[Federal Register Volume 75, Number 93 (Friday, May 14, 2010)]
[Notices]
[Pages 27377-27381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11543]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29265 ; File No. 812-13710]
Jackson National Life Insurance Company of New York, et al.
May 10, 2010.
AGENCY: The Securities and Exchange Commission (``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), 22(c) 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
(``JNL New York''), JNLNY Separate Account I (the ``JNLNY Separate
Account''), and Jackson National Life Distributors LLC
(``Distributor,'' and collectively ``Applicants'').
Summary of Application: Applicants seek an order under Section 6(c)
of the Act to exempt certain transactions from the provisions of
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 the recapture, under
specified circumstances, of certain contract enhancements applied to
purchase payments made under the deferred variable annuity contracts
described herein that JNL New York has issued and will issue through
the JNLNY Separate Account (the ``Contracts'') as well as other
contracts that JNL New York may issue in the future through its
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 Financial Industry Regulatory Authority
(``FINRA'') member broker-dealer controlling or controlled by, or under
common control with JNL New York, 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.
DATES: Filing Date: The application was filed on October 23, 2009, and
amended on January 13, 2010, and April 22, 2010.
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
[[Page 27378]]
the Commission and serving Applicants with a copy of the request,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on June 2, 2010, 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 writer'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 Commission.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090. Applicants: c/o Jackson National Life
Insurance Company of New York, 1 Corporate Way, Lansing, Michigan
48951, Attn: Anthony L. Dowling, Esq.
FOR FURTHER INFORMATION CONTACT: Ellen J. Sazzman, Senior Counsel, at
(202) 551-6762, or Harry Eisenstein, Branch Chief, at (202) 551-6795,
Office of Insurance Products, Division of Investment Management.
SUPPLEMENTARY INFORMATION: The following is a summary of the
Application. The complete Application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. JNL New York is a stock life insurance company organized under
the laws of the state of New York in July 1995. Its legal domicile and
principal address is 2900 Westchester Avenue, Purchase, New York 10577.
JNL New York is admitted to conduct life insurance and annuity business
in Delaware, Michigan, and New York. JNL New York is ultimately a
wholly-owned subsidiary of Prudential plc (London, England).
2. The JNLNY Separate Account was established by JNL New York on
September 12, 1997, pursuant to the provisions of New York law and the
authority granted under a resolution of JNL New York's Board of
Directors. JNL New York is the depositor of the JNLNY Separate Account.
The JNLNY 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 Nos. 811-
8401). The JNLNY Separate Account will fund the variable benefits
available under the Contracts. The registration statement relating to
the offering of the Contracts was filed under the Securities Act of
1933 (the ``1933 Act'') (File Nos. 333-163323).
3. The Distributor is a wholly owned subsidiary of Jackson National
Life Insurance Company, JNL New York's parent company, and serves 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 FINRA. 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-dealers that are registered under the 1934
Act and are members of FINRA.
4. The Contracts require a minimum initial premium payment of
$5,000 or $10,000 under most circumstances depending on the contract
($2,000 for a qualified plan contract). Subsequent payments may be made
at any time during the accumulation phase but before the contract
anniversary after the owner's 85th birthday. Each subsequent payment
must be at least $500 ($50 under an automatic payment plan). Prior
approval of JNL New York 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 one fixed account (the ``Fixed
Account''). The Contracts also permit owners to accumulate contract
values on a variable basis, through allocations to one or more of the
sub-accounts, also referred to as investment divisions, of the JNLNY
Separate Account (the ``Investment Divisions,'' and collectively with
the Fixed Account, the ``Allocation Options''). Under most Contracts,
98 Investment Divisions currently are expected to be offered through
the JNLNY Separate Account but additional Investment Divisions may be
offered in the future and some could be eliminated or combined with
other Investment Divisions in the future. Similarly, Future Contracts
may offer additional or different Investment Divisions. Any changes to
the Investment Divisions offered will be effected in compliance with
the terms of the Contracts and with applicable state and federal laws.
Each Investment Division will invest in shares of a corresponding
series (``Series'') of JNL Series Trust (``Trust'') or JNL Variable
Fund LLC (``Fund'') (collectively the ``Trust and Fund''). Not all
Investment Divisions may be available under every Contract. The Trust
and Fund are open-end management investment companies registered under
the Act and their shares are registered under the 1933 Act. Jackson
National Asset Management, LLC (``JNAM'') serves as the investment
adviser for all of the Series of the Trust and Fund. JNAM has retained
sub-advisers for each Series.
6. Transfers among the Investment Divisions are permitted. The
first 15 transfers in a contract year are free; subsequent transfers
cost $25. Certain transfers to and from the Fixed Account are also
permitted during the Contracts' 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.
7. If the owner dies during the accumulation phase of the
Contracts, the beneficiary named by the owner is paid a death benefit
by JNL New York. The Contracts' base death benefit, which applies
unless an optional death benefit has been elected, is a payment to the
beneficiary of the greater of: (i) Contract value on the date JNL New
York receives proof of death and completed claim forms from the
beneficiary or (ii) the total premiums paid under that Contract minus
any prior withdrawals (including any withdrawal charges, recapture
charges or other charges or adjustments applicable to such
withdrawals).
