[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19150-19155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8081]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-29621; File No. 812-13841]
Jackson National Life Insurance Company, et al.
March 31, 2011.
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
enhancement endorsement credits applied to purchase payments made under
certain deferred variable annuity contracts.
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Applicants: Jackson National Life Insurance Company (``Jackson''),
Jackson National Separate Account--I (the ``JNL Separate Account''),
Jackson National Life Insurance Company of New York (``JNLNY'') and
collectively with Jackson, the ``Insurance Companies,'' and
individually as made appropriate by the context, an ``Insurance
Company''), JNLNY Separate Account I (the ``JNLNY Separate Account,''
collectively with the JNL Separate Account, the ``Separate Accounts,''
and individually as made appropriate by the context, a ``Separate
Account'') and Jackson National Life Distributors LLC (``Distributor,''
and collectively with the Insurance Companies and the Separate
Accounts, ``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 credits under the 6% Contract Enhancements
Endorsement (the ``6% Contract Enhancement'') when those credits have
been applied to purchase payments made (a) Under the deferred variable
annuity contracts more particularly described in this notice that
Jackson has issued through the JNL Separate Account (the ``Perspective
Contracts''); (b) under other contracts that Jackson has issued through
the JNL Separate Account (the ``JNL Contracts''); (c) under the
contracts that JNLNY has issued through the JNLNY Separate Account (the
``JNLNY Contracts''); (d) under the Perspective Contracts as they may
be subsequently updated; and (e) under other contracts that the
Insurance Companies may issue in the future with the 6% Contract
Enhancement (``Future Contracts,'' and together with the other
contracts referred to in this paragraph, the ``Contracts''), either
through their existing separate accounts or future separate accounts
(``Other Accounts''). 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, Jackson, whether existing or created in the
future, that serves as distributor or principal underwriter for the
Contracts (``Affiliated Broker-Dealers'') and any successors in
interest to the Applicants.
Filing Date: The application was filed on November 8, 2010, and amended
on March 29, 2011.
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,
personally or by mail. Hearing requests should be received by the
Commission by 5:30 p.m. on April 22, 2011, 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, 1 Corporate Way, Lansing, Michigan 48951, Attn:
Frank J. Julian, Esq.
FOR FURTHER INFORMATION CONTACT: Ellen J. Sazzman, Senior Counsel, at
[[Page 19151]]
(202) 551-6762, or Harry Eisenstein, Senior Special Counsel, 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. Jackson is a stock life insurance company organized under the
laws of the state of Michigan. Jackson is admitted to conduct life
insurance and annuity business in the District of Columbia and all
states except New York. Jackson is ultimately a wholly owned subsidiary
of Prudential plc (London, England).
2. JNLNY is a stock life insurance company organized under the laws
of the state of New York. JNLNY is admitted to conduct life insurance
and annuity business in Delaware, Michigan, and New York. JNLNY is
ultimately a wholly-owned subsidiary of Prudential plc (London,
England).
3. The JNL Separate Account was established by Jackson pursuant to
the provisions of Michigan law and the authority granted under a
resolution of Jackson's Board of Directors. The JNLNY Separate Account
was established by JNLNY pursuant to the provisions of New York law and
the authority granted under a resolution of JNLNY's Board of Directors.
Jackson and JNLNY are the depositors of their respective Separate
Accounts. Each of the Separate Accounts meets the definition of a
``separate account'' under the federal securities laws and each is
registered with the Commission as a unit investment trust under the Act
(File Nos. 811-8664 and 811-8401, respectively). JNL Separate Account
and JNLNY Separate Account will fund, respectively, the variable
benefits available under the JNL Contracts and the JNLNY Contracts.
4. The assets of each Separate Account legally belong to the
Insurance Company of which it is a segregated asset account and the
obligations under the Contracts are obligations of that Insurance
Company. However the Contract assets in the Separate Accounts are not
chargeable with liabilities arising out of any other business the
Insurance Companies may conduct. All of the income, gains, and losses
resulting from these assets are credited to or charged against the
Contracts and not against any other contracts the Insurance Companies
may issue. The registration statements relating to the offering of the
Perspective Contracts were filed under the Securities Act of 1933 (the
``1933 Act'') (File No. 333-70472 (``Perspective II Contracts'') and
File No. 333-119656 (``Perspective L Contracts'')).
