PERSPECTIVE ADVISORS
FIXED AND VARIABLE ANNUITY
ISSUED BY JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK AND JNLNY SEPARATE
ACCOUNT II
o Individual, single premium deferred annuity
o 2 guaranteed accounts which offer an interest rate that is guaranteed by
Jackson National Life Insurance Company of New York (Jackson National NY)
o Investment divisions which purchase shares of the following series of
mutual funds:
JNL Series Trust
JNL/Alliance Growth Series
JNL/J.P. Morgan International & Emerging Markets Series
JNL/Janus Aggressive Growth Series
JNL/Janus Growth & Income Series
JNL/PIMCO Total Return Bond Series
JNL/Putnam Growth Series
JNL/Putnam International Equity Series
JNL/Putnam Midcap Growth Series
JNL/Putnam Value Equity Series
JNL/S&P Conservative Growth Series II
JNL/S&P Moderate Growth Series II
JNL/S&P Aggressive Growth Series II
JNL/S&P Very Aggressive Growth Series II
JNL/S&P Equity Growth Series II
JNL/S&P Equity Aggressive Growth Series II
Lazard/JNL Mid Cap Value Series
Lazard/JNL Small Cap Value Series
PPM America/JNL Money Market Series
Salomon Brothers/JNL Balanced Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL High Yield Bond Series
T. Rowe Price/JNL Mid-Cap Growth Series
Please read this prospectus before you purchase a Perspective Advisors Fixed and
Variable Annuity. It contains important information about the contract that you
ought to know before investing. You should keep this prospectus on file for
future reference.
To learn more about the Perspective Advisors Fixed and Variable Annuity
contract, you can obtain a free copy of the Statement of Additional Information
(SAI) dated September 1, 2000, by calling Jackson National NY at (800) 599-5651
or by writing Jackson National NY at: Annuity Service Center, P.O. Box 0809,
Denver, Colorado 80263-0809. The SAI has been filed with the Securities and
Exchange Commission (SEC) and is legally a part of this prospectus. The Table of
Contents of the SAI appears at the end of this prospectus. The SEC maintains a
website (http://www.sec.gov) that contains the SAI, material incorporated by
reference and other information regarding registrants that file electronically
with the SEC.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE PERSPECTIVE ADVISORS FIXED AND
VARIABLE ANNUITY OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. IT IS A
CRIMINAL OFFENSE TO REPRESENT OTHERWISE.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
SEPTEMBER 1, 2000
<PAGE>
"JNL(R)", "Jackson National(R)" and "Jackson National Life(R)" are trademarks of
Jackson National Life Insurance ComPANY.
<PAGE>
TABLE OF CONTENTS
Key Facts ............................................................ 1
Fee Table ............................................................ 3
The Annuity Contract ................................................. 6
The Company .......................................................... 6
The Guaranteed Accounts .............................................. 6
The Separate Account ................................................. 6
Investment Divisions ................................................. 7
Contract Charges ..................................................... 9
Purchase .............................................................10
Transfers ............................................................11
Access to Your Money .................................................11
Income Payments (The Income Phase) ...................................12
Death Benefit ........................................................13
Taxes ................................................................14
Other Information ....................................................15
Table of Contents of the Statement of Additional Information .........17
<PAGE>
KEY FACTS
ANNUITY SERVICE CENTER: 1 (800) 599-5651
Mail Address: P.O. Box 0809, Denver, Colorado 80263-0809
Delivery Address: 8055 East Tufts Avenue, Second Floor,
Denver, Colorado 80237
INSTITUTIONAL MARKETING
GROUP SERVICE CENTER: 1 (800) 777-7779
Mail Address: P.O. Box 30386, Lansing, Michigan 48909-9692
Delivery Address: 5901 Executive Drive, Lansing, Michigan
48911 Attn: IMG
HOME OFFICE: 2900 Westchester Avenue, Purchase, New York
10577
THE ANNUITY CONTRACT The single premium fixed and variable
annuity contract offered by Jackson National
NY provides a means for investing on a
tax-deferred basis in the guaranteed
accounts of Jackson National NY and the
investment divisions. The contract is
intended for retirement savings or other
long-term investment purposes and provides
for a death benefit and income options.
INVESTMENT OPTIONS You can put money into any of the guaranteed
accounts and/or the investment divisions but
you may not put your money in more than
eighteen of the investment options
(including both the guaranteed accounts and
the investment divisions) during the life of
your contract.
EXPENSES The contract has insurance features and
investment features, and there are costs
related to each.
