[Federal Register Volume 64, Number 236 (Thursday, December 9, 1999)]
[Notices]
[Pages 69047-69051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31961]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-24182; File No. 812-11710]
Jackson National Life Insurance Company, et al.; Notice of
Application
December 2, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``1940 Act'' or ``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 premium payments made
under certain deferred variable annuity contracts.
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Summary of application: Applicants seek an order under section 6(c)
of the Act to permit, under specified circumstances, the recapture of
contract enhancements applied to premiums made under deferred variable
annuity contracts (the ``Contracts'') that Jackson National Life
Insurance Company (``Jackson National'') will issue through Jackson
National Separate Account V (``Separate Account V''), as well as other
contracts that Jackson National may issue through any other separate
account established in the future by Jackson National (``Future
Accounts'') to support contracts that are substantially similar in all
material respects to the Contracts (the ``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 a distributor or principal underwriter for the Contracts or
Future Contracts offered through Separate Account V or any Future
Account (``Jackson National Broker-Dealer(s)'').
[[Page 69048]]
Applicants: Jackson National Life Insurance Company, Jackson
National Separate Account V, any other separate account established by
Jackson National in the future to support certain deferred variable
annuity contracts issued by Jackson National, and Jackson National Life
Distributors, Inc. (``JNLD'') (collectively, ``applicants'').
Filing date: The application was filed on July 29, 1999, and
amended and restated on October 27, 1999 and December 1, 1999.
Hearing or notification of hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
persons may request a hearing on the application by writing to the
SEC's Secretary and serving Applicants with a copy of the request, in
person or by mail. Hearing requests must be received by the SEC by 5:30
p.m. on December 27, 1999, and should be accompanied by proof of
service on the 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 who wish to be notified of a hearing may request
notification by writing to the Secretary of the SEC.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, c/o Joseph Emanuel,
Esq., Jackson National Life Insurance Company, 5901 Executive Drive,
Lansing, Michigan 48911-5389.
FOR FURTHER INFORMATION CONTACT: Paul G. Cellupica, Senior Counsel, or
Susan M. Olson, Branch Chief, Office of Insurance Products, Division of
Investment Management, at (202) 942-0670.
SUPPLEMENTAL INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. Jackson National is a stock life insurance company organized
under the laws of the State of Michigan. Separate Account V was
established on September 25, 1998. Jackson National serves as depositor
of Separate Account V. Jackson National may in the future establish one
or more Future Accounts for which it will serve as depositor.
2. Separate Account V is a segregated asset account of Jackson
National, and is registered with the Commission as a unit investment
trust investment company under the Act. Separate Account V filed a Form
N-8A Notification of Registration under the Act on January 15, 1999.
The Separate Account funds the variable benefits available under the
Contracts funded through it. Units of interest in Separate Account V
will be registered under the Securities Act of 1933 (the ``1933 Act'').
In that regard, Separate Account V filed a Form N-4 Registration
Statement on January 15, 1999 under the 1933 Act relating to the
Contracts and filed Pre-Effective Amendment No. 1 to Form N-4 on August
13, 1999. Jackson National may in the future issue Future Contracts
through Separate Account V or through Future Accounts. That portion of
the assets of Separate Account V that is equal to the reserves and
other Contract liabilities with respect to Separate Account V is not
chargeable with liabilities arising out of any other business of
Jackson National. Any income, gains or losses, realized or unrealized,
from assets allocated to Separate Account V is, in accordance with
Separate Account V's Contracts, credited to or charged against Separate
Account V, without regard to other income, gains or losses of Jackson
National.
3. JNLD is a wholly-owned subsidiary of Jackson National and will
be the principal underwriter of Separate Account V and distributor of
the Contracts funded through Separate Account V. JNLD 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
Contracts will be offered through unaffiliated broker-dealers who have
entered into agreements with JNLD. JNLD, or any successor entity, may
act as principal underwriter for any Future Accounts and distributor
for any Future Contracts issued by Jackson National. A successor entity
also may act as principal underwriter for Separate Account V.
4. The Contract is a part of Jackson National's line of annuity
products. The Contract is an individual deferred variable and fixed
annuity contract. The Contract may be issued under a qualified plan,
specially sponsored program or an individual retirement annuity or as a
non-qualified contract. The Contract is designed to provide for the
accumulation of assets and income during an accumulation phase. Premium
payments may be made at any time during the accumulation phase. The
minimum initial premium is $5,000 under most circumstances and $2,000
for a qualified plan contract. Additional premiums of at least $500 can
be made ($50 under the automatic investment plan).
