[Federal Register Volume 60, Number 56 (Thursday, March 23, 1995)]
[Notices]
[Pages 15313-15315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7139]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20961; No. 812-9302]
Jackson National Life Insurance Company, et al.
March 17, 1995.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (``1940 Act'').
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APPLICANTS: Jackson National Life Insurance Company (``Jackson
National''), Jackson National Separate Account-I (``Separate Account'')
and Jackson National Financial Services, Inc. (``Services'').
RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the
1940 Act granting exemptions from the provisions of Sections
26(a)(2)(C) and 27(c)(2) of the 1940 Act.
SUMMARY OF APPLICATION: Applicants seek an order to permit the
deduction of a mortality and expense risk charge from the assets of the
Separate Account or any other separate account (``Other Accounts'')
established by Jackson National to support certain flexible premium
individual deferred variable annuity contracts (``Contracts'') as well
as other variable annuity contracts that are substantially similar in
all material respects to the Contracts (``Future Contracts'').
FILING DATE: The application was filed on October 21, 1994, and was
amended and restated on December 29, 1994.
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 SEC's Secretary and
serving Applicants with a copy of the request, personally or by mail.
Hearing requests should be received by the SEC by 5:30 p.m. on April
11, 1995, 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 requestor'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
SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th
Street NW., Washington, D.C. 20549. Applicants, Thomas J. Meyer, Esq.,
5901 Executive Drive, Lansing, Michigan 48911.
FOR FURTHER INFORMATION CONTACT:
Pamela K. Ellis, Attorney, or Wendy F. Friedlander, Deputy Chief, both
at (202) 942-0670, Office of Insurance Products (Division of Investment
Management).
SUPPLEMENTARY INFORMATION: Following is a summary of the Application;
the complete Application is available for a fee from the SEC's Public
Reference Branch.
Applicants' Representations
1. Jackson National, a stock life insurance company, is organized
in Michigan and licensed to do business in the District of Columbia and
all states except Maine and New York. Jackson National is an indirect
wholly-owned subsidiary of Prudential Corporation plc, London, England.
2. The Separate Account is a separate account established by
Jackson National to fund the Contracts. The Separate Account is
registered with the Commission as a unit investment trust under the
1940 Act and the Contracts are registered as securities under the
Securities Act of 1933.
3. Jackson National will establish for each investment option
offered under the Contract a Separate Account subaccount or portfolio
(``Subaccount''), which will invest solely in a specific corresponding
series of the JNL Series Trust or of some other designated investment
company (``Funds''). The Funds will be registered under the 1940 Act as
open-end management investment companies. Each Fund series will have
separate investment objectives and policies.
4. Services will serve as the distributor and principal underwriter
of the Contracts. Services, a wholly owned subsidiary of Jackson
National, is registered under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
5. The Contracts are flexible premium individual deferred variable
annuity contracts. They may be purchased on a non-tax qualified basis
(``Non-Qualified Contracts'') or they may be purchased and used in
connection with retirement plans that qualify for favorable federal
income tax treatment (``Qualified Contracts''). The Non-Qualified
Contracts may be purchased with an initial premium of $5,000 and the
Qualified Contracts may be purchased with an initial premium of $2,000.
The minimum subsequent premium for both the Unqualified and Qualified
Contracts is $500 (or $50 if made in connection with an automatic
payment plan).\1\ Premiums may be allocated to one or more of the
Separate Account Subaccounts that have been established to support the
Contracts. The Contracts also provide for the allocation of premiums to
the general account of Jackson National, where such premiums are
credited with a predetermined fixed rate of interest.
\1\Jackson National may waive the minimum premiums at any time.
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6. The Contracts provide for a series of annuity payments beginning
on the annuity date. Several annuity forms are available under the
Contracts.
7. The Contracts provide for a death benefit if the annuitant dies
during the accumulation period. The standard death benefit is the
greater of: (1) The Contract value at the end of the valuation
period;\2\ or (2) the total dollar amount of premiums made prior to the
annuitant's death, minus the sum of any partial withdrawals and premium
taxes incurred. Where permitted by state law, Jackson National will
provide an enhanced death benefit. This benefit is determined by
recomputing the total dollar amounts under (2) above annually at 5% (4%
if the annuitant was age 70 or older on the issue date) to the date of
death, and paying the greater of the amount so determined and the
following amount, which is deemed to be $0 if the annuitant dies prior
to the seventh Contract year: the Contract value at the seventh
Contract year, plus any premiums made since that time and before the
death of the annuitant, minus the sum of the total amount of partial
withdrawals since the seventh year and premium taxes incurred since the
seventh year, all accumulated annually at 5% (4% if the annuitant was
age 70 or older on the issue date) to the date of death. However, the
enhanced death benefit shall not exceed 250% of all premiums paid under
a Contract, [[Page 15314]] reduced by the amount of any partial
withdrawals.
