[Federal Register Volume 64, Number 208 (Thursday, October 28, 1999)]
[Notices]
[Pages 58108-58111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28197]
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SECURITIES AND EXCHANGE COMMISSION
[Rel No. IC-24106; File No: 812-11514]
JNL Variable Fun LLC; Notice of Application
October 21, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under section (c) of the
Investment Company Act of 1940 (``1940 Act'' or ``Act'').
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SUMMARY OF APPLICATION: Applicant seeks an order under Section 6(c) of
the 1940 Act exempting Applicant and its series and any other open-end
investment company or series thereof advised or managed by Jackson
National Life Insurance Company (``JNL''), Jackson National Financial
Services, LLC, or their affiliates, or any entities controlled by or
under common control with JNL, and that follows an investment strategy
that is the same as the JNL/First Trust Dow Target 5 Series (``DJIA 5
Series''), the NJL/First Trust Dow Target 10 Series (``DJIA 10
Series''), the JNL/First Trust Global Target 15 Series (``Target 15
Series''), or the JNL/First Trust S&P Target 10 Series (``S&P Target 10
Series'') (``Future Companies''), from the provisions of section
12(d)(3) of the 1940 Act to the extent necessary to permit them to
establish and maintain series which may invest up to 10.5% of their
total assets (the DJIA 10 Series) or up to 20.5% of their total assets
(the DJIA 5 Series) or up to 7\1/6\% of their total assets (the Target
15 Series) or up to 10.5% of their total assets (the S&P Target 10
Series), in securities of issuers that derive more than (15%) of their
gross revenues from securities related activities.
APPLICANT: JNL Variable Fund LLC.
FILING DATE: The application was filed on February 12, 1999, and
amended on April 28, 1999, and September 3, 1999.
HEARING OR NOTIFICATION OF HEARINGS: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing on the application by writing to the
Secretary of the Commission and serving Applicant with a copy of the
request personally or by mail. Hearing requests must be received by the
Commission by 5:30 p.m. on November 15, 1999, and must be accompanied
by proof of service on the Applicant in the form of an affidavit or,
for lawyer, a certificate of service. Hearing requests should state the
nature of the interest, the reason for the request, and the issues
contested. Persons may request notification of hearing by writing to
the Secretary of the SEC.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609; Applicant, c/o Amy D. Eisenbeis, Esq., Jackson National Life
Insurance Company 5901 Executive Drive, Lancing, Michigan 48911-5389.
FOR FURTHER INFORMATION CONTACT: Joyce Merrick Pickholz, Senior
Counsel, or Kevin M. Kirchoff, Branch Chief, Office of Insurance
Products, Division of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application is available for a fee from the
SEC's Public Reference Branch 450 Fifth Street, NW, Washington, D.C.
20549-0102 [tel (202) 942-8090].
Applicant's Representations
1. JNL is a stock life insurance company organized under the laws
of the State of Michigan. JNL is licensed to transact life insurance
and annuity business in the District of Columbia and all states except
New York. JNL's ultimate parent is Prudential Corporation plc, a
British financial services group.
2. Applicant is a Delaware limited liability company registered
with the Commission as an open-end investment company. Applicant's 12
series, including the DJIA 5 Series, the DJIA 10 Series, the Target 15
Series and the S&P Target 10 Series (the DJIA 5 Series and the DJIA 10
Series, the ``DJIA Series'' together with the Target 15 Series and S&P
Target 10 Series, ``Series''), serve as underlying investment vehicles
for variable annuity contracts offered by JNL through Jackson National
Separate Account I (``JNL Account I''), a registered unit investment
trust.
3. Jackson National Financial Services, LLC (the ``Manager''), a
wholly owned subsidiary of JNL, serves as applicant's investment
adviser and in such capacity has responsibility for the overall
management of the investment strategies and policies of Applicant and
its series. The Manager has retained First Trust Advisers L.P. (``Sub-
adviser'') as sub-adviser for each of Applicant's series.
4. The DJIA 5 Series will invest approximately twenty percent (20%)
of its total assets in the common stock of each of the five companies
with the lowest per share stock price of the ten companies in the Dow
Jones Industrial Average (the ``DJIA'') that have the highest dividend
yield as of the close of
[[Page 58109]]
business on or about the last business day prior to the initial
investment date and annually, on the anniversary of said initial
investment date, thereafter (each a ``Stock Selection Date'').