Jackson National NY makes a deduction for
its insurance charges which is equal to
1.50% of the daily value of the contracts
invested in the investment divisions. During
the accumulation phase, Jackson National NY
deducts a $30 annual contract maintenance
charge from your contract.
There are also investment charges which
range, on an annual basis, from .20% to
1.18% of the average daily value of the
series, depending on the series.
PURCHASE You can buy a contract for $25,000 or more.
You cannot add subsequent premiums to your
contract.
ACCESS TO YOUR MONEY You can take money out of your contract
during the accumulation phase. You may have
to pay income tax and a tax penalty on any
money you take out.
INCOME PAYMENTS You may choose to receive regular income
from your annuity. During the income phase,
you have the same investment choices you had
during the accumulation phase.
DEATH BENEFIT If you die before moving to the income
phase, the person you have chosen as your
beneficiary will receive a death benefit.
FREE LOOK You may return your contract to the selling
agent or to Jackson National NY within
twenty days after receiving it. Jackson
National NY will return the contract value
in the investment divisions plus any fees
and expenses deducted from the premium
allocated to the investment divisions plus
the full amount of premium you allocated to
the guaranteed accounts. We will determine
the contract value in the investment
divisions as of the date you mail the
contract to us or the date you return it to
the selling agent. Jackson National NY will
return premium payments where required by
law
TAXES The Internal Revenue Code provides that you
will not be taxed on the earnings on the
money held in your contract until you take
money out (this is referred to as
tax-deferral). There are different rules as
to how you will be taxed depending on how
you take the money out and whether your
contract is non-qualified or purchased as
part of a qualified plan.
<PAGE>
FEE TABLE
OWNER TRANSACTION EXPENSES(1)
Withdrawal Charge:
None
Transfer Fee:
$25 for each transfer in excess of 15 in a contract year
Contract Maintenance Charge:
$30 per contract per year
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Charges 1.35%
Administration Charge .15%
Total Separate Account Annual Expenses 1.50%
SERIES ANNUAL EXPENSES
(as a percentage of series average net assets)
<TABLE>
<CAPTION>
Management
and Total
Administrative Other Series
Fee Expenses Annual
Expenses
------------------------------------------------------------------ --------------- ----------- -------------
<S> <C> <C> <C>
JNL/Alliance Growth Series .................................. .88% 0% .88%
JNL/J.P. Morgan International & Emerging Markets Series ..... 1.08% 0% 1.08%
JNL/Janus Aggressive Growth Series .......................... 1.05% 0% 1.05%
JNL/Janus Global Equities Series* ........................... 1.10% 0% 1.10%
JNL/Janus Growth & Income Series ............................ 1.05% 0% 1.05%
JNL/PIMCO Total Return Bond Series .......................... .80% 0% .80%
JNL/Putnam Growth Series .................................... 1.00% 0% 1.00%
JNL/Putnam International Equity Series ...................... 1.20% 0% 1.20%
JNL/Putnam Midcap Growth Series ............................. 1.05% 0% 1.05%
JNL/Putnam Value Equity Series .............................. 1.00% 0% 1.00%
JNL/S&P Conservative Growth Series II** ..................... .20% 0% .20%
JNL/S&P Moderate Growth Series II** ......................... .20% 0% .20%
JNL/S&P Aggressive Growth Series II** ....................... .20% 0% .20%
JNL/S&P Very Aggressive Growth Series II** .................. .20% 0% .20%
JNL/S&P Equity Growth Series II** ........................... .20% 0% .20%
JNL/S&P Equity Aggressive Growth Series II** ................ .20% 0% .20%
Lazard/JNL Mid Cap Value Series ............................. 1.08% 0% 1.08%
Lazard/JNL Small Cap Value Series ........................... 1.15% 0% 1.15%
PPM America/JNL Money Market Series ......................... .70% 0% .70%
Salomon Brothers/JNL Balanced Series ........................ .90% 0% .90%
Salomon Brothers/JNL Global Bond Series ..................... .95% 0% .95%
Salomon Brothers/JNL High Yield Bond Series ................. .90% 0% .90%
T. Rowe Price/JNL Mid-Cap Growth Series ..................... 1.05% 0% 1.05%
-----------------------------------------------------------------------------------------------------
</TABLE>
--------
1 See "Contract Charges."
<PAGE>
Certain Series pay Jackson National Financial Services, LLC, the adviser, an
Administrative Fee of .10% for certain services provided to the Trust by Jackson
National Financial Services, LLC. The JNL/S&P Series do not pay an
Administrative Fee. The Total Series Annual Expenses reflect the inclusion of
the Administrative Fee.
