[Federal Register Volume 67, Number 124 (Thursday, June 27, 2002)]
[Notices]
[Pages 43360-43363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25620; File No. 812-12769]


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

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 ``Act'') granting exemptions from 
the provisions of Sections 2(a)(32) 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 of New York 
(``Jackson National''), JNLNY Separate Account--I (the ``Separate 
Account'') and Jackson National Life Distributors, Inc. 
(``Distributor,'' and collectively, ``Applicants'').

Summary of Application: Applicants seek an order under Section 6(c) of 
the Act 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 herein that Jackson National will issue through the Separate 
Account (the ``Contracts''), as well as other contracts that Jackson 
National may issue in the future through their 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 
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 distributor or principal underwriter for the Contracts or 
Future Contracts (``Affiliated Broker-Dealers''), and any successors in 
interest to the Applicants.

Filing Date: The Application was filed on January 25, 2002 and amended 
on April 26, 2002.

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, in person 
or by mails. Hearing requests should be received by the Commission by 
5:30 p.m. on July 12, 2002, 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 Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants, Jackson National 
Life Insurance Company, 1 Corporate Way, Lansing, Michigan 48951, Attn: 
Susan Rhee, Esq.; copies to Joan E. Boros, Esq., Jorden Burt LLP, 1025 
Thomas Jefferson Street, NW, Suite 400 East, Washington, DC 20007-0805.

FOR FURTHER INFORMATION CONTACT: Harry Eisentein, Senior Counsel, at 
(202) 942-0552, or William J. Kotapish,

[[Page 43361]]

Assistant Director, at (202) 942-0670, Office of Insurance Products, 
Division of Investment Management.

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 ((202) 942-8090).

Applicants' Representations

    1. Jackson National is a stock life insurance company organized 
under the laws of the state of New York in July 1995. Its legal 
domicile and principal business address is 12900 Westchester Avenue, 
Purchase, New York 10577. Jackson National is admitted to conduct life 
insurance and annuity business in the Delaware, Michigan and New York. 
Jackson National is ultimately a wholly-owned subsidiary of Prudential 
plc (London, England).
    2. The Separate Account was established by Jackson National on 
September 12, 1997, pursuant to the provisions of New York law and the 
authority granted under a resolution of Jackson National's Board of 
Directors. Jackson National is the depositor of the Separate Account. 
The 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. 811-08401). The 
Separate Account will fund the variable benefits available under the 
Contracts. The offering of the Contracts will be registered under the 
Securities Act of 1933 (the ``1933 Act'').
    3. The Distributor is a wholly-owned subsidiary of Jackson National 
and serve 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 the NASD. 
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 lawfully sold, who are 
registered representatives of broker-dealer that are registered under 
the 1934 Act and are members of the NASD.
    4. The Contracts require a minimum initial payment of $10,000 under 
most circumstances ($2,000 for a qualified plan contract). Subsequent 
payments may be made at any time during the accumulation phase. Each 
subsequent payment must be at least $500 ($50 under an automatic 
payment plan). Prior approval by 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 the Guaranteed Fixed Accounts 
(``Fixed Account'') which offers guaranteed crediting rates for a 
specified period for one year. Guaranteed periods of other durations 
may be added from time to time.
    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 Separate Account (the ``Investment 
Divisions,'' collectively with the Fixed Accounts, the ``Allocation 
Options''). 43 Investment Divisions are expected to be offered under 
the Contracts, but additional Investment Divisions may be offered in 
the future and some of those currently expected to be offered 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 are 
also permitted during the Contract's 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.
    8. If the optional Contract Enhancement endorsement is elected, 
each time an owner makes a premium payment during the first contract 
year, Jackson National will add an additional amount to the owner's 
contract value (a ``Contract Enhancement''). All Contract Enhancements 
are paid from Jackson National's general account assets. The Contract 
Enhancement is equal to two percent of the premium payment. Jackson 
National will allocate the Contract Enhancement to the Guaranteed 
Accounts and/or Investment Divisions in the same proportion as the 
premium payment allocation. The Contract Enhancement is not credited to 
any premiums received after the first contract year.
    9. There is an asset-based charge for each of the Contract 
Enhancements. The Contract Enhancement has a 0.67% charge that applies 
for three years. These charges will also be assessed against any 
amounts an owner has allocated to the Fixed Account, resulting in a 
credited interest rate of 0.67% less than the annual credited interest 
rate that would apply to the Fixed Account if the Contract Enhancement 
had not been elected. However, the interest rate will never go below 
three percent.
    10. Jackson National will recapture all or a portion of any 
Contract Enhancements, regardless of a decline value, by imposing a 
recapture charge whenever an owner; (i) makes a total withdrawal within 
the recapture charge period (three years after a first year payment) or 
a partial withdrawal of corresponding premiums within the recapture 
charge period in excess of those permitted under the Contracts' free 
withdrawal provisions, unless the withdrawal is made for certain 
health-related emergencies specified in the Contracts; (ii) elects to 
receive payments under in income option within the recapture charge 
period; or (iii) returns the Contract during the free look period.
    11. The amount of the recapture charge varies, depending upon when 
the charge is imposed, as follows:

                  Contract Enhancement Recapture Charge
            [As a percentage of first year premium payments]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Completed Years Since Receipt of Premium............    0    1    2   3+
Recapture Charge (%)................................    2  1.5  .75    0
------------------------------------------------------------------------