5. The DJIA 10 Series will invest approximately ten percent (10%)
of its total assets in the common stock of each of the ten companies in
the Dow Jones Industrial Average (``DJIA'') with the highest dividend
yield as of each Stock Selection Date.
6. The Target 15 Series will invest approximately six and two-
thirds percent (6\2/3\%) of its total assets in the common stock of
each of fifteen companies which are components of the DJIA, the
Financial Times Industrial Ordinary Share Index (``FT Index'') and the
Hang Seng Index. Such companies will have the five lowest per share
stock prices of the ten companies in each respective index which have
the highest dividend yield in such respective index at the close of
business on or about the last business day prior to each applicable
Stock Selection Date.
7. The S&P Target 10 Series will invest approximately ten percent
(10%) of its total assets in the common stock of each of the ten
companies with the greatest one year appreciation of the one hundred
and twenty-five companies in the S&P 500 Index that have the lowest
price to sales ratio as of the close of business on or about the last
business day prior to each Stock Selection Date. Such one hundred and
twenty-five companies will be selected from two hundred and fifty
companies that have the largest market capitalization in the S&P 500
Index as of the close of business on or about the last business day
prior to each applicable Stock Selection Date.
8. The DJIA is comprised of thirty stocks chosen by the editors of
The Wall Street Journal. The DJIA is the property of the Dow Jones &
Company, Inc., which is not affiliated with JNL, JNL Account I or
Applicant and does not participate in any way in the creation of any
Series or the selection of their stocks.
9. The FT Index is comprised of thirty stocks chosen by the editors
of The Financial Times as representative of the British industry and
commerce. The FT Index is the property of The Financial Times and is
not affiliated with JNL, JNL Account-1 or Applicant and does not
participate in any way in the creation of any Series or the selection
of their stocks.
10. The Hang Seng Index consists of thirty-three of the three
hundred fifty-eight stocks and represents approximately 70% of the
total market capitalization of the stocks listed on the Hong Kong Stock
Exchange. The Hang Seng Index is the property of HSI Services Limited
and is not affiliated with JNL, JNL Account-1 or Applicant and does not
participate in any way in the creation of any Series or the selection
of their stocks.
11. The S&P 500 Index consists of 500 stocks chosen for market
size, liquidity and industry group representation. It is a market-value
weighted index with each stock's weight in the index proportionate to
its market value. the S&P 500 Index is the property of The McGraw-Hill
Companies, Inc. which is not affiliated with JNL, JNL Account I or the
Applicant and does not participate in any way in the creation of any
Series or the selection of their stocks.
12. The objective of each Series is to provide an above-average
total return through a combination of dividend income and capital
appreciation. On each Stock Selection Date, each Series will allocate
or reallocate its investments so that its assets are invested, in
substantially equal amounts, in the common stock of the companies
meeting each Series respective investment criteria (as held in a
Series, such common stock is referred to as the ``Common Shares''). A
percentage relationship among the Common Shares held in each Series
will be established for each Series as of the Stock Selection Date.
When funds are deposited into or withdrawn from a Series during the
year, Common Shares will be purchased or sold for said Series, as
appropriate, to duplicate, as nearly as practicable, the percentage
relationship of the number of Common Shares established on the
immediately preceding Stock Selection Date for said Series. Applicant
states that the percentage relationship among the number of Common
Shares in each Series therefore should remain stable until the next
Stock Selection Date.
13. Section 817(h) of the Internal Revenue Code of 1986, as amended
(``Code''), provides that in order for a variable contract which
allocates funds to a Series to qualify as an annuity contract under the
Code, the investments underlying the variable contracts must be
adequately diversified in accordance with regulations issued by the
United States Department of the Treasury (``Treasury''). To be
adequately diversified, each Series must have (a) no more than 55% of
the value of its total assets represented by any one investment; (b) no
more than 70% of the value of its total assets represented by any two
investments; (c) no more than 80% of the value of its total assets
represented by any three investments; and (d) no more than 90% of the
value of its total assets represented by any four investments (the
``Section 817(h) diversification requirements'').
14. The Series intend to comply with the Section 817(h)
diversification requirements. The Manager has entered into an agreement
with the Sub-adviser that requires the Series to be operated in
compliance with the Treasury regulations including the Section 817(h)
diversification requirements. Therefore, the Sub-adviser may depart
from a Series' applicable investment strategy, if necessary, in order
to meet the Section 817(h) diversification requirements.