* The JNL/Janus Global Equities Series (the "Series") is not available as an
investment option. However, the Series is available as an underlying series of
the JNL/S&P Conservative Growth Series II, the JNL/S&P Moderate Growth Series
II, the JNL/S&P Aggressive Growth Series II, the JNL/S&P Very Aggressive Growth
Series II, the JNL/S&P Equity Growth Series II and the JNL/S&P Equity Aggressive
Growth Series II.
** Underlying Series Expenses. The expenses shown above are the annual operating
expenses for the JNL/S&P Series. Because the JNL/S&P Series invest in other
Series of the JNL Series Trust, the JNL/S&P Series will indirectly bear their
pro rata share of fees and expenses of the underlying Series in addition to the
expenses shown.
The total annual operating expenses for each JNL/S&P Series (including both the
annual operating expenses for the JNL/S&P Series and the annual operating
expenses for the underlying investment divisions) could range from .90% to
1.38%. The table below shows estimated total annual operating expenses for each
of the JNL/S&P Series based on the pro rata share of expenses that the JNL/S&P
Series would bear if they invested in a hypothetical mix of underlying
investment divisions. The adviser believes the expenses shown below to be a
likely approximation of the expenses the JNL/S&P Series will incur based on the
actual mix of underlying investment divisions. The expenses shown below include
both the annual operating expenses for the JNL/S&P Series and the annual
operating expenses for the underlying investment divisions. The actual expenses
of each JNL/S&P Series will be based on the actual mix of underlying investment
divisions in which it invests. The actual expenses may be greater or less than
those shown.
JNL/S&P Conservative Growth Series II.................. 1.146%
JNL/S&P Moderate Growth Series II...................... 1.174%
JNL/S&P Aggressive Growth Series II.................... 1.213%
JNL/S&P Very Aggressive Growth Series II............... 1.232%
JNL/S&P Equity Growth Series II........................ 1.220%
JNL/S&P Equity Aggressive Growth Series II............. 1.226%
EXAMPLES. You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets.
<TABLE>
<CAPTION>
Time Periods
----------------------------------------------------------------------------- --------- --------- --------- ---------
1 3 5 10
year years years years
----------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
JNL/Alliance Growth Division ............................................. $ 24 $ 75 $ 128 $273
JNL/J.P. Morgan International & Emerging Markets Division ................ 26 81 138 293
JNL/Janus Aggressive Growth Division ..................................... 26 79 135 287
JNL/Janus Growth & Income Division ....................................... 26 79 135 288
JNL/PIMCO Total Return Bond Division ..................................... 24 72 124 266
JNL/Putnam Growth Division ............................................... 25 78 133 283
JNL/Putnam International Equity Division ................................. 27 84 143 303
JNL/Putnam Midcap Growth Division ........................................ 26 80 137 290
JNL/Putnam Value Equity Division ......................................... 25 78 133 284
JNL/S&P Conservative Growth Division II .................................. 17 54 93 203
JNL/S&P Moderate Growth Division II ...................................... 17 54 93 203
JNL/S&P Aggressive Growth Division II .................................... 17 54 93 203
JNL/S&P Very Aggressive Growth Division II ............................... 17 54 93 203
JNL/S&P Equity Growth Division II ........................................ 17 54 93 203
JNL/S&P Equity Aggressive Growth Division II ............................. 17 54 93 203
Lazard/JNL Mid Cap Value Division ........................................ 26 81 138 293
Lazard/JNL Small Cap Value Division ...................................... 27 83 141 300
PPM America/JNL Money Market Division .................................... 23 69 119 255
Salomon Brothers/JNL Balanced Division ................................... 25 75 129 276
Salomon Brothers/JNL Global Bond Division ................................ 25 77 132 281
Salomon Brothers/JNL High Yield Bond Division ............................ 25 75 129 276
T. Rowe Price/JNL Mid-Cap Growth Division ................................ 26 79 136 289
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES. The purpose of the Fee Table and Examples
is to assist you in understanding the various costs and expenses that you will
bear directly or indirectly. The Fee Table reflects the expenses of the separate
account and the series. Premium taxes may also apply.
The Examples reflect the contract maintenance charge which is determined by
dividing the total amount of such charges expected to be collected during the
year by the total estimated average net assets of the investment divisions.
THE EXAMPLES DO NOT REPRESENT PAST OR FUTURE EXPENSES. THE ACTUAL EXPENSES THAT
YOU INCUR MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL STATEMENTS.
You can find the following financial statements in the SAI:
o the financial statements of Jackson National NY for the year ended December
31, 1999
The financial statements of Jackson National NY for the year ended December 31,
1999, have been audited by KPMG, LLP, independent accountants.
