[Federal Register Volume 60, Number 56 (Thursday, March 23, 1995)]
[Pages 15313-15315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7139]



[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'').


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 

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.

Pamela K. Ellis, Attorney, or Wendy F. Friedlander, Deputy Chief, both 
at (202) 942-0670, Office of Insurance Products (Division of Investment 

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.

    6. The Contracts provide for a series of annuity payments beginning 
on the annuity date. Several annuity forms are available under the 
    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 

    \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 

    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.

    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.

    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 
    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.

    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.


    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]