5. The Distributor is a wholly owned subsidiary of Jackson 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.
6. The Perspective Contracts (Perspective II Contracts and
Perspective L Contracts) are the only Contracts that will rely
immediately on the relief requested. However, Applicants represent that
the JNL Contracts, the JNLNY Contracts, the Perspective Contracts as
they may be subsequently updated, and the Future Contracts (the
``Contracts'') are or will be substantially similar in all material
respects to the Perspective Contracts.
7. The Perspective 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. Each subsequent
payment must be at least $500 ($50 under an automatic payment plan).
Prior approval of the Insurance Company is required for aggregate
premium payments of over $1,000,000.
8. The Perspective Contracts permit owners to accumulate contract
values on a fixed basis through allocations to one of six fixed
accounts (the ``Fixed Accounts''). Fixed Account allocation and
transfer restrictions initially will be imposed in connection with the
subject 6% Contract Enhancement during the first seven contract years.
In addition, if the optional Jackson Select Guaranteed Minimum
Withdrawal Benefit (``GMWB'') or the optional Jackson Select with Joint
Option Guaranteed Minimum Withdrawal Benefit (``GMWB'') is elected in
the JNL Contracts, automatic transfers of an owner's contract value may
be allocated to a fixed account designated for these guaranteed minimum
withdrawal benefits (``GMWB Fixed Account'').
9. The Perspective 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
Separate Accounts (the ``Investment Divisions,'' collectively with the
Fixed Account and the GMWB Fixed Account, the ``Allocation Options'').
Under the Perspective Contracts, ninety-nine Investment Divisions
currently are expected to be offered 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 Perspective Contracts may offer additional or different
Investment Divisions. 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'').
The Trust and Fund are open-end management investment companies
registered under the Act and their shares are registered under the 1933
Act.
10. Transfers among the Investment Divisions are permitted. Certain
transfers to, from and among the Fixed Account Options are also
permitted during the Perspective Contracts' accumulation phase, but are
subject to certain adjustments and limitations.
11. If the owner dies during the accumulation phase of the
Perspective Contracts, the beneficiary named by the owner is paid a
death benefit by the Insurance Company. The Perspective 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 the Insurance Company receives proof of
death and completed claim forms from the beneficiary or (ii) the total
premiums paid under the Perspective Contract minus any prior
withdrawals (including any withdrawal charges, recapture charges or
other charges or adjustments applicable to such withdrawals).
12. The owner may be offered optional death benefit endorsements
that can change the death benefit paid to the beneficiary. The optional
death benefit endorsements, in general, provide that withdrawals
(including any withdrawal charges, recapture charges and other charges
or adjustments to such withdrawal) will reduce the benefit base that
determines the amount of the death benefit. The Perspective Contracts
may also offer various GMWB optional endorsements.
13. The Perspective Contracts offer fixed and variable versions of
the
[[Page 19152]]
following four types of annuity payment or ``income payment'': life
income, joint and 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. The Insurance Companies may also offer other income payment
options.
14. Perspective Contracts currently offer contract enhancement
endorsements (``Contract Enhancement(s)''), all of which are optional
although Future Contracts may have Contract Enhancements which are not
optional. The Contract Enhancements provide for Jackson to add from its
general account assets an additional amount to the owner's contract
value upon receipt of the initial premium payment, and for each
subsequent premium payment received within the first seven contract
years (five for the 2% Contract Enhancement). The Contract Enhancements
that may be elected at issue currently vary in amount between 2% and
5%. The Contract Enhancement percentages that are credited in each case
also vary, depending upon the applicable percentage and contract year
in which the premium payment is received. The Contract Enhancements
offered under the Perspective Contracts may vary depending upon the
design of the contract, the date of issue of a contract or the
distribution channel. The 6% Contract Enhancement would not be
available if the 20% Additional Free Withdrawal endorsement is elected
and vice versa. Also if a Contract Enhancement is elected, allocations
and transfers to the Fixed Account Options currently will be
restricted, as fully described in the prospectus. The restrictions
apply during the first seven contract years (five contract years for
the 2% Contract Enhancement). These restrictions will also apply to the
6% Contract Enhancement.