There are no financial statements of the Separate Account because the Separate
Account will commence operations on or about the date of this Prospectus.
<PAGE>
THE ANNUITY CONTRACT
The fixed and variable annuity contract offered by Jackson National NY is a
contract between you, the owner, and Jackson National NY, an insurance company.
The contract provides a means for investing on a tax-deferred basis in
guaranteed accounts and investment divisions. The contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit and guaranteed income options.
The contract, like all deferred annuity contracts, has two phases: (1) the
accumulation phase, and (2) the income phase. During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. Under qualified plans earnings also accumulate on a
tax-deferred basis.
The contract offers guaranteed accounts. The guaranteed accounts offer an
interest rate that is guaranteed by Jackson National NY for the duration of the
guaranteed account period. While your money is in a guaranteed account, the
interest your money earns and your principal are guaranteed by Jackson National
NY. The value of a guaranteed account may be reduced if you make a withdrawal
prior to the end of the guaranteed account period, but will never be less than
the premium payments accumulated at 3% per year. If you choose to have your
annuity payments come from the guaranteed accounts, your payments will remain
level throughout the entire income phase.
The contract also offers investment divisions. The investment divisions are
designed to offer a higher return than the guaranteed accounts. HOWEVER, THIS IS
NOT GUARANTEED. IT IS POSSIBLE FOR YOU TO LOSE YOUR MONEY. If you put money in
the investment divisions, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the performance of the
investment divisions you select. The amount of the income payments you receive
during the income phase also will depend, in part, on the performance of the
investment divisions you choose for the income phase.
The owner (or the joint owners) can exercise all the rights under the contract.
You can assign the contract at any time before the income date but Jackson
National NY will not be bound until it receives written notice of the
assignment. An assignment may be a taxable event.
THE COMPANY
Jackson National NY is a stock life insurance company organized under the laws
of the state of New York in July 1995. Its legal domicile and principal business
address is 2900 Westchester Avenue, Purchase, New York 10577. Jackson National
NY is admitted to conduct life insurance and annuity business in the states of
New York and Michigan. Jackson National NY is ultimately a wholly-owned
subsidiary of Prudential plc (London, England).
Jackson National NY has responsibility for administration of the contracts and
the Separate Account. We maintain records of the name, address, taxpayer
identification number and other pertinent information for each contract owner
and the number and type of contracts issued to each contract owner, and records
with respect to the value of each contract.
THE GUARANTEED ACCOUNTS
If you select a guaranteed account, your money will be placed with Jackson
National NY's other assets. The guaranteed accounts are not registered with the
SEC and the SEC does not review the information we provide to you about the
guaranteed accounts. Your contract contains a more complete description of the
guaranteed accounts.
THE SEPARATE ACCOUNT
The JNLNY Separate Account II was established by Jackson National NY on November
10, 1998, pursuant to the provisions of New York law, as a segregated asset
account of the company. The separate account meets the definition of a "separate
account" under the federal securities laws and is registered with the SEC as a
unit investment trust under the Investment Company Act of 1940, as amended.
The assets of the separate account legally belong to Jackson National NY and the
obligations under the contracts are obligations of Jackson National NY. However,
the contract assets in the separate account are not chargeable with liabilities
arising out of any other business Jackson National NY 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 Jackson National NY
may issue.
The separate account is divided into investment divisions. Jackson National NY
does not guarantee the investment performance of the separate account or the
investment divisions.
INVESTMENT DIVISIONS
You can put money in any or all of the investment divisions; however, you may
not allocate your money to more than eighteen investment options (including the
guaranteed accounts and the investment divisions) during the life of your
contract. The investment divisions purchase shares of the following series of
mutual funds:
JNL Series Trust
JNL/Alliance Growth Series
JNL/J.P. Morgan International & Emerging Markets Series
JNL/Janus Aggressive Growth Series
JNL/Janus Growth & Income Series
JNL/PIMCO Total Return Bond Series
JNL/Putnam Growth Series
JNL/Putnam International Equity Series
JNL/Putnam Midcap Growth Series
JNL/Putnam Value Equity Series
JNL/S&P Conservative Growth Series II
JNL/S&P Moderate Growth Series II
JNL/S&P Aggressive Growth Series II
JNL/S&P Very Aggressive Growth Series II
JNL/S&P Equity Growth Series II
JNL/S&P Equity Aggressive Growth Series II
Lazard/JNL Small Cap Value Series
Lazard/JNL Mid Cap Value Series
PPM America/JNL Money Market Series
Salomon Brothers/JNL Balanced Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL High Yield Bond Series
T. Rowe Price/JNL Mid-Cap Growth Series
The series are described in the attached prospectus for the JNL Series Trust.
