Document ID: SEC-2011-0445-0001
Agency: sec
Document Type: Notice
Title: Jackson National Life Insurance Company, et al.
Posted Date: 2011-04-06T04:00Z

[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19150-19155]
From the Federal Register Online via the Government Printing 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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Contract year premium is received
                                                                 ---------------------------------------------------------------------------------------
                                                                     0-1        1-2        2-3        3-4        4-5        5-6        6-7         7+
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contract Enhancement Percentage of the Premium Payment..........      5.00       4.50       3.75       3.00       2.25       1.75       1.00          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Contract year premium is received
                                                                 ---------------------------------------------------------------------------------------
                                                                     0-1        1-2        2-3        3-4        4-5        5-6        6-7         7+
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contract Enhancement Percentage of the Premium Payment..........      6.00       5.50       4.75       4.00       3.25       2.50       1.25          0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     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+
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
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)................................................
----------------------------------------------------------------------------------------------------------------

    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