15. Applicant represents that, except in order to meet the Section
817(h) diversification requirements, the Common Shares purchased for
each Series will be chosen solely according to the formula described
above, and will not be based on the research opinions or buy or sell
recommendations of the Sub-adviser. During each year, the Sub-adviser
will invest additional amounts received from JNL Account I in
additional Common Shares or arrange sales of Common Shares to meet
redemption or transfer requests, so that the proportion relationship
among the number of shares of each stock in the Series established on
the immediately preceding Stock Selection Date is maintained, to the
extent practicable. The Sub-adviser has no discretion as to which
Common Shares are purchased. However, the Sub-advisor will have limited
discretion with respect to the short-term investment of any cash that
may exist in a Series following: (a) the purchase or sale of the
appropriate portion of Common Shares based on the formulas noted
herein, to the extent that all of the cash can not be used to purchase
such securities or more securities need to be sold than that necessary
to meet redemption needs, due to round-lot purchase and sale
requirements; or (b) a default by an issuer of Common Shares in the
payment of its outstanding obligations, a decrease in the price of the
security or other credit factors such that in the opinion of the Sub-
advisor the retention of the applicable Common Share would be
detrimental to the applicable Series.
16. Securities purchased for each of the Series may include
securities of issuers in the DJIA, the FT Index, the Hang Seng Index or
the S&P 500 Index that derived more than fifteen percent of their gross
revenues in their most fiscal year from securities related activities.
Applicant's Legal Analysis
1. Section 12(d)(3) of the 1940 Act, with limited exceptions,
prohibits an investment company from acquiring any security issued by
any person who is a
[[Page 58110]]
broker, dealer, underwriter or investment adviser. Rule 12d3-1 under
the 1940 Act exempts purchases by an investment company of securities
of an issuer (except its own investment adviser, promoter or principal
underwriter or their affiliates) that derived more than fifteen percent
of its gross revenues in its most recent fiscal year from securities
related activities, provided that, among other things, immediately
after such acquisition, the acquiring company has invested not more
than five percent of the value of its total assets in securities of the
issuer.
2. Section 6(c) of the 1940 Act provides that the Commission may
exempt any person, transaction or class of transactions from any
provisions of the 1940 Act or any rule thereunder, if and to the extent
that the 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 1940 Act.
3. Applicant requests that the Commission exempt the Applicant from
the provisions of Section 12(d)(3) in order to permit the Series to
acquire securities of an issuer that derives more than 15% of its gross
revenues from securities related activities, provided that; (a) those
securities are included in the DJIA, the FT Index, the Hang Seng Index
or the S&P 500 Index as of the applicable Stock Selection Date; (b)
with respect to the DJIA 5 Series, the securities represent one of the
five companies with the lowest per share stock price of the ten
companies in the DJIA that have the highest dividend yield as of Stock
Selection Date; (c) with respect to the DJIA 10 Series, the securities
represent one of the ten companies with the lowest per share stock
price of the ten companies in the DJIA that have the highest dividend
yield as of each Stock Selection Date; (d) with respect to the Target
15 Series, the securities represent the fifteen companies which reflect
the five lowest per share stock prices of the ten companies in each of
the DJIA, the FT Index and the Hang Seng Index and which have the
highest dividend yield in such respective index as of each Stock
Selection Date; (e) with respect to the S&P Target 10 Series, the
securities represent the ten companies with the greatest one year price
appreciation of the one hundred and twenty-five companies in the S&P
500 Index that have the lowest price to sales ratio as of each Stock
Selection Date. The one hundred and twenty-five companies will be
selected from two hundred and fifty companies that have the largest
market capitalization in the S&P Index as of each Stock Selection Date;
and (f) as of the first business day after each Stock Selection Date,
with respect to the DJIA 5 Series, the value of the Common Shares of
each securities related issuer represents approximately 20%, but not
more than 20.5% of the value of the DJIA 5 Series total assets, with
respect to the DJIA 10 Series, the value of the Common Shares of each
securities related issuer represents approximately 10%, but not more
than 10.5% of the value of the DJIA 10 Series' total assets, with
respect to the Target 15 Series, the value of the Common Shares of each
securities related issuer represents approximately 6\2/3\%, but not
more than 7 \1/16\% of the value of the Target 15 Series total assets,
and with respect to the S&P Target 10 Series, the value of the Common
Shares of each securities related issuer represents approximately 10%,
but not more than 10.5% of the value of the S&P Target 10 Series total
assets. The 20%, 5%, 10.5% and 7\1/16\% respective standards will be
based on the prices of the Common Shares as of the first business day
after the applicable Stock Selection Date.