Jackson National Financial Services, LLC serves as investment adviser for all of
the series. The sub-adviser for each series is listed in the following table:
Sub-Adviser Series
Alliance Capital Management L.P. JNL/Alliance Growth Series
J.P. Morgan Investment Management Inc. JNL/J.P. Morgan International &
Emerging Markets Series
Janus Capital Corporation JNL/Janus Aggressive Growth
Series
JNL/Janus Global Equities
Series(2)
JNL/Janus Growth & Income
Series
Pacific Investment Management Company JNL/PIMCO Total Return Bond
Series
Putnam Investment Management, Inc. JNL/Putnam Growth Series
JNL/Putnam International Equity
Series
JNL/Putnam Midcap Growth Series
JNL/Putnam Value Equity Series
Standard & Poor's Investment
Advisory Services, Inc. JNL/S&P Conservative Growth
Series II
JNL/S&P Moderate Growth
Series II
JNL/S&P Aggressive Growth
Series II
JNL/S&P Very Aggressive Growth
Series II
JNL/S&P Equity Growth
Series II
JNL/S&P Equity Aggressive
Growth Series II
Lazard Asset Management Lazard/JNL Small Cap Value
Series
Lazard/JNL Mid Cap Value Series
PPM America, Inc. PPM America/JNL Money Market
Series
Salomon Brothers Asset Management Inc Salomon Brothers/JNL Balanced
Series
Salomon Brothers/JNL Global
Bond Series
Salomon Brothers/JNL High Yield
Bond Series
T. Rowe Price Associates, Inc. T. Rowe Price/JNL Mid-Cap
Growth Series
----------
2 The JNL/Janus Global Equities Series (the "Series") is not available as an
investment option. However, the Series is available as an underlying series
of the JNL/S&P Conservative Growth Series II, the JNL/S&P Moderate Growth
Series II, the JNL/S&P Aggressive Growth Series II, the JNL/S&P Very
Aggressive Growth Series II, the JNL/S&P Equity Growth Series II and the
JNL/S&P Equity Aggressive Growth Series II.
<PAGE>
The investment objectives and policies of certain of the investment divisions
are similar to the investment objectives and policies of other mutual funds that
certain of the investment sub-advisers manage. Although the objectives and
policies may be similar, the investment results of the investment division may
be higher or lower than the result of such other mutual funds. We cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the funds have the same investment
advisers.
An investment division's performance may be affected by risks specific to
certain types of investments, such as foreign securities, derivative
investments, non-investment grade debt securities, initial public offerings
(IPOs) or companies with relatively small market capitalizations. IPOs and other
investment techniques may have a magnified performance impact on an investment
division with a small asset base. An investment division may not experience
similar performance as its assets grow.
Depending on market conditions, you can make or lose money in any of the
investment divisions. You should read the prospectus for the JNL Series Trust
carefully before investing. Additional investment divisions may be available in
the future.
VOTING RIGHTS. To the extent required by law, Jackson National NY will obtain
from you and other owners of the contracts instructions as to how to vote when
the series solicits proxies in conjunction with a vote of shareholders. When
Jackson National NY receives instructions, we will vote all the shares Jackson
National NY owns in proportion to those instructions.
SUBSTITUTION. Jackson National NY may be required to substitute an investment
division with another division. We will not do this without any required
approval of the SEC and the New York Insurance Department. Jackson National NY
will give you notice of such transactions.
CONTRACT CHARGES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges may be a lesser
amount where required by state law or as described below, but will not be
increased. These charges and expenses are:
INSURANCE CHARGES. Each day Jackson National NY makes a deduction for its
insurance charges. We do this as part of our calculation of the value of the
accumulation units and annuity units. On an annual basis, this charge equals
1.50% of the daily value of the contracts invested in an investment division,
after expenses have been deducted.
This charge is for the mortality risks, expense risks and administrative
expenses assumed by Jackson National NY. The mortality risks that Jackson
National NY assumes arise from its obligations under the contracts:
o to make income payments for the life of the annuitant during the income phase;
and o to provide a death benefit prior to the income date.
The expense risk that Jackson National NY assumes is the risk that our actual
cost of administering the contracts and the investment divisions will exceed the
amount that we receive from the administration charge and the contract
maintenance charge.
CONTRACT MAINTENANCE CHARGE. During the accumulation phase, Jackson National NY
deducts a $30 annual contract maintenance charge on each anniversary of the date
on which your contract was issued. If you make a complete withdrawal from your
contract, the full contract maintenance charge will also be deducted. This
charge is for administrative expenses.