15. Following is the table for the existing 5% Contract Enhancement
that shows the variation in the percentages based upon the year of
receipt of the applicable premium payment. This table shows how
existing 5% Contract Enhancements are structured and how the 6%
Contract Enhancement will be structured.
5% Contract Enhancement
[In percent]
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Contract year premium is received
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0-1 1-2 2-3 3-4 4-5 5-6 6-7 7+
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Contract Enhancement Percentage of the Premium Payment.......... 5.00 4.50 3.75 3.00 2.25 1.75 1.00 0
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16. Applicants are proposing to add a 6% Contract Enhancement to
the Perspective Contracts that is modeled on the above 5% structure, as
follows:
6% Contract Enhancement
[In percent]
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Contract year premium is received
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0-1 1-2 2-3 3-4 4-5 5-6 6-7 7+
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Contract Enhancement Percentage of the Premium Payment.......... 6.00 5.50 4.75 4.00 3.25 2.50 1.25 0
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17. Jackson will allocate the 6% Contract Enhancement to the Fixed
Accounts and/or Investment Divisions in the same proportion as the
premium payment allocation. The 6% Contract Enhancement is available
only to owners 87 years old and younger. There is an asset-based charge
for the 6% Contract Enhancement. The asset-based charges for the 6%
Contract Enhancement applies only for the first seven contract years,
as opposed to seven years from the date of the premium payment, and is
0.832%, based on the average daily net asset value of the allocations
to the Investment Divisions. A charge equal to the asset-based charge
will also be assessed against any amounts contract owners have
allocated to the Fixed Accounts, through a reduction in the annual
credited rate of interest resulting in a lower annual credited interest
rate that would apply to the Fixed Account if the Contract Enhancement
had not been elected.
18. Jackson will recapture all or a declining portion of the 6%
Contract Enhancement by imposing a recapture charge whenever an owner:
(i) Makes a total withdrawal within the recapture charge period up to
seven years after a premium payment, or a partial withdrawal of
corresponding premiums within the recapture charge period in excess of
those permitted under the Perspective Contracts' free withdrawal
provisions, unless the withdrawal is made for certain health-related
emergencies specified in the Perspective Contracts; (ii) elects to
receive payments under an income payment option within the recapture
charge period; or (iii) returns the Perspective Contract during the
free-look period.
19. The amount of the 6% Contract Enhancement recapture charge
varies depending on the corresponding declining amount of the Contract
Enhancement based on the contract year when the premium payment being
withdrawn was received and when the charge is imposed based on the
Completed Years since the receipt of the related premium, as follows:
[[Page 19153]]
6% Contract Enhancement Recapture Charge
[In percent]
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Contract year premium is received
Completed years since receipt of premium -------------------------------------------------------------------------------------------------------
0-1 1-2 2-3 3-4 4-5 5-6 6-7 7+
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0-1............................................. 5.00 4.75 4.00 3.75 2.50 2.00 0.75 0.00
1-2............................................. 4.75 4.25 3.60 3.00 2.25 1.25 0.00 0.00
2-3............................................. 4.00 3.75 3.00 2.25 1.25 0.00 0.00 0.00
3-4............................................. 3.75 3.00 2.25 1.25 0.00 0.00 0.00 0.00
4-5............................................. 3.00 2.00 1.25 0.00 0.00 0.00 0.00 0.00
5-6............................................. 2.25 1.25 0.00 0.00 0.00 0.00 0.00 0.00
6-7............................................. 1.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00
7+.............................................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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20. A ``Completed Year'' is the succeeding twelve months from the
date on which the Insurance Companies receive a premium payment.