8. The owner may also be offered certain optional endorsements (for
various fees) that can change the death benefit paid to the
beneficiary. The owner of a Contract may be offered the following two
optional death benefits that would replace the base death benefit: (i)
A Highest Anniversary Value Death Benefit which is the greatest of the
contract value on the date JNL New York receives proof of death and
completed claim forms from the beneficiary; or total net premiums since
the contract was issued; or the greatest contract value on any contract
anniversary prior to the owner's 81st birthday, adjusted for any
withdrawals subsequent to that contract anniversary (including any
applicable withdrawal charges, recapture charges, and other charges or
adjustments for such withdrawals), plus any premium paid subsequent to
that contract anniversary; and (ii) a death benefit available only in
conjunction with the purchase of a particular Guaranteed Minimum
Withdrawal Benefit (``GMWB'') marketed under the name of LifeGuard
Freedom 6 GMWB.
9. The Contracts offer fixed and variable versions of the following
four types of annuity payment or ``income payment'': Life income, joint
and
[[Page 27379]]
survivor, life annuity with at least 120 or 240 monthly payments
guaranteed to be paid (although not guaranteed as to amount if
variable), and income for a specified period of 5 to 30 years. JNL New
York may also offer other income payment options. The Contracts may
also offer various GMWB optional endorsements.
10. JNL New York will add an additional amount to the owner's
contract value (a ``Contract Enhancement'') for the initial premium
payment, and for each subsequent premium payment received prior to the
first contract anniversary following the owner's 85th birthday. Premium
payments will not be accepted on or after the first contract
anniversary following the owner's 85th birthday. If the owner is age 85
at issue, premium payments will not be accepted on or after the first
contract anniversary. All Contract Enhancements are paid from JNL New
York's general account assets. The Contract Enhancement is equal to 6%
of the premium payment.
11. JNL New York will recapture all or a portion of any Contract
Enhancements by imposing a recapture charge whenever an owner: (i)
Makes a total withdrawal within the recapture charge period (nine
Completed Years after a premium payment) or a partial withdrawal of
corresponding premiums within the recapture charge period in excess of
those permitted under the Contracts' free withdrawal provision, unless
the withdrawal is made for certain health-related emergencies specified
in the Contracts; or (ii) returns the Contract during the free-look
period.
12. The amount of the recapture charge varies, depending upon when
the charge is imposed, based on Completed Years since receipt of the
related premium, as follows:
Contract Enhancement Recapture Charge (as a percentage of premium payments)
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Completed Years Since Receipt 0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9+
of Premium.
Recapture Charge............... 6% 5.50% 4.50% 4% 3.50% 3% 2% 1% .50% 0%
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13. A ``Completed Year'' is the succeeding twelve months from the
date on which JNL New York receives a premium payment. Completed Years
specify the years from the date of receipt of the premium and do not
refer to contract years. If the premium receipt date is on the issue
date of the Contract then Completed Year 0-1 does not include the first
contract anniversary. The first contract anniversary begins Completed
Year 1-2 and each successive Completed Year begins with the contract
anniversary of the preceding contract year. If the premium receipt date
is other than the issue date or a subsequent contract anniversary,
there is no correlation of the contract anniversary date and Completed
Years. For example, if the issue date is January 15, 2010 and a premium
payment is received on February 28, 2010, then, although the first
contract anniversary is January 15, 2011, the end of Competed Year 0-1
for that premium payment would be February 27, 2011, and February 28,
2011 begins Completed Year 1-2.
14. The recapture charge percentage will be applied to the
corresponding premium reflected in the amount withdrawn that remains
subject to a recapture charge. The amount recaptured will be taken from
the Investment Divisions and the Fixed Account in the proportion their
respective values bear to the contract value. The dollar amount
recaptured will never exceed the dollar amount of the Contract
Enhancement added to the contract.
15. JNL New York does not assess the recapture charge on any
payments paid out as: Death benefits; income payments; withdrawals of
earnings; withdrawals taken under the free withdrawal provision, which
allows for free withdrawals up to 10% of remaining premium, less
earnings; or withdrawals necessary to satisfy the required minimum
distribution of the Internal Revenue Code (if the withdrawal requested
exceeds the required minimum distribution, the recapture charge will
not be waived on the required minimum distribution).
16. The contract value will reflect any gains or losses
attributable to a Contract Enhancement described above. For purposes of
determining the recapture charge and withdrawal charge, withdrawals
will be allocated first to earnings, if any (which may be withdrawn
free of any recapture charge and withdrawal charge), second to premium
on a first-in, first-out basis, so that all withdrawals are allocated
to premium to which the lowest (if any) withdrawal charges and
recapture charges apply, and third to Contract Enhancements. For all
purposes, other than for tax purposes, earnings are defined to be the
excess, if any, of the contract value over the sum of remaining
Contract Enhancements (the total Contract Enhancements, reduced by
withdrawals of Contract Enhancements) and remaining premiums (the total
premium, reduced by withdrawals that incur withdrawal charges and/or
recapture charges, and withdrawals of premiums that are no longer
subject to withdrawal charges and/or recapture charges). Contract
Enhancements and any gains or losses attributable to a Contract
Enhancement will be considered earnings under the Contract for tax
purposes.