Currently, Jackson National NY will not deduct this charge, if when the
deduction is to be made, the value of your contract is $50,000 or more. Jackson
National NY may discontinue this practice at any time.
TRANSFER FEE. A transfer fee of $25 will apply to transfers in excess of 15 in a
contract year. Jackson National NY may waive the transfer fee in connection with
pre-authorized automatic transfer programs, or may charge a lesser fee where
required by state law.
OTHER EXPENSES. Jackson National NY pays the operating expenses of the Separate
Account.
There are deductions from and expenses paid out of the assets of the series.
These expenses are described in the attached prospectus for the JNL Series
Trust.
PREMIUM TAXES. Some states and other governmental entities charge premium taxes
or other similar taxes. Jackson National NY is responsible for the payment of
these taxes and may make a deduction from the value of the contract for them.
Premium taxes generally range from 0% to 4% depending on the state. New York
does not currently impose a premium tax on annuity premiums.
INCOME TAXES. Jackson National NY will make a deduction from the contract for
any income taxes which it incurs because of the contract. Currently, we are not
making any such deduction.
DISTRIBUTION OF CONTRACTS. Jackson National Life Distributors, Inc., located at
401 Wilshire Boulevard, Suite 1200, Santa Monica, California 90401, serves as
the distributor of the contracts. Jackson National Life Distributors, Inc. and
Jackson National NY are wholly-owned subsidiaries of Jackson National Life
Insurance Company.
Commissions will be paid to broker-dealers who sell the contracts. While
commissions may vary, they are not expected to exceed 8% of any premium payment.
Under certain circumstances, Jackson National NY may pay bonuses, overrides, and
marketing allowances, in addition to the standard commissions. Jackson National
NY may under certain circumstances where permitted by applicable law, pay a
bonus to a contract purchaser to the extent the broker-dealer waives its
commission. Jackson National NY may use any of its corporate assets to cover the
cost of distribution, including any profit from the contract insurance charges.
PURCHASE
MINIMUM PREMIUM:
The contract is a single premium contract, which means that you cannot add
additional premiums to this contract after the first premium payment. The
minimum premium must be at least $25,000.
The maximum premium we accept without our prior approval is $1 million.
The minimum that you may allocate to a guaranteed account or investment division
is $100. There is a $100 minimum balance requirement for each guaranteed account
and investment division.
When you purchase a contract, Jackson National NY will allocate your premium to
one or more of the guaranteed accounts and/or the investment divisions you have
selected. Your allocations must be in whole percentages ranging from 0% to 100%.
There may be more than eighteen investment options (including the guaranteed
accounts and the investment divisions) available under the contract; however,
you may not allocate your money to more than eighteen investment options during
the life of your contract.
Jackson National NY will issue your contract and allocate your first premium
within 2 business days after we receive your first premium and all information
required by us for purchase of a contract. If we do not receive all of the
required information, we will contact you to get the necessary information. If
for some reason Jackson National NY is unable to complete this process within 5
business days, we will either return your money or get your permission to keep
it until we receive all of the required information.
The Jackson National NY business day closes when the New York Stock Exchange
closes, usually 4:00 p.m. Eastern time.
ACCUMULATION UNITS. The contract value allocated to the investment divisions
will go up or down depending on the performance of the divisions. In order to
keep track of the value of your contract, Jackson National NY uses a unit of
measure called an accumulation unit. (An accumulation unit is similar to a share
of a mutual fund.) During the income phase it is called an annuity unit.
Every business day Jackson National NY determines the value of an accumulation
unit for each of the investment divisions. This is done by:
1. determining the total amount of money invested in the particular
investment division;
2. subtracting any insurance charges and any other charges, such as
taxes;
3. dividing this amount by the number of outstanding accumulation units.
The value of an accumulation unit may go up or down from business day to
business day.
When you make a premium payment, Jackson National NY credits your contract with
accumulation units. The number of accumulation units credited is determined at
the close of Jackson National NY's business day by dividing the amount of the
premium allocated to any investment division by the value of the accumulation
unit for that investment division.
TRANSFERS
You can transfer money among the guaranteed accounts and the investment
divisions during the accumulation phase. During the income phase, you can
transfer money between investment divisions.
You can make 15 transfers every year during the accumulation phase without
charge. If the remaining value in a guaranteed account or investment division
would be less than $100 after a transfer, you must transfer the entire value or
you may not make the transfer.
TELEPHONE TRANSACTIONS. You may make transfers by telephone, unless you elect
not to have this privilege. When authorizing a transfer, you must complete your
telephone call by the close of Jackson National NY's business day (usually 4:00
p.m. Eastern time) in order to receive that day's accumulation unit value for an
investment division.