Completed Years specifies the years from the date of receipt of the
premium and does 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 and ends the day before the next contract anniversary. 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 Completed Year 0-1 for that premium payment would be February
27, 2011, and February 28, 2011 begins Completed Year 1-2. The first
contract year (contract year 0-1) starts on the issue date and extends
to, but does not include, the first contract anniversary. Subsequent
contract years start on an anniversary date and extend to, but do not
include, the next anniversary date.
21. The recapture charge percentage will be applied to the
corresponding premium reflected in the amount withdrawn or the amount
applied to income payments that remain subject to a recapture charge.
Earnings are withdrawn first without charge and the oldest purchase
payments are withdrawn first. 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 6% Contract
Enhancement added to the Perspective Contract. Recapture charges will
be applied upon electing to commence income payments, even in a
situation where the withdrawal charge is waived.
22. Jackson does not assess the recapture charge on any payments
paid out as: Death benefits; withdrawals of earnings; withdrawals taken
under the free withdrawal provision, which allows for free withdrawals
(where a withdrawal is taken that exceeds the free withdrawal amount,
the recapture charge is imposed only on the excess amount above the
free withdrawal amount); 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); if
permitted by the owner's state, withdrawals of up to $250,000 from the
JNL Separate Account, the Fixed Account or the GMWB Fixed Account in
connection with the owner's terminal illness or if the owner needs
extended hospital or nursing home care as provided in the Perspective
Contract; or if permitted by the owner's state, withdrawals of up to
25% (12.5% for each of two joint owners) of contract value from the JNL
Separate Account, the Fixed Account or the GMWB Fixed Account in
connection with certain serious medical conditions specified in the
Perspective Contract.
23. The contract value will reflect any gains or losses
attributable to the 6% Contract Enhancement described above. The 6%
Contract Enhancement and any gains or losses attributable to the 6%
Contract Enhancement will be considered earnings under the Perspective
Contracts for tax purposes and for purposes of calculating the free
withdrawal amounts and the Earnings Protection Benefit.
24. The Perspective Contracts have a ``free-look'' period of ten
days after the owner receives the Perspective Contract (or any longer
period required by state law). Contract value (or premiums paid, as may
be required by state law), less the full amount of any Contract
Enhancement(s) is returned upon exercise of free look rights by an
owner. Therefore, 100% of the 6% Contract Enhancement will be
recaptured under all circumstances if an owner returns the Perspective
Contract during the free-look period, but any gain or loss on
investments of the 6% Contract Enhancement would be retained by the
owner. The dollar amount recaptured will never exceed the dollar amount
of the 6% Contract Enhancement added to the Perspective Contract. A
withdrawal charge will not be assessed upon exercise of free look
rights.
25. In addition to the 6% Contract Enhancement charge and 6%
Contract Enhancement recapture charge, the Perspective Contracts may
have a mortality and expense risk charge, an administration charge, a
contract maintenance charge, a charge for the Earnings Protection
Benefit, an optional GMWB charge, a fee for the five-year withdrawal
charge period, an optional death benefit charge, a transfer fee for
transfers in excess of 15 in a contract year, a commutation fee that
applies only upon withdrawals from income payments for a fixed period,
and a withdrawal charge that applies to total withdrawals, partial
withdrawals in excess of amounts permitted to be withdrawn under the
Perspective Contract's free withdrawal provision and on the income date
(the date income payments commence) if the income date is within a year
of the date the Perspective Contract was issued.
26. The withdrawal charges shown in the table below apply to
Perspective II
[[Page 19154]]
Contracts with and without the five-year withdrawal charge option and
the Perspective L Contracts. The amount of the withdrawal charge
depends upon when the charge is imposed based on the Completed Years
since the receipt of the related premium, as follows:
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Withdrawal Charge (as a percentage of premium payments).
Completed Years Since Receipt of Premium............ 0-1 1-2 2-3 3-4 4-5 5-6 6-7 7+
Withdrawal Charge (Base Withdrawal Charge Schedule for 8.5% 7.5% 6.5% 5.5% 5% 4% 2% 0%
Offerings Under File No. 333-70472) (Perspective II)...