4. Applicant and each Series undertake to comply with all of the
requirements of Rule 12d3-1, except the condition prohibiting an
investment company from investing more than five percent of the value
of its total assets in securities of a securities related issuer.
5. Applicant asserts that Section 12(d)(3) was intended: (a) to
prevent investment companies from exposing their assets to the
entrepreneurial risk of securities related business; (b) to prevent
potential conflicts of interest; (c) to eliminate certain reciprocal
practices between investment companies and securities related
businesses; and (d) to ensure that investment companies maintain
adequate liquidity in their portfolios.
6. A potential conflict could occur if an investment company
purchased securities or other interests in a broker-dealer to reward
that broker-dealer for selling fund shares, rather than solely on
investment merit. Applicant maintains that this concern does not arise
in this situation because the Sub-adviser does not have discretion in
choosing the Common Shares or the amount purchased. The stock must
first be included in the DJIA, the FT Index, the Hang Seng Index, or
the S&P 500 Index, as applicable, (none of which are affiliated with
the Applicant, the Manager or the Sub-adviser). In addition, the
securities must also qualify based on applicable arithmetic formula for
each Series, as of the applicable Stock Selection Date.
7. Applicant states that prior Section 12(d)(3) relief has been
granted to applicants which were unit investment trusts with no
discretion to choose the portfolio securities or the amount purchased,
but with discretion to sell portfolio securities to the extent
necessary to meet redemptions. Additionally, relief has also been
granted to an applicant which was a managed investment company issuing
variable annuities which resulted in continuing new premiums that
needed to be invested on a continual basis, and where such continuing
investments were made based on the ratios of the number of shares
established at the beginning of each year, using an investment strategy
similar to that proposed by the Applicant, and not based on the
advisers discretion.
8. The Sub-adviser is permitted to deviate from the applicable
formula for the respective Series where circumstances are such that the
investment of the particular Series would fail to meet the Section
817(h) diversification requirements and would thus cause the annuity
contracts to fail to qualify as an annuity contract under the Code.
Applicant maintains that, in such a situation, the Sub-adviser must be
permitted to deviate from the investment strategy of the applicable
Series, but only in order to meet the Section 817(h) diversification
requirements and then only to the extent necessary to do so.
Additionally, the Sub-adviser has limited discretion with respect to
the short-term investment of any cash that may exist in a Series due to
round-lot purchase and sale requirements and certain defaulted security
situations. Applicant states that this limited discretion does not
raise the concerns that Section 12(d)(3) is designated to prevent.
9. Applicant submits that the liquidity of the Series' portfolios
is not a concern because the shares of common stock selected are each
included in the DJIA, FT Index, Hang Seng Index or S&P 500 Index and
traded on the New York Stock Exchange, the American Stock Exchange, the
London Stock Exchange, the Hong Kong Stock Exchange, or over-the-
counter markets and are among the most actively traded securities in
their respective markets.
10. Applicant also submits that the investment policies of the
Series will not lead to reciprocal practices between the Applicant and
issuers involved in securities related businesses since purchases by
the Series will have no significant effect on these issuers. The common
stocks of securities related issuers represented in the DJIA, the FT
Index, the Hang Seng Index and the S&P
[[Page 58111]]
500 Index are widely held and have active markets and potential
purchases by a Series would represent an insignificant amount of the
outstanding common stock and the trading volume of any of those
issuers.
11. Applicant states that a conflict of interest could occur if
broker-dealers are influenced to recommend certain investment company
funds which invest in the stock of the broker-dealer or any of its
affiliates. However, because of the large market capitalization of the
DJIA, the FT Index, the Hang Seng Index and the S&P 500 Index issuers,
and the small portion of these issuers common stock and trading volume
that would be purchased by the Series, Applicant finds that it is
extremely unlikely that any advice offered by a broker-dealer to a
customer as to which investment company to invest in would be
influenced by the possibility that JNL Account I or one of the Series
would be invested in the broker-dealer or parent thereto.