Jackson National NY has procedures which are designed to provide reasonable
assurance that telephone authorizations are genuine. Our procedures include
requesting identifying information and tape recording telephone communications.
Jackson National NY and its affiliates disclaim all liability for any claim,
loss or expense resulting from any alleged error or mistake in connection with a
telephone transfer which was not properly authorized by you. However, if Jackson
National NY fails to employ reasonable procedures to ensure that all telephone
transfers are properly authorized, we may be held liable for such losses.
Jackson National NY reserves the right to modify or discontinue at any time and
without notice the acceptance of instructions from someone other than you and/or
the telephone transfer privilege.
ACCESS TO YOUR MONEY
You can have access to the money in your contract:
o by making either a partial or complete withdrawal, or
o by electing to receive income payments.
Your beneficiary can have access to the money in your contract when a death
benefit is paid.
When you make a complete withdrawal you will receive:
1. the value of the contract on the day you made the withdrawal;
2. less any premium tax; and
3. less any contract maintenance charge.
Except in connection with the systematic withdrawal program, you must withdraw
at least $500 or, if less, the entire amount in the guaranteed account or
investment division from which you are making the withdrawal. After your
withdrawal, you must have at least $100 left in the guaranteed account or
investment division.
Your withdrawal request must be in writing. Jackson National NY will accept
withdrawal requests submitted via facsimile. There are risks associated with not
requiring original signatures in order to disburse contract holder monies.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limitations on withdrawals from qualified plans. See "Taxes."
SYSTEMATIC WITHDRAWAL PROGRAM. You can arrange to have money automatically sent
to you periodically while your contract is still in the accumulation phase. You
will have to pay taxes on money you receive. In addition, withdrawals you make
before you reach 59 1/2 may be subject to a 10% tax penalty.
We reserve the right to charge a fee for participation or to discontinue
offering this program in the future.
SUSPENSION OF WITHDRAWALS OR TRANSFERS. Jackson National NY may be required to
suspend or delay withdrawals or transfers from an investment division when:
a) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
b) trading on the New York Stock Exchange is restricted;
c) an emergency exists so that it is not reasonably practicable to dispose of
securities in the Separate Account or determine investment division value
of its assets; or,
d) the SEC, by order, may permit for the protection of owners.
The applicable rules and regulations of the SEC will govern whether the
conditions described in (b) and/or (c) exist.
Jackson National NY has reserved the right to defer payment for a withdrawal or
transfer from the guaranteed accounts for the period permitted by law, but not
more than six months.
INCOME PAYMENTS (THE INCOME PHASE)
The income phase occurs when you begin receiving regular payments from your
contract. The income date is the month and year in which those payments begin.
You can choose the income date and an income option. The income options are
described below.
If you do not choose an income option, we will assume that you selected Option 3
which provides a life annuity with 120 months of guaranteed payments.
You can change the income date or income option at any time before the income
date. You must give us 7 days notice. Income payments must begin by your 90th
birthday under a non-qualified contract (or an earlier date under a qualified
contract if required by law, regulation or the applicable plan).
At the income date, you can choose whether payments will come from the
guaranteed accounts, the investment divisions or both. Unless you tell us
otherwise, your income payments will be based on the investment allocations that
were in place on the income date.
You can choose to have income payments made monthly, quarterly, semi-annually,
or annually. However, if you have less than $2,000 to apply toward an income
option and state law permits, Jackson National NY may provide your payment in a
single lump sum. Likewise, if your first income payment would be less than $20
and state law permits, Jackson National NY may set the frequency of payments so
that the first payment would be at least $20.
INCOME PAYMENTS FROM INVESTMENT DIVISIONS. If you choose to have any portion of
your income payments come from the investment division(s), the dollar amount of
your payment will depend upon three things:
1. the value of your contract in the investment division(s) on the income
date;
2. the 4.5% assumed investment rate used in the annuity table for the
contract; and
3. the performance of the investment divisions you selected.
Jackson National NY calculates the dollar amount of the first income payment
that you receive from the investment divisions. We then use that amount to
determine the number of annuity units that you hold in each investment division.
The amount of each subsequent income payment is determined by multiplying the
number of annuity units that you hold in an investment division by the annuity
unit value for that investment division.
The number of annuity units that you hold in each investment division does not
change unless you reallocate your contract value among the investment divisions.
The annuity unit value of each investment division will vary based on the
investment performance of the series. If the actual investment performance
exactly matches the assumed rate at all times, the amount of each income payment
will remain equal. If the actual investment performance exceeds the assumed
rate, your income payments will increase. Similarly, if the actual investment
performance is less than the assumed rate, your income payments will decrease.
