is 6% of 
$50,000 (.06*$50,000 = $3,000), the recapture charge applied when the 
initial premium is withdrawn after the free-look period but within the 
first Completed Year is 6% of $50,000 (.06*$50,000 = $3,000). If the 
initial premium is $100,000 and the Contract Enhancement credited to 
the contract value is 8% of $100,000 (.08*$100,000 = $8,000), the 
recapture charge applied when the initial premium is withdrawn is 6% of 
$100,000 (.06*$100,000 = $6,000).
    17. A ``Completed Year'' is the succeeding twelve months from the 
date on which Jackson National receives a premium payment. The first 
Contract anniversary begins Completed Year 1-2 and each successive 
Completed Year begins with the Contract anniversary of the preceding 
Contract year.
    18. 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 recapture charge. 
The amount recaptured will be taken from the Investment Divisions and 
the Fixed Account (and the GMWB Fixed Account, if applicable) in the 
proportion their respective values bear to the contract value. The 
dollar amount recaptured will never exceed the dollar amount of the 
Contract Enhancement added to the contract. Recapture charges will be 
applied upon electing to commence income payments, even in a situation 
where the withdrawal charge is waived.
    19. Jackson National does not assess the recapture charge on any 
payments paid out as: Death benefits; withdrawals of earnings; 
withdrawals taken under the free withdrawal provision, which allows for 
free withdrawals up to 10% of remaining premium, less earnings; 
withdrawals necessary to satisfy the required minimum distribution of 
the Internal Revenue Code (if the withdrawal requested exceeds the 
required minimum distribution, the recapture charge will not be waived 
on the required minimum distribution); if permitted by the owner's 
State, withdrawals of up to $250,000 from the JNL Separate Account, the 
Fixed Account or the GMWB Fixed Account 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% (12.5% for each of two joint owners) of 
contract value from the JNL Separate Account, the Fixed Account or the 
GMWB Fixed Account 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. For purposes of 
determining the recapture charge and withdrawal charge, withdrawals 
will be allocated first to earnings, if any (which may be withdrawn 
free of any recapture charge and withdrawal charge), second to premium 
on a first-in, first-out basis, so that all withdrawals are allocated 
to premium to which the lowest (if any) withdrawal charges and 
recapture charges apply, and third to Contract Enhancements. For all 
purposes, other than for tax purposes and the calculation of the 
Earnings Protection Benefit, earnings are defined to be the excess, if 
any, of the contract value over the sum of remaining Contract 
Enhancements (the total Contract Enhancements, reduced by withdrawals 
of Contract Enhancements) and remaining premiums (the total premium, 
reduced by withdrawals that incur withdrawal charges and/or recapture 
charges, and withdrawals of premiums that are no longer subject to 
withdrawal charges and/or recapture charges). Contract Enhancements and 
any gains or losses attributable to a Contract Enhancement will be 
considered earnings under the Contract for tax purposes and the 
calculation of the Earnings Protection Benefit.
    21. The Contracts have a ``free-look'' period of ten days after the 
owner receives the Contract (or any longer

[[Page 45490]]

period required by State law). Contract value (or premiums paid, as may 
be required by State law), less the full amount of any Contract 
Enhancement(s) is returned upon exercise of free look rights by an 
owner. Therefore, 100% of the Contract Enhancement will be recaptured 
under all circumstances if an owner returns the Contract during the 
free-look period, but any gain or loss on investments of the Contract 
Enhancement would be retained by the owner. The dollar amount 
recaptured will never exceed the dollar amount of the Contract 
Enhancement added to the contract. A withdrawal charge will not be 
assessed upon exercise of free look rights.
    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 93 Investment Divisions. 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. The Trust and Fund are open-end management investment 
companies registered under the Act and its 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.
    23. In addition to the Contract Enhancement recapture charges, the 
Contracts may have the following charges: mortality and expense risk 
charge of 1.65% (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 0.85% per year 
(0.2125% per quarter) of the ``GMIB Benefit Base'' (as defined in the 
application); GMWB charge ranging from 0.45% to 1.85% per year (0.1125% 
to 0.4650% per quarter) of the ``Guaranteed Withdrawal Balance'' (as 
defined in the application), depending upon age at election and upon 
which (if any) GMWB endorsement is elected; optional death benefit 
charge ranging from 0.30% to 1.80% per year (0.0750% to 0.4500% per 
quarter) of the ``GMDB Benefit Base'' (as defined in the application), 
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 
provision 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.
    24. The withdrawal charges shown in the table below apply to the 
Contracts and Future Contracts. The amount of the withdrawal charge 
depends upon the contribution year of the premium withdrawn as follows:

                                                                    Withdrawal Charge
                                                          [As a percentage of premium payments]
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Completed Years Since Receipt of Premium......................        0        1        2        3        4        5        6        7        8       9+
Withdrawal Charge.............................................     7.5%       7%       6%    5.50%       5%       4%       3%       2%       1%        0
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    25. Jackson National does not assess the withdrawal charge on any 
payments paid out as: Death benefits; election to begin income payments 
after the first contract year; cancellation of the Contract upon 
exercise of free look rights by an owner; withdrawals of earnings; 
withdrawals taken under the free withdrawal provision, which allows for 
free withdrawals up to 10% of remaining premium, less earnings; 
withdrawals necessary 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); if permitted by the owner's 
State, withdrawals of up to $250,000 from the Investment Divisions, 
Fixed Account or GMWB Fixed Account 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 if permitted 
by the owner's State, withdrawals of up to 25% (12.5% each for two 
joint owners) of contract value from the Investment Divisions, Fixed 
Account or GMWB Fixed Account of the Contracts 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 JNL 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

[[Page 45491]]

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 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 nine complete years following 
a premium payment. 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 and to 
income payments within the first nine years of a premium contribution 
is designed to protect Jackson National against Contract owners not 
holding the Contract for a sufficient time period. It provides Jackson 
National with sufficient time to recover the cost of the Contract 
Enhancement, and to avoid the financial detriment that would result 
from a shorter recapture period.
    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 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 order providing exemption from Sections 2(a)(32) and 
27(i)(2)(A), to the extent deemed necessary, to permit the recapture of 
the Contract Enhancements, 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, speculative 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 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.

[[Page 45492]]

    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.
    10. 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-21140 Filed 9-1-09; 8:45 am]
BILLING CODE 8010-01-P