[Federal Register Volume 66, Number 70 (Wednesday, April 11, 2001)]
[Notices]
[Pages 18827-18830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8903]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24929; File No. 812-12322]


Jackson National Life Insurance Company of New York, et al.

April 5, 2001.

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 section 2(a)(32), and 27(i)(2)(A) and 
Rule 22c-1 thereunder.

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    Applicants: Jackson National Life Insurance Company of New York 
(``Jackson National NY''), JNLNY Separate Account I (``Separate Account 
I-NY'' or ``Separate Account''), Jackson National Life Distributors, 
Inc. (``JNLD'') (collectively, ``Applicants'').
    Summary of Application: Applicants seek an order under section 6(c) 
of the Act to the extent necessary to permit, under specified 
circumstances, the recapture of credits applied to premiums made under 
deferred variable annuity contracts that Jackson National NY will issue 
through Separate Account I-NY (the ``Contracts''), as well as other 
contracts that Jackson National NY may issue in the future through any 
other separate account established by Jackson National NY in the future 
to support certain deferred variable annuity contracts issued by 
Jackson National NY (``Future Accounts'') 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 NY, 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 
I-NY or any Future Account (``Jackson National NY Broker-Dealer(s)'').
    Filing Date: The application was filed on October 31, 2000, and 
amended and restated on March 21, 2001.
    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 by writing to the SEC's Secretary and 
serving Applicants with a copy of the request, in person or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on April 
27, 2001, 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 Patrick W. 
Garcy, Jackson National Life Insurance Company of New York, One 
Corporate Way, Lansing, Michigan 48951.

FOR FURTHER INFORMATION CONTACT: Zandra Y. Bailes, Senior Counsel or 
Lorna J. MacLeod, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Jackson National NY is a stock life insurance company organized 
under the laws of the State of New York. Jackson National NY serves as 
depositor of Separate Account I-NY. Jackson National NY may in the 
future establish one or more Future Accounts for which it will serve as 
depositor.
    2. Separate Account I-NY was established in 1997 as a segregated 
asset account of Jackson National NY. The Separate Account is 
registered with the Commission as a unit investment trust investment 
under the Act. The Separate Account will fund the variable benefits 
available under the Contracts. Units of interest in Separate Account I-
NY under the Contracts they fund will be registered under the 
Securities Act of 1933 (the ``1933 Act''). Jackson National NY may in 
the future issue Future Contracts through Separate Account I-NY or 
through Future Accounts. That portion of the assets of Separate Account 
I-NY that is equal to the reserves and other Contract liabilities with 
respect to Separate Account I-NY

[[Page 18828]]

is not chargeable with liabilities arising out of any other business of 
Jackson National NY. Any income, gains or losses, realized or 
unrealized, from assets allocated to Separate Account I-NY are, in 
accordance with Separate Account I-NY's Contracts, credited to or 
charged against Separate Account I-NY, without regard to other income, 
gains or losses of Jackson National NY.
    3. JNLD is a wholly-owned subsidiary of Jackson National Life 
Insurance Company, an affiliate of Jackson National NY, and will be the 
principal underwriter of Separate Account I-NY and distributor of the 
Contracts. JNLD is registered with the Commission as a broker-dealer 
under the Securities Exchange Act of 1934 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 NY in 
the future. A successor entity also may act as principal underwriter 
for Separate Account I-NY.
    4. 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 for income through the investment, during an 
accumulation phase. Premium payments may be made 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 NY (``Guaranteed Accounts''). The 
Guaranteed Accounts are not registered with the Commission.
    6. Separate Account I-NY currently is divided into 37 accounts 
(``Investment Divisions''), each of which will be available under the 
Separate Account I-NY Contracts. Each Investment Division will invest 
in a series of JNL Series Trust (``Trust'') or JNLNY Variable Fund LLC 
(``Fund''). The Investment Divisions and the Guaranteed Accounts will 
comprise the initial ``Investment Options'' under the Contract. Not all 
Investment Divisions may be available. Jackson National NY, at a later 
date, may determine to create additional Investment Divisions of 
Separate Account I-NY 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 Separate Account I-
NY may be combined or eliminated from time to time.
    8. The Contract provides for transfer privileges among Investment 
Divisions and the Guaranteed Accounts, dollar cost averaging, 
rebalancing, and other features. The following charges are assessed 
under the Contract: (i) annual asset-based charges (applied to the 
daily net asset value of the Investment Divisions) as follows: 1.25% 
for mortality and expense risks, plus 0.15% for administration 
expenses; (ii) a $30 contract maintenance charge per year during the 
accumulation phase; (iii) a transfer fee of $25 for each transfer in 
excess of 15 in a Contract year; (iv) a contract enhancement charge, 
during the first seven years, equal to 0.425%, on an annual basis, of 
amounts into the Investment Divisions (the charge assessed against the 
Guaranteed Accounts will result in a credited interest rate of .425% 
less than the annual credited interest rate that would apply if the 
Contract Enhancement had not been elected); and (v) under certain 
circumstances, a recapture charge applies if an owner makes a 
withdrawal, exercises the free look provision or receives income 
payments. The Trust and Fund also impose a management and 
administrative fee which varies depending upon which Series is 
selected.
    9. The Contract also imposes a withdrawal charge, which starts at 
7% in the first year, and declines 1% a year thereafter to 0% after 7 
years with a 10% free withdrawal option. The Withdrawal Charge (as a 
percentage of premium payments equals:

