[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%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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)
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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