\2\Applicants define the valuation period as the period
commencing at the close of normal trading on each day the New York
Stock Exchange (``NYSE'') is open for business. (``Valuation Date'')
and ending at the close of the NYSE on the next succeeding Valuation
Date.
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8. Certain charges and fees are assessed under the Contracts.
During the accumulation and annuity periods, amounts allocated to the
Separate Accounts may be transferred among Subaccounts. Prior to the
annuity date, transfers from the Separate Account to the fixed account
and, to a limited extent, from the fixed account to the Separate
Account, also are permitted. There is no transfer fee charged for the
first 15 transactions effecting transfers in any Contract year.
Subsequent transfers within a Contract year, however, will be assessed
a fee of $25 per transfer. This fee will be deducted from Contract
values that remain in the Subaccount from which the transfer was made.
If these Contract values are insufficient to pay the transfer fee, the
fee will be deducted from transferred Contract values. The transfer fee
is at cost with no anticipation of profit.
9. A contingent deferred sales charge (``CDSC'') may be imposed on
certain withdrawals. The amount of the CDSC decreases annually from 7%
to 0% over 8 Contract years. The CDSC is deducted from the remaining
Contract value. For the purposes of determining the CDSC withdrawals
will be allocated first to investment income, if any (which may
generally be withdrawn free of the CDSC), and then to premiums on a
first-in, first-out basis so that all withdrawals are allocated to
premiums to which the lowest (if any) CDSC applies. In addition, there
may be a free withdrawal amount for the first withdrawal during a
Contract year. This withdrawal amount is equal to 10% of premiums that
remain subject to the CDSC, less earnings in the owner's account.\3\
\3\Jackson National states that it may waive the CDSC under
certain circumstances.
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10. During the valuation period, Jackson National will deduct an
administration charge from each Subaccount of the Separate Account. The
charge is equal, on an annual basis, to .15% of the net asset value of
each Subaccount. The administration charge is designed to compensate
Jackson National for assuming administrative expenses related to the
Separate Account and the issuance and maintenance of the Contracts.
11. An annual contract maintenance charge of $35 will be charged
against each Contract. The contract maintenance charge will be assessed
each anniversary of the Contract date that occurs on or prior to the
annuity date. In the event that a total surrender of the Contract value
is made other than on such anniversary, the charge will be assessed as
of the date of surrender without assert that this charge reimburses
Jackson National for the expenses incurred in establishing and
maintaining records relating to the Contracts.
12. Applicants represent that the administration charge and the
contract maintenance charge will not increase regardless of the actual
cost incurred. In addition, Applicants represent that these charges are
at cost with no anticipation of profit. Applicants rely on Rule
26(a)(1) of the Act to deduct the transfer fee, the CDSC, the
administration charge and the contract maintenance charge.\4\
\4\Applicants represent that, during the notice period, the
application will be amended to reflect this representation.
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13. Jackson National proposes to deduct a mortality and expense
risk charge from each Subaccount during each valuation period. Jackson
National represents that the aggregate mortality and expense risk
charge is equal, on an annual basis, to 1.25% of the net asset value on
each Subaccount. Of this amount, approximately 1.02% is for mortality
risks (of which .90% is for the standard death benefit and .12% is
assessed for the enhanced death benefit) and .23% is for expense risks.
14. Jackson National assumes the mortality risk that the life
expectancy of the annuitant will be greater than that assumed in the
guaranteed annuity purchase rates, thus requiring Jackson National to
pay out more in annuity income than it had planned. Additional
mortality risks assumed by Jackson National are that it will waive the
CDSC in the event of the death of the owner and Jackson National's
contractual obligation to provide a standard and an enhanced death
benefit prior to the annuity date. Thus, Jackson National assumes the
risk that it may not be able to cover its distribution expenses and
that the owner may die at a time when the amount of the death benefit
payable exceeds the then net surrender value of the Contracts. The
expense risk assumed by Jackson National is that the contract
administration charge will be insufficient to cover the cost of
administering the Contracts.