12. Applicant states that another potential conflict of interest
could occur if an investment company directed brokerage to an
affiliated broker-dealer in which the company has invested to enhance
the broker-dealers profitability or to assist it during financial
difficulty, even though that broker-dealer may not offer the best price
and execution. To preclude this type of conflict, Applicant agrees, as
a condition of the application, that no company held in any Series
portfolio, or any affiliate of such company, will act as broker for any
Series in the purchase or sale of any security for their portfolios.
13. Finally, Applicant represents that any Future Companies will
comply with the terms and conditions for the Series. Applicant submits
that without class relief, exemptive relief for any Future Companies
would have to be requested and obtained separately and would present no
issues under the 1940 Act not already addressed in the application.
Applicant states that if it were to repeatedly seek exemptive relief
with respect to the same issues, investors would not receive additional
protection or benefit, and investors and the Applicant could be
disadvantaged by increased costs from preparing such additional
requests for relief. Applicant asserts that the requested class relief
is appropriate in the public interest because the relief will promote
competitiveness in the variable annuity market by eliminating the need
to file redundant exemptive applications, thereby reducing
administrative expenses and maximizing efficient use of resources.
Applicant's Conditions
The Applicant agrees that the order granting the requested relief
shall be subject to the following conditions:
1. As to the DJIA Series, the Common Shares are of issuers included
in the DJIA as of the applicable Stock Selection Date;
2. As to the DJIA 10 Series, the Common Shares represent one of the
ten companies in the DJIA that has the highest-dividend yield as of the
applicable Stock Selection Date;
3. With respect to the DJLA 5 Series, the Common Shares represent
one of the five companies with the lowest dollar per share price of the
ten companies in the DJIA that has the highest dividend yield as of the
applicable Stock Selection Date;
4. With respect to the DJIA 10 Series, on the first business day
after each Stock Selection Date, the value of the Common Shares of each
securities related issuer represents approximately ten percent (10%) of
the value of the DJIA 10 Series total assets, but in no event more than
ten and one-half percent (10.5%) of the value of the DJIA 10 Series
total assets;
5. With respect to the DJIA 5 Series, on the first business day
after each Stock Selection Date, the value of the Common Shares of each
securities related issuer represents approximately twenty percent (20%)
of the value of the DJIA 5 Series total assets, but in no event more
than twenty and one-half percent (20.5%) of the value of the DJIA 5
Series total assets;
6. As to the Target 15 Series, the Target Stocks are of issuers
included in the DJIA, FT Index and the Hang Seng Index as of the
applicable Stock Selection Date;
7. As to the Target 15 Series, the Target Stocks represent one of
the ten companies in each of the DJIA, FT Index and Hang Seng Index
that has the highest dividend yield as of the applicable Stock
Selection Date;
8. With respect to the Target 15 Series, the Target Stocks
represent one of the five companies with the lowest per share price of
the ten companies in each of the DJIA, FT Index or the Hang Seng Index
that has the highest dividend yield as of the applicable Stock
Selection Date;
9. With respect to the Target 15 Series, on the first business day
after each Stock Selection Date, the value of the Target Stocks of each
securities related issuer represents approximately six and two-thirds
percent (6\2/3\%) of the value of the Target 15 Series total assets,
but in no event more than seven and one-sixth percent (7\1/6\%) of the
value of the Target 15 Series total assets;
10. As to the S&P Target 10 Series, the S&P Target Stocks are of
issuers included in the S&P 500 Index as of the applicable Stock
Selection Date;
11. As to the S&P Target 10 Series, the S&P Target Stocks represent
one of the ten companies with the greatest one year price appreciation
of the one hundred and twenty-five companies in the S&P 500 Index that
have the lowest price to sales ratio as of the applicable Stock
Selection Date. The one hundred and twenty-five companies will be
selected from two hundred and fifty companies that have the largest
market capitalization in the S&P 500 Index as of the applicable Stock
Selection Date;
12. With respect to the S&P Target 10 Series, on the first business
day after each Stock Selection Date, the value of the S&P Target Stocks
of each securities issuer represents approximately ten percent (10%) of
the value of the S&P Target 10 Series total assets, but in no event
more than ten and one-half percent (10.5%) of the value of the S&P
Target 10 Series total assets; and
13. As to any Series, no issuer whose securities are held by any
Series, nor any affiliate thereof, will act as broker for such Series
in the purchase or sale of any security for such Series.
Conclusion
For the reasons summarized above, Applicant asserts 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 1940 Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28197 Filed 10-27-99; 8:45 am]
BILLING CODE 8010-01-M