Withdrawal Charge if Five-Year Period is elected 8% 7% 6% 4% 2% 0% 0% 0%
(Optional Five-Year Withdrawal Charge Schedule for
Offerings Under File No. 333-70472) (Perspective II)...
Withdrawal Charge (Base Withdrawal Charge Schedule for 8% 7.5% 6.5% 5.5% 0% 0% 0% 0%
Offerings Under File No. 333-119656) (Perspective L
Series)................................................
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27. Jackson does not assess the withdrawal charge on any payments
paid out as: Death benefits; election to begin income payments after
the first contract year under JNL Contracts; 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 (where a withdrawal is taken that exceeds the free withdrawal
amount, the withdrawal charge is imposed only on the excess amount
above the free withdrawal amount); 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); if permitted by the owner's state, withdrawals of up to
$250,000 from the Investment Divisions, Fixed Account or GMWB Fixed
Account available under the Perspective 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 (this withdrawal
charge waiver is not available under JNLNY Contracts); and if permitted
by the owner's state, withdrawals of up to 25% (12.5% each for two
joint owners) of contract value from the Investment Divisions, Fixed
Account or GMWB Fixed Account available under the Perspective Contracts
in connection with certain serious medical conditions specified in the
Contract.
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 Separate Accounts or Other Accounts that are
issued by the Insurance Companies and underwritten or distributed by
the Distributor or Affiliated Broker-Dealers. Applicants undertake that
the Contracts will be substantially similar in all material respects to
the Perspective Contracts described in the Application. 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 state that Section 27 of the Act regulates and
imposes certain restrictions on the sales of periodic payment plan
certificates issued by any registered investment company. 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 6% 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 6%
Contract Enhancement allocated to his or her contract value upon the
Insurance Companies' receipt of a premium payment is not fully vested
until seven complete years following a premium payment. Until or unless
the amount of any 6% Contract Enhancement is vested, the Insurance
Companies retain the right and interest in the 6% Contract Enhancement
amount, although not in the earnings attributable to that amount.
Applicants urge that when one of the Insurance Companies recaptures the
6% 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 represent that it would be particularly
unfair to allow a Contract owner exercising the free-look privilege to
retain the 6% Contract Enhancement amount under a Contract that has
been returned for a refund after a period of only a few days. If the
Insurance Companies 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 6% Contract Enhancement relating to
withdrawals and to income payments within the first seven contract
years is designed to protect the Insurance Companies against Contract
owners not holding the Contract for a sufficient time period. This
recapture of the Contract Enhancement within the first seven contract
years provides the Insurance Companies 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
[[Page 19155]]
Separate Accounts after the 6% Contract Enhancement is applied.
Accordingly, the asset-based charges applicable to the Separate
Accounts will be assessed against the entire amounts held in the
Separate Accounts, including any 6% 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 6% Contract Enhancement to premium payments made under
the Contracts should not raise any questions as to compliance by the
Insurance Companies with the provisions of Section 27(i). However, to
avoid any uncertainty as to full compliance with the Act, Applicants
request an order granting an exemption from Sections 2(a)(32) and
27(i)(2)(A), to the extent deemed necessary, to permit the recapture of
the 6% Contract Enhancement under the circumstances described 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 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 the
Insurance Companies' recapture of the 6% Contract Enhancement 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 6% Contract
Enhancement does not violate Rule 22c-1. The recapture of some or all
of the 6% 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 6% Contract Enhancement,
the Insurance Companies 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 recaptured will be
less than or equal to the amount of the Contract Enhancement that the
Insurance Companies paid out of their general account assets. Although
Contract owners will be entitled to retain any investment gains
attributable to the 6% Contract Enhancement and to bear any investment
losses attributable to the 6% 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 6% Contract
Enhancement. Because neither of the harms that Rule 22c-1 was meant to
address is found in the recapture of the Contract Enhancement,
Applicants assert that Rule 22c-1 should not apply to the 6% 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 also 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.
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.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8081 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P