15. In the event the mortality and expense risk charges are more
than sufficient to cover Jackson National's costs and expenses, any
excess will be a profit to Jackson National. Any profit realized by
these charges may be used by Jackson National to, among other things,
offset losses experienced when the mortality and expense risk charges
are insufficient. These charges may not be increased under the
Contracts.
16. Should the owner live in a jurisdiction that levies a premium
tax, Jackson National will pay the taxes when due. Jackson National
represents that state premium taxes may range up to 3.5% to purchase
payments and are subject to change. Jackson National reserves the right
to deduct the amount of the tax either from the premiums as they are
received or deduct the tax at a later date as permitted or required by
applicable law.
Applicants' Legal Analysis
1. Section 6(c) of the 1940 Act authorizes the Commission, by order
upon application, to conditionally or unconditionally grant an
exemption from any provision, rule or regulation of the 1940 to the
extent that the 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 1940 Act.
2. Sections 26(a)(2)(C) and 27(c)(2) of the 1940, in relevant part,
prohibit a registered unit investment trust, its depositor or principal
underwriter, from selling periodic payment plan certificates unless the
proceeds of all payments, other than sales loads, are deposited with a
qualified bank and held under arrangements which prohibit any payment
to the depositor or principal underwriter except a reasonable fee, as
the Commission may prescribe, for performing bookkeeping and other
administrative duties normally performed by the bank itself.
3. Applicants request exemptions from Sections 26(a)(2)(C) and
27(c)(2) of the 1940 Act to the extent necessary to permit the
deduction from the assets of the Separate Account and the Other
Accounts in connection with the Contracts and Future Contracts of the
1.25% charge for the assumption of mortality and expense risks.
Applicants assert that the terms of the relief requested with respect
to any Future Contracts funded by the Separate Account or Other
Accounts are consistent with the standards enumerated in Section 6(c)
of the 1940 Act. Without the requested relief, Applicants would have to
request and obtain exemptive relief for each new Other Account it
establishes to fund any Future Contract. Applicants submit that any
such additional request for exemption would present no issues under the
1940 Act that have not already been addressed in this application, and
that investors would [[Page 15315]] not receive any benefit or
additional protections thereby.\5\
\5\Applicants represent that, during the Notice Period, the
application will be amended to reflect this representation.
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Applicants submit that the requested relief is appropriate in the
public interest, because it would promote competitiveness in the
variable annuity contract market by eliminating the need for Applicants
to file redundant exemptive applications, thereby reducing their
administrative expenses and maximizing the efficient use of their
resources. The delay and expense involved in having repeatedly to seek
exemptive relief would reduce Applicants' ability effectively to take
advantage of business opportunities as they arise.
Applicants further submit that the requested relief is consistent
with the purposes of the 1940 Act and the protection of investors for
the same reasons.
Applicants thus believe that the requested exemption is appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
1940 Act.
4. Applicants represent that the 1.25% per annum mortality and
expense risk charge is within the range of industry practice for
comparable annuity contracts. This representation is based upon an
analysis of publicly available information about similar industry
products, taking into consideration such factors as, among others, the
current charge levels and benefits provided, the existence of expense
charge guarantees and guaranteed annuity rates. Jackson National will
maintain at its principal offices, available to the Commission, a
memorandum setting forth in detail the products analyzed in the course
of, and the methodology and results of, Applicants' comparative review.
5. Jackson National has concluded that there is a reasonable
likelihood that the Separate Accounts' proposed distribution financing
arrangements will benefit the Separate Accounts and their investors.
Jackson National represents that it will maintain and make available to
the Commission upon request a memorandum setting forth the basis of
such conclusion.
6. The Separate Accounts will be invested only in management
investment companies that undertake, in the event the company should
adopt a plan for financing distribution expenses pursuant to rule 12b-1
under the 1940 Act, to have such plan formulated and approved by the
company's board members, the majority of whom are not ``interested
persons'' of the management investment company within the meaning of
Section 2(a)(19) of the 1940 Act.
Conclusion
For the reasons set forth above, Applicants represent that the
exemptions requested are necessary and appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7139 Filed 3-22-95; 8:45 am]
BILLING CODE 8010-01-M