--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contribution Year of                                        1            2            3            4            5            6            7   thereafter
  Premium.......................................
Payment Charge (percent)........................            7            6            5            4            3            2            1            0
--------------------------------------------------------------------------------------------------------------------------------------------------------

The withdrawal charge applies to each premium payment. During the 
accumulation phase, owners can make withdrawals without the imposition 
of a withdrawal charge of: (a) Premiums which are not subject to a 
withdrawal charge (premiums in Contract for seven years or longer and 
not previously withdrawn), (b) earnings, (c) for the first withdrawal 
of premium of the year, 10% of premium paid that is still subject to a 
withdrawal charge (not yet withdrawn) less earnings.
    10. If the Contract Enhancement Option is elected, each time a 
Contract owner makes a premium payment during the first Contract year, 
Jackson National NY will add an additional amount to the Contract 
(``Contract Enhancement''). The Contract Enhancement will equal 3% of 
the premium payment. Jackson National NY will fund the Contract 
Enhancement from its general account assets. Jackson National NY will 
allocate the Contract Enhancements to the Guaranteed Accounts and/or 
Investment Divisions in the same proportion as the premium payment 
allocation. Jackson National NY will recapture, in accordance with the 
recapture charge below, Contract Enhancement 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; (ii) if a 
Contract owner makes a withdrawal; or (iii) if a Contract owner 
receives payments under an income option.

                            Recapture Charge
------------------------------------------------------------------------
                                                              Recapture
                Contribution year of premium                    charge
                                                              percentage
------------------------------------------------------------------------
1 and 2....................................................            3
3, 4 and 5.................................................            2
6 and 7....................................................            1
after year 7...............................................            0
------------------------------------------------------------------------

The recapture charge percentage will be applied to the portion of the 
corresponding premium reflected in the amount withdrawn (except as 
provided in the free withdrawal provision). The amount recaptured will 
be taken from the Investment Divisions and the Guaranteed Accounts in 
the same proportion as the withdrawal charge.
    11. Applicants seek exemption pursuant to section 6(c) from 
sections 2(a)(32) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder 
to the extent necessary to permit Jackson National

[[Page 18829]]

NY to recapture Contract Enhancements applied to the Contract and 
Future Contracts as described 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 I-NY or Future Accounts, that are issued by Jackson 
National NY and underwritten or distributed by JNLD or Jackson National 
NY Broker-Dealers. Applicants state that Future Contracts funded by 
Separate Account I-NY or any Future Accounts will be substantially 
similar in all material respect to the Contracts. Applicants assert 
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. Subsection (i) of section 27 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) 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 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 
first year premium payments is not vested until the applicable free-
look period has expired without return of the Contract. Similarly, 
Applicants state that an owner's interest in the amount of any Contract 
Enhancement is not completely vested for seven years from the receipt 
of the premium, in accordance with the recapture charge percentage. 
Until or unless the amount of any Contract Enhancement is vested, 
Applicants submit that Jackson National NY 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 NY 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).
    4. In addition, with respect to Contract Enhancement recapture upon 
the exercise of the free-look privilege, Applicants state that it would 
be 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 NY 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.
    5. Furthermore, Applicants state that the recapture of Contract 
Enhancements relating to premiums made within seven years of a 
withdrawal of corresponding premium or the receipt of income payments 
is designed to provide Jackson National NY with a measure of 
protection. Applicants state that the risk is that an owner will make 
very large premiums shortly before making withdrawals or receiving 
income payments, thereby leaving Jackson National NY less time to 
recover the cost of the Contract Enhancements applied. Again, the 
amounts recaptured were provided by Jackson National NY from its own 
general account assets as a Contract Enhancement, and any gain would 
remain as part of the Contract's value.
    6. Applicants represent that it is not administratively feasible to 
track the Contract Enhancement amount in the Separate Account after the 
Contract enhancement is applied. Accordingly, the asset based charges 
applicable to the Separate Account will be assessed against the entire 
amounts held in the Separate Account, including the Contract 
Enhancement. As a result, 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.
    7. Applicants represent that the Contract Enhancement will be 
attractive to and in the interest of investors because it will permit 
owners to put 103% of their first year premiums to work for them in the 
selected Investment Options and/or Guaranteed Accounts. 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 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 Contracts 
and any Future Contracts, without the loss of the relief from Section 
27 provided by Section 27(i).
    9. 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 to accomplish the same purposes 
contemplated by section 22(a) of the Act. 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 rice 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.
    10. Arguably, Jackson National NY'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

[[Page 18830]]

Account I-NY. Applicants contend, however, that recapture of the 
Contract Enhancement does not violate 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 NY will redeem interests in an owner's 
Contract value at a price determined on the basis of current net asset 
value of Separate Account I-NY. The amount recaptured will equal (or 
may be less, depending upon the year of the recapture) the amount of 
the Contract Enhancement that Jackson National NY paid out if 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 I-NY. 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 
Rule 22c-1 to the extent deemed necessary to permit them to recapture 
the Contract Enhancement under the Contracts and Future Contracts.
    11. Applicants 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 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, investors would not receive 
any benefit or additional protection thereby.

Conclusion

    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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-8903 Filed 4-10-01; 8:45 am]
BILLING CODE 8010-01-M