17. The Contracts have a ``free-look'' period of twenty days after
the owner receives the Contract. Contract value, less the full amount
of any Contract Enhancement(s) is returned upon exercise of free look
rights by an owner. Therefore, 100% of the Contract Enhancement will be
recaptured under all circumstances if an owner returns the Contract
during the free-look period, but any gain or loss on investments of the
Contract Enhancement would be retained by the owner. The dollar amount
recaptured will never exceed the dollar amount of the Contract
Enhancement added to the contract. A withdrawal charge will not be
assessed upon exercise of free look rights.
18. In addition to the Contract Enhancement recapture charges, the
Contracts may have additional charges including a withdrawal charge
that applies to total withdrawals and partial withdrawals in excess of
amounts permitted to be withdrawn under the Contract's free withdrawal
provision. The withdrawal charges shown in the table below apply to the
Contracts. The amount of the withdrawal charge depends upon the when
the charge is imposed based on the Completed Years since the receipt of
the related premium, as follows:
[[Page 27380]]
Withdrawal Charge (as a percentage of premium payments)
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Completed Years Since Receipt 0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9+
of Premium.
Withdrawal Charge.............. 4.0% 3.5% 3.5% 3% 2.5% 2% 2% 2% 1% 0
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19. JNL New York does not assess the withdrawal charge on any
payments paid out as: Death benefits; income payments (the income date,
which is the date income payments commence, cannot be sooner than 13
months from the issue date); cancellation of the Contract upon exercise
of free look rights by an owner; withdrawals of earnings; withdrawals
taken under the free withdrawal provision, which allows for free
withdrawals up to 10% of remaining premium, less earnings; and
withdrawals necessary to satisfy the required minimum distribution of
the Internal Revenue Code (if the withdrawal requested exceeds the
required minimum distribution, the withdrawal charge will not be waived
on the required minimum distribution).
Applicants' Legal Analysis
1. Applicants state that 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 JNLNY Separate Account or Other Accounts that
are issued by JNL New York and underwritten or distributed by the
Distributor or Affiliated Broker-Dealers. Applicants undertake that
Future Contracts funded by the JNLNY 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. Section 27 of the Act regulates and imposes certain restrictions
on the sales of periodic payment plan certificates issued by any
registered investment company. Applicants state that 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 its 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 nine complete years following
a premium payment. Until or unless the amount of any Contract
Enhancement is vested, JNL New York retains the right and interest in
the Contract Enhancement amount, although not in the earnings
attributable to that amount. Thus, Applicants urge that when JNL New
York 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 JNLNY Separate Account's assets, i.e., a
share of the JNLNY Separate Account's assets proportionate to the
Contract owner's contract value.
4. In addition, Applicants represent 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 JNL New
York 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. Furthermore, Applicants state that the recapture
of the Contract Enhancement relating to withdrawals and to income
payments within the first nine years of a premium contribution is
designed to protect JNL New York against Contract owners not holding
the Contract for a sufficient time period. It provides JNL New York
with sufficient time to recover the cost of the Contract Enhancement,
and to avoid the financial detriment that would result from a shorter
recapture period.
5. Applicants represent that it is not administratively feasible to
track the Contract Enhancement amount in the JNLNY Separate Account
after the Contract Enhancement(s) is applied. Accordingly, the asset-
based charges applicable to the JNLNY Separate Account will be assessed
against the entire amounts held in the JNLNY Separate Account,
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.
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. Sections 26(e) and 27(i) were
added to the Act to implement the purposes of the National Securities
Markets Improvement Act of 1996 and Congressional intent. The
application of a Contract Enhancement to premium payments made under
the Contracts should not raise any questions as to compliance by JNL
New York with the provisions of Section 27(i). However, to avoid any
uncertainty as to full compliance with the Act, Applicants request an
order providing exemption from Sections 2(a)(32) and 27(i)(2)(A), to
the extent deemed necessary, to permit the recapture of the Contract
Enhancements, under the circumstances described herein and in the
Application, without the loss of relief from Section 27 provided by
Section 27(i).
7. Applicants state that Section 22(c) of the Act authorizes the
Commission to make rules and regulations applicable to registered
investment companies and to
[[Page 27381]]
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 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 such
security for redemption or of an order to purchase or sell such
security.
8. Applicants state that it is possible that someone might view JNL
New York'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 JNLNY Separate Account. 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 Section 22(c) and
Rule 22c-1 were 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, JNL New
York 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
JNLNY Separate Account. The amount recaptured will be less than or
equal to the amount of the Contract Enhancement that JNL New York 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 JNLNY
Separate Account. 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. 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 order granting
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.
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.
10. Applicants 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 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.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11543 Filed 5-13-10; 8:45 am]
BILLING CODE 8010-01-P