[Federal Register Volume 60, Number 44 (Tuesday, March 7, 1995)]
[Notices]
[Pages 12586-12588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5463]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20930; File No. 812-9410]


Jackson National Life Insurance Company of Michigan, et al.

February 28, 1995.
agency: Securities and Exchange Commission (``Commission'' or ``SEC'').

action: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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applicants: Jackson National Life Insurance Company of Michigan 
(``Company''), Jackson Michigan Separate Account-I (``Separate 
Account'') and Jackson Financial Services, Inc. (``Distributor'').

relevant 1940 act sections: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 26(a)(C) 
and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expense risk charge from the assets of the 
Separate Account and other separate accounts established by the Company 
in the future in connection with the issuance and sale of certain 
flexible premium variable annuity contracts (``Contracts'') and any 
contracts that are similar in all material respects to the Contracts 
(``Other Contracts'').

filing date: The application was filed on December 30, 1994. An amended 
application was filed on February 24, 1995.

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 Commission's Secretary 
and servings 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 March 27, 1995, 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 
requester's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

addresses: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, Mark J. Mackey, Esq., Routier, Mackey and Johnson, P.C., 
1700 K Street, NW., Suite 1003, Washington, DC 20006.

for further information contact: Mark C. Amorosi, Attorney, or Wendy 
Finck Friedlander, Deputy Chief, at (202) 942-0670, Office of Insurance 
Products (Division of Investment Management).

supplementary information: Following is a summary of the application; 
the complete application is available for a fee from the Commission's 
Public Reference Branch.