    12. The recapture charge percentage will be applied to the 
corresponding premium reflected in the amount withdrawn or the amount 
applied to income payments that means subject to a withdrawal charge. 
Recapture charges only apply to premiums received in the first Contract 
Year.
    13. Recapture charges will be waived upon death or exercise of a 
Nursing Home claim. Recapture charges will be waived on minimum 
required distributions. Recapture charges will be applied upon 
annuitization, even in a situation where the Withdrawal Charge is 
waive. The amount recaptured will be taken from the Investment 
Divisions and the Fixed Account in the same proportion as the 
withdrawal charge. Partial withdrawals will be deemed to remove premium 
payments on a first-in-first-out basis (the order that entails payment 
of the lowest withdrawal and recapture charges).
    14. Jackson National does not assess the recapture charge on any 
payments paid out as: death benefits; withdrawals necessary to satisfy 
the minimum distribution requirements of the Internal Revenue Code; if 
permitted by the owner's state, withdrawals of up to $250,000 from the 
Fixed Account in connection with the owner's terminal

[[Page 43362]]

illness or if the owner needs extended hospital or nursing home care as 
provided in the Contract.
    15. The contract value will reflect any gains or losses 
attributable to a Contract Enhancement described above. Contract 
Enhancements, and any gains or losses attributable to a Contract 
Enhancement, distributed under the Contract will be considered earnings 
under the Contract for tax purposes and for purposes of calculating 
free withdrawal amounts.
    16. The Contracts have a ``free look'' period of twenty days after 
the owner receives the Contract. Contract value, without the deduction 
for any sales charges, is returned upon exercise of free look rights by 
an owner unless state law required the return of premiums paid. The 
Contract Enhancement recapture charge reduces the amount returned.
    17. In addition to the Contract Enhancement charges and the 
Contract Enhancement recapture charges, the Contracts have the 
following charges: mortality and expense risk charge of 1.50% for the 
first six years and 1.30% thereafter (each 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 that charge is imposed); transfer fee of $25 for each transfer 
in excess of 15 in a contract year (for purposes of which dollar cost 
averaging and rebalancing transfer are excluded); a commutation fee 
that applies only upon withdrawals from income payments for a fixed 
period; and a withdrawal charge that applies to total withdrawals, to 
certain partial withdrawals, and on the income date (the date income 
payments commence) if the income date is within 13 months of the date 
the Contract was issued.
    18. In addition, the contracts have certain other charges for 
various optional features. These include an Earnings Protection Benefit 
charge of 0.30% (as an annual percentage of daily account value) and an 
optional death benefit charge of 0.15% (as an annual percentage of 
daily account value).
    19. The withdrawal charge for the Contracts varies, depending upon 
the contribution year of the premium withdrawn as follows:

                            Withdrawal Charge
                  [As a percentage of premium payments]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Completed Years Since Receipt of Premium............    0    1    2   3+
Withdrawal Charge (%)...............................    8    7    6    0
------------------------------------------------------------------------

    20. The withdrawal charge is waived upon withdrawals to satisfy the 
minimum distribution requirements of the Internal Revenue Code and, to 
the extent permitted by state law, the withdrawal fee is waived in 
connection with withdrawals of up of $250,000 from the Investment 
Divisions or the Guaranteed Fixed Accounts 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.

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 requested 
below with respect to the Contracts and any Future Contracts funded by 
the 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 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 fairly intended by the policy and provisions of the Act.
    2. 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 the 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 three complete years 
following a premium. 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 Separate Account's assets, i.e., a share 
of the Separate Account's assets proportionate to the Contract owner's 
contract value.
    4. In addition, Applicants state 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, Applicants claim that 
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 
or receiving income payments within the first three years of a premium 
contribution is designed to protect Jackson National against Contract 
owners not holding the Contract for a sufficient time period. According 
to Applicants, it would provide Jackson National with insufficient time 
to recover the cost of the Contract Enhancement, to its financial 
detriment.
    5. Applicants represent that it is not administratively feasible to 
track the Contract Enhancement amount in the Separate Accounts after 
the Contract Enhancement(s) is applied. Accordingly, the asset-based 
charges applicable to the Separate Accounts will be assessed against 
the entire amounts held in the Separate Accounts,

[[Page 43363]]

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. Jackson National nonetheless represents that the 
Contracts' fees and charges, in the aggregate, are reasonable in 
relation to service rendered, the expenses expected to be incurred, and 
the risks assumed by Jackson National.
    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. Applicants assert that 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 exemption from Sections 2(a)(32) and 27(i)(2)(A), to the 
extent deemed necessary, to permit the recapture of any Contract 
Enhancement under the circumstances described in the Application, 
without the loss of relief from Section 27 provided by Section 27(i).
    7. 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 an 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. 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 Separate Accounts. 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 Rule 22c-1 was 
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 Separate 
Accounts. The amount recaputr4ed 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 Separate Accounts. 
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. Applicants assert 
that, 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 exemption from the provisions of Rule 22c-1 to the extent deemed 
necessary to permit them to recapture the Contract Enhancement under 
the Contracts.
    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. 
Applicants assert that 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.
    Applicants further 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 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16209 Filed 6-26-02; 8:45 am]
BILLING CODE 8010-01-M