INCOME OPTIONS. The annuitant is the person whose life we look to when we make
income payments. The following income options may not be available in all
states.
Option 1 - Life Income. This income option provides monthly payments for
the annuitant's life.
Option 2 - Joint and Survivor Annuity. This income option provides monthly
payments for the annuitant's life and for the life of another person.
Option 3 - Life Annuity With 120 or 240 Monthly Payments Guaranteed. This
income option provides monthly payments for the annuitant's life, but with
payments continuing to the owner for the remainder of 10 or 20 years (as you
select) if the annuitant dies before the end of the selected period. If the
beneficiary does not want to receive the payments, a single lump sum may be
requested, which will be equal to the present value of the remaining payments
(as of the date of proof of death) discounted at the assumed investment rate for
a variable annuity payout option.
Option 4 - Income for a Specified Period. This income option provides
monthly payments for any number of years from 5 to 30. However, you may elect to
receive a single lump sum payment which will be equal to the present value of
the remaining payments (as of the date of proof of death) discounted at the
assumed investment rate for a variable annuity payout option.
Additional Options - Other income options may be made available by Jackson
National NY.
DEATH BENEFIT
The death benefit is calculated as of the date we receive complete claim forms
and proof of death from the beneficiary of record. The death benefit amount
remains in the separate account and/or the guaranteed account until distribution
begins. From the time the death benefit is determined until complete
distribution is made, any amount in the separate account will be subject to
investment risk, which is borne by the beneficiary.
DEATH OF OWNER BEFORE THE INCOME DATE. If you or any joint owner die before
moving to the income phase, the person you have chosen as your beneficiary will
receive a death benefit. If you have a joint owner, the death benefit will be
paid when the first joint owner dies, unless the joint owner is the deceased
owner's spouse who elects to continue the contract. The surviving joint owner
will be treated as the beneficiary. Any other beneficiary designated will be
treated as a contingent beneficiary.
The death benefit is the greater of:
1. the current value of your contract at the end of the business day when
we receive proof of death and a payment election at our service
center, or
2. the total premiums paid prior to the death of the owner, minus any
withdrawals, charges, fees and premium taxes incurred.
The entire death benefit must be paid within 5 years of the date of death unless
the beneficiary elects to have the death benefit payable under an income option.
The death benefit payable under an income option must be paid over the
beneficiary's lifetime or for a period not extending beyond the beneficiary's
life expectancy. Payments must begin within one year of the date of death.
Unless the beneficiary chooses to receive the death benefit in a single sum, the
beneficiary must elect an income option within the 60 day period beginning with
the date Jackson National NY receives proof of death. If the beneficiary chooses
to receive the death benefit in a single sum and all the necessary requirements
are met, Jackson National NY will pay the death benefit within 7 days. If the
beneficiary is your spouse, he/she can continue the contract in his/her own name
at the then current contract value.
DEATH OF OWNER ON OR AFTER THE INCOME DATE. If you or a joint owner die on or
after the income date, and the owner is not an annuitant, any remaining payments
under the income option elected will continue at least as rapidly as under the
method of distribution in effect at the date of death. If you die, the
beneficiary becomes the owner. If the joint owner dies, the surviving joint
owner, if any, will be the designated beneficiary. Any other beneficiary
designation on record at the time of death will be treated as a contingent
beneficiary. A contingent beneficiary is entitled to receive payment only after
the beneficiary dies.
DEATH OF ANNUITANT. If the annuitant is not an owner or joint owner and dies
before the income date, you can name a new annuitant. If you do not name a new
annuitant within 30 days of the death of the annuitant, you will become the
annuitant. However, if the owner is a non-natural person (for example, a
corporation), then the death of the annuitant will be treated as the death of
the owner, and a new annuitant may not be named.
If the annuitant dies on or after the income date, any remaining payments will
be as provided for in the income option selected. Any remaining payments will be
paid at least as rapidly as under the method of distribution in effect at the
annuitant's death.
TAXES
THE FOLLOWING IS GENERAL INFORMATION AND IS NOT INTENDED AS TAX ADVICE TO ANY
INDIVIDUAL. YOU SHOULD CONSULT YOUR OWN TAX ADVISER. A FURTHER DISCUSSION
REGARDING TAXES IS INCLUDED IN THE SAI.
The Internal Revenue Code (Code) provides that you will not be taxed on the
earnings on the money held in your contract until you take money out (this is
referred to as the tax-deferral that is provided by the contract or the
qualified plan). There are different rules as to how you will be taxed depending
on how you take the money out and the