Applicants' Representations

    1. The Company is a stock life insurance company organized under 
the laws of the State of Michigan in September 1992. The Company is a 
wholly-owned subsidiary of Jackson National Life Insurance Company and 
an indirect wholly-owned subsidiary of Prudential Corporation plc, 
London, England. The Company is currently admitted to do business in 
Michigan.
    2. The Separate Account was established by the Company as a 
separate account under the laws of Michigan on June 14, 1993 as a 
funding medium for variable annuity contracts. The Separate Account 
meets the definition of a ``separate account'' under the federal 
securities laws and is registered under the 1940 Act as a unit 
investment trust. The application states that the Company will 
establish for each investment option offered under the Contracts a 
Separate Account subaccount (``Portfolio'') which will invest solely in 
a specific corresponding series of the JNL Series Trust or of some 
other designated investment company (the ``Funds''). JNL Series Trust 
is registered as an open-end management investment company under the 
1940 Act.
    3. The Distributor, a broker-dealer registered under the Securities 
Exchange Act of 1934 and a member of the National Association of 
Securities Dealers, Inc., will serve as the distributor and principal 
underwriter for the Contracts.
    4. The Contracts are flexible premium individual deferred variable 
annuity contracts offered in connection with retirement plans that may 
qualify for favorable federal income tax treatment (``Qualified 
Contracts'') or on a non-tax qualified basis (``Non-Qualified 
Contracts''). Interests in the Contracts are registered under the 
Securities Act of 1933. The Contracts provide for, among other things: 
(a) Certain minimum initial and subsequent premium payments; (b) 
several annuity payment options beginning on the annuity date; and (c) 
the payment of a death benefit where the annuitant dies during the 
accumulation phase, which is equal to the greater of the contract value 
or premium payments (net of withdrawals and premium taxes). Where 
permitted by state law, the Contract will also provide an enhanced 
[[Page 12587]] death benefit determined by (1) recomputing the standard 
death benefit by accumulating the total dollar amount of premiums made 
prior to the death of the annuitant, minus the sum of the total amount 
of withdrawals and premium taxes incurred, annually at 5% (4% if the 
annuitant was age 70 or older on the issue date) to the date of death, 
and (2) paying the greater of the amount so determined and the contract 
value at the seventh contract year, plus any premiums made since that 
time and before the death of the annuitant, minus the total amount of 
partial withdrawals and premium taxes incurred since the seventh 
contract year, all accumulated annually at 5% (4% if the annuitant was 
age 70 of older on the issue date) to the date of death. The amount 
determined under (2) above will equal $0 if the annuitant dies prior to 
the seventh contract year.
    5. Various fees and charges are deducted under the Contracts. An 
annual Contract Maintenance Charge of $35 will be deducted prior to the 
annuity date, and upon a full surrender on any date other than a 
contract anniversary, to reimburse the Company for contract 
administration expenses. A daily Administration Charge, equal to an 
effective annual rate of 0.15% of the net assets of each Portfolio in 
which the contract owner has invested, will be deducted prior to the 
annuity date. This charge is designed to reimburse the Company for 
administrative expenses related to the Separate Account and the 
issuance and maintenance of the Contract. Currently, the Company 
permits fifteen free transfers among the Portfolios per contract year; 
however, a $25 charge will be assessed on the sixteenth and each 
subsequent transfer within the contract year. The Company does not 
expect a profit from these charges. The Company represents that it will 
monitor its administrative expenses and the proceeds of these charges 
to ensure compliance with Rule 26a-1 under the 1940 Act.
    6. The Company will pay applicable premium taxes when due and 
reserves the right to deduct the amount of the tax either from premiums 
as they are received or deduct the tax at a later date as permitted or 
required by applicable law.
    7. No sales charge is deducted from premium payments. However, 
certain full or partial surrenders will be subject to a maximum 7% 
contingent deferred sales charge (``Withdrawal Charge''), which will be 
imposed on a declining basis during the first seven contract years 
after payment of the premium being withdrawn. The Withdrawal Charge 
will compensate the Company for expenses relating to the distribution 
and sale of the Contracts. For purposes of computing the Withdrawal 
Charge, withdrawals will be allocated first to investment income, and 
then to premiums on a first-in, first-out basis so that all withdrawals 
are allocated to premiums to which the lowest (if any) Withdrawal 
Charge applies. No Withdrawal Charge may be applied to that portion of 
the first withdrawal in the contract year equal to 10% of premiums that 
remain subject to the Withdrawal Charge, less earnings in the contract 
owner's account. The Company may also waive the Withdrawal Charge under 
other circumstances permitted under the 1940 Act.
    To the extent that the Withdrawal Charge is insufficient to cover 
all sales and distribution expenses, the Company may use any of its 
corporate assets, including potential profit which may arise from the 
mortality and expense risk charge, to make up any difference.
    8. Shares of the Fund are sold to the Separate Account at net asset 
value. The Fund pays its investment adviser a fee for managing its 
investments and business affairs. The Fund is responsible for all of 
its other expenses.
    9. A daily charge equal to an effective annual rate of 1.25% of the 
value of the net assets in the Separate Account will be deducted to 
compensate the Company for bearing certain mortality and expense risks 
under the Contracts. Of that amount, approximately 1.02% is for 
mortality risks and approximately 0.23% is for expense risks.
    10. The mortality risk arises from the Company's contractual 
obligations: (1) To make annuity payments (determined in accordance 
with the annuity tables and other provisions provided in the Contracts) 
regardless of how long any individual annuitant or all annuitants may 
live, (2) to waive the Withdrawal Charge in the event of the death of 
the annuitant, and (3) to provide both a standard and an enhanced death 
benefit prior to the annuity date. The portion of the total mortality 
risk charge attributable to the Company's assuming the first two of 
those three risks and providing a standard death benefit is 0.90%; the 
balance of 0.12% is assessed for providing the enhanced death benefit. 
Applicants represent that the mortality risk charge may not be 
increased under the Contract.
    11. The expense risk assumed by the Company is the risk that the 
Company's actual administrative costs will exceed the amount recovered 
through the administrative and policy maintenance charges. If the 
expense risk charge is insufficient to cover the actual cost of 
administering the Contracts and the Separate Account, the Company will 
bear the loss.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission to grant 
an exemption from any provision, rule or regulation of the 1940 Act to 
the extent that it 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 1940 Act. Section 
26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant part, prohibit a 
registered unit investment trust, its depositor or principal 
underwriter, from selling periodic payment plan certificates unless the 
proceeds of all payments, other than sales loads, are deposited with a 
qualified bank and held under arrangements which prohibit any payment 
to the depositor or principal underwriter except a reasonable fee, as 
the Commission may prescribe, for performing bookkeeping and other 
administrative duties normally performed by the bank itself.
    2. Applicant request exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction of the 1.25% charge from the assets of the Separate Account 
to compensate the Company for the assumption of mortality and expense 
risks. Applicants further request that such exemptive relief extend to 
contracts that are similar in all material respects to the Contracts 
which may be issued in the future by the Separate Account or any other 
separate account established by the Company. Applicants assert that the 
requested exemptions are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.
    3. The Company represents that the 1.25% mortality and expense risk 
charge is reasonable in relation to the risks assumed by the Company 
under the Contracts and within the range of industry practice for 
comparable annuity contracts. This representation is based upon the 
Company's analysis of publicly available information about comparable 
industry products, taking into consideration such factors as current 
charge levels and benefits provided, the existence of expense level 
guarantees and guaranteed annuity rates. The Company represents that it 
will maintain at its home office, a memorandum, available to the 
Commission, setting forth in detail the products analyzed in the course 
of, and [[Page 12588]] the methodology and results of, its comparative 
review.
    4. Applicants acknowledge that, if a profit is realized from the 
mortality and expense risk charge, all or a portion of such profit may 
be available to pay distribution expenses not reimbursed by the 
Withdrawal Charge. The Company represents that there is a reasonable 
likelihood that the proposed distribution financing arrangements will 
benefit the Separate Account and contract owners. The Company 
represents that the basis for conclusion is set forth in memorandum 
which will be maintained at its home office and will be available to 
the Commission upon request.
    5. Applicants assert that the terms of the future relief requested 
wit respect to any Other Contracts are consistent with the standards 
set forth in Section 6(c) of the 1940 Act. Applicants submit that, if 
the Company were to repeatedly seek exemptive relief with respect to 
the same issues addressed in this application, investors would not 
receive additional protection or benefit. Applicants assert that the 
requested relief is appropriate in the public interest because the 
relief will promote competitiveness in the variable annuity market by 
eliminating the need for the filing of redundant exemptive 
applications, thereby reducing administrative expenses and maximizing 
efficient use of resources. Applicants represent that both the delay 
and the expense of repeatedly seeking exemptive relief would impair the 
Company's ability to effectively take advantage of business 
opportunities as they arise.
    6. The Company also represents that the Separate Account or future 
separate accounts will invest only in management investment companies 
which undertake, in the event they should adopt a plan under Rule 12b-1 
of the 1940 Act to finance distribution expenses, to have a board of 
directors or trustees, a majority of whom are not ``interested 
persons'' of the Company within the meaning of Section 2(a)(19) of the 
1940 Act, formulate and approve any such plan.

Conclusion

    For the reasons set forth above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5463 Filed 3-6-95; 8:45 am]
BILLING CODE 8010-01-M