5. The Contracts permit premiums to be allocated to guaranteed
accounts of Jackson National (``Guaranteed Accounts''). The Guaranteed
Accounts are not registered with the Commission.
6. Separate Account V currently is divided into 19 sub-accounts,
each of which will be available under the Contracts. The sub-accounts
are referred to as ``Investment Portfolios.'' Each Investment Portfolio
will invest in a series of JNL Series Trust (``Trust'') or JNL Variable
Fund V LLC (``Fund''). The Investment Portfolios and the Guaranteed
Accounts will comprise the initial ``Investment Options'' under the
Contract. The Trust and the Fund are open-end management investment
companies registered under the 1940 Act, whose shares are registered
under the 1933 Act.
7. Jackson National Financial Services, LLC (``JNFS'') serves as
the investment adviser for all of the series of the Trust and the Fund.
JNFS has retained subadvisers for each series. Jackson National, at a
later date, may determine to create additional Investment Portfolios of
Separate Account V 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 Portfolio(s) of Separate Account V
may be combined or eliminated from time to time.
8. The Contract provides for transfer privileges among Investment
Portfolios, dollar cost averaging, rebalancing, and other features. The
following charges are assessed under the Contract: (i) Annual asset-
based charges as follows: 1.35% for mortality and expense risks, 0.15%
for administration expenses, and 0.15% if a Contract Owner chooses the
optional enhanced death benefit; (ii) a withdrawal charge which starts
at 8.5% in the first year, and declines 1% per year thereafter to 0%
after nine years with a 10% free withdrawal option; (iii) a $35
contract maintenance charge during the accumulation phase; and (iv) a
transfer fee of $25 for each transfer in excess of 15 in a Contract
year. The Trust and the Fund also impose management and administrative
fees which vary depending upon which series is selected.
9. The Contract offers a selection of death benefits. A Contract
Owner can select the standard death benefit or the optional enhanced
death benefit. The standard death benefit is equal to the greater of:
(1) The Contract value at the end of the business day on which due
proof of death and an election of the type of payment to the
beneficiaries is
[[Page 69049]]
received by Jackson National; or (2) the minimum death benefit, which
is the total of premiums paid prior to the death of the Owner, minus
any withdrawals and any withdrawal charges or other fees previously
assessed and premium taxes incurred. The optional enhanced death
benefit is equal to the greatest of: (1) The standard death benefit;
(2) the total premiums paid prior to the death of the Owner, minus any
withdrawals and any withdrawal charges or other fees previously
assessed and premium taxes incurred, compounded at 5% (4% if the Owner
is over age 70 at the date of Contract issue); or (3) the Contract
value at the end of the seventh Contract year, plus all premiums paid
since the seventh year (less withdrawals, withdrawal charges previously
assessed, and any applicable charges, fees and premium taxes incurred
since the seventh year) compounded at 5% (4% if the Owner is over age
70 at the date of Contract issue). The optional enhanced death benefit
under (2) or (3) will never exceed 250% of premiums paid, less
withdrawals and any charges, fees, withdrawal charges previously
assessed and premium taxes incurred.
10. Each time a Contract Owner makes a premium payment, Jackson
National will add an additional amount to the Contract (``Contract
Enhancement''). The Contract Enhancement will equal 4% of the premium
payment. Jackson National will fund the Contract Enhancement form its
general account assets. Jackson National will allocate the Contract
Enhancement to the Guaranteed Accounts and/or Investment Portfolios in
the same proportion as the premium payment. Jackson National will
recapture Contract Enhancements only under the following circumstances:
(i) If the Contract Owner exercises the right to return the Contract
under the free-look provision of the Contract, the amount refunded will
be reduced by any Contract Enhancement applied; (ii) if a death benefit
is payable under either the standard death benefit or optional enhanced
death benefit, any Contract Enhancement based on any premium payment
received within 12 months prior to the date of death of the Contract
Owner or annuitant (when the owner is a non-natural person) will be
returned to Jackson National to the extent that the death benefit
payable is greater than the minimum death benefit (but in no event will
the Contract Owner receive less than the minimum death benefit); (iii)
for withdrawals or distributions, including partial withdrawals, any
Contract Enhancement resulting from premium paid 12 months prior to the
receipt of the request for the withdrawal or distribution will be
deducted from the Contract value prior to determining the amount
available for withdrawal or distribution; and (iv) for benefits
provided by certain riders or endorsements (as described below), any
Contract Enhancement resulting from premium paid 12 months prior to the
receipt of the request for the payment of the benefit will be deducted
from the Contract value prior to determining the amount available.
11. In states where permitted, Jackson National will issue riders
or endorsements which provide: (a) a waiver of the withdrawal charge
for a terminal illness of the Owner under certain circumstances; and
(b) a waiver of the withdrawal charge if the owner is diagnosed with a
condition specified in the endorsement (e.g., heart attack, stroke,
coronary artery surgery, life threatening cancer, renal failure).
Applicants represent that these are the only riders referred to in
circumstance (iv) described in paragraph 10 above.
12. Applicants seek exemption pursuant to section 6(c) from
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 Jackson National to issue
Contracts and Future Contracts that provide for the recapture of an
amount equal to any Contract Enhancement under the circumstances
described in paragraph 10 above.
Applicants' Legal Analysis
1. 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 summarized
above with respect to the Contracts and any Future Contracts funded by
Separate Account V or any Future Account (``Separate Accounts''), that
are issued by Jackson National and underwritten or distributed by JNLD
or Jackson National Broker-Dealers. Applicants state that Future
Contracts funded by a Separate Account 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 represent that it is not administratively feasible to
track the Contract Enhancement amount in a Separate Account after the
Contract Enhancement is applied. Accordingly, the asset-based charges
applicable to a Separate Account will be assessed against the entire
amounts held in the Separate Account, including the Contract
Enhancement amount during the free-look period and the 12-month period
following a premium payment preceding certain events (i.e., payment of
a death benefit, withdrawals or distributions, and payment of benefits
provided by certain Contract riders or endorsements). As a result,
during such periods, the aggregate asset-based charges assessed against
an owner's Contract value will be higher than those that would be
charged if the owner's Contract value did not include the Contract
Enhancement.
3. 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 any registered separate account funding variable insurance
contracts or a sponsoring insurance company of such account to sell a
contract funded by the registered separate account unless, among other
things, such contract is a redeemable security. Section 2(a)(32) of the
Act 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.
4. Applicants submit that the Contract Enhancement recapture
provisions of the Contract would not deprive an owner of his or her
proportionate share of the issuer's current net assets. Applicants
state that an 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 vested until the applicable free-look period has
expired without return of the Contract. Similarly, Applicants state
than an owner's interest in the amount of any Contract Enhancement
allocated upon receipt of premium payments made during the 12-month
period before a death benefit is payable, a withdrawal or distribution
is made, or a benefit is
[[Page 69050]]
payable under certain Contract riders or endorsements also is not
vested. Until or unless the amount of any Contract Enhancement is
vested, Applicants submit that Jackson National retains the right and
interest in the Contract Enhancement amount, although not in the
earnings attributable to that amount. Thus, Applicants argue that when
Jackson National recaptures any Contract Enhancement it is simply
retrieving its own assets, and because an owner's interest in the
Contract Enhancement is not vested, the owner has not been deprived of
a proportionate share of the Separate Account's assets, i.e., a share
of the applicable Separate Account's assets proportionate to the
owner's Contract value (including the Contract Enhancement).
5. In addition, with respect to Contract Enhancement recapture upon
the exercise of the free-look privilege, Applicants state that it would
be patently unfair to allow an owner exercising that privilege to
retain a Contract Enhancement amount under a Contract that has been
returned for a refund after a period of only a few days. Applicants
state that 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.
6. Furthermore, Applicants state that the recapture of Contract
Enhancements relating to premiums made within twelve months of the
payment of a death benefit, a withdrawal or distribution or the payment
of a benefit under certain Contract riders or endorsements is designed
to provide Jackson National with a measure of protection. Applicants
state that the risk is that, rather than spreading premiums over a
number of years, an owner will make very large premiums shortly before
certain events, thereby leaving Jackson National less time to recover
the cost of the Contract Enhancements applied, to its financial
detriment. Again, the amounts recaptured equal the Contract
Enhancements provided by Jackson National from its own general account
assets, and any gain would remain as part of the Contract's value at
annuitization.
7. Applicants represent that the Contract Enhancement will be
attractive to and in the interest of investors because it will permit
owners to put 104% of their premiums to work for them in the selected
Investment Options. Also, any earnings attributable to the Contract
Enhancement will be retained by the owner, and the principal amount of
the Contract Enhancement will be retained if the contingencies set
forth in the application are satisfied.
8. Applicants state that Jackson National's right to recapture
Contract Enhancements applied to premiums made within twelve months of
the payment of a death benefit, a withdrawal or distribution, or the
payment of a benefit under certain Contract riders or endorsements
protects it against the risk that owners will contribute larger amounts
as they approach certain events (if foreseeable) to obtain the Contract
Enhancement, while avoiding Contract charges over the long term. With
respect to refunds paid upon the return of Contracts within the ``free-
look'' period, the amount payable to Jackson National must be reduced
by the allocated Contract Enhancement. Otherwise, Applicants state that
purchasers could apply for Contracts for the sole purpose of exercising
the free-look provision and making a quick profit.
9. Applicants submit that the provisions for recapture of any
applicable Contract Enhancement under the Contracts do not, and any
such Future Contract provisions will not, violate section 2(a)(32) and
27(i)(2)(A) of the Act. Nevertheless, to avoid any uncertainties,
Applicants request an exemption from those Sections, to the extent
deemed necessary, to permit the recapture of any Contract Enhancement
under the circumstances described herein with respect to the Contract
and any Future Contracts, without the loss of the relief from section
27 provided by section 27(i).
10. Section 22(c) of the 1940 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, whether or not members of any
securities association, to the same extent, covering the same subject
matter, and for the accomplishment of the same ends as are prescribed
in Section 22(a) in respect of the rules which may be made by a
registered securities association governing its members. Rule 22c-1
thereunder 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 security for redemption or of an order to
purchase or sell such security.
11. Arguably, Jackson National's recapture of the Contract
Enhancement might be viewed as resulting in the redemption of
redeemable securities for a price other than one based on the current
net asset value of Separate Account V. Applicants contend, however,
that recapture of the Contract Enhancement is not violative of section
22(c) and Rule 22c-1. Applicants argue that the recapture does not
involve either of the evils that Rule 22c-1 was intended to eliminate
or reduce, 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 their redemption or repurchase
at a price above it, and (ii) other unfair results including
speculative trading practices. See Adoption of Rule 22c-1 under the
1940 Act, Investment Company Release No. 5519 (Oct. 16, 1968). To
effect a recapture of a Contract Enhancement, Jackson National will
redeem interests in an owner's Contract value at a price determined on
the basis of current net asset value of Separate Account V. The amount
recaptured will equal the amount of the Contract Enhancement that
Jackson National paid out of its general account assets. Although
owners will be entitled to retain any investment gain attributable to
the Contract Enhancement, the amount of such gain will be determined on
the basis of the current net asset value of Separate Account V. 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. However, to avoid any
uncertainty as to full compliance with the Act, Applicants request an
exemption from the provisions of section 22(c) and Rule 22c-1 to the
extent deemed necessary to permit them to recapture the Contract
Enhancement under the Contracts and Future Contracts.
Conclusion
Appicants submit that their request for an order is appropriate in
the public interest. Applicants state that such an order would promote
competitiveness in the variable annuity market by eliminating the need
to file redundant exemptive applications, thereby reducing
administrative expenses and maximizing the efficient use of Applicants'
resources. Applicants argue
[[Page 69051]]
that investors would not receive any benefit or additional protection
by requiring Applicants to repeatedly seek exemptive relief that would
present no issue under the Act that has not already been addressed in
their Application described herein. Applicants submit that having them
file additional applications would impair their ability effectively to
take advantage of business opportunities as they arise. Further,
Applicants state that if they were required repeatedly to seek
exemptive relief with respect to the same issues addressed in the
Application described herein, investors would not receive any benefit
or additional protection thereby.
Applicants submit, based on the grounds summarized above, that
their exemptive request meets the standards set out in section 6(c) of
the Act, namely, that the exemptions requested are 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, and that, therefore, the Commission should grant
the requested order.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-31961 Filed 12-8-99; 8:45 am]
BILLING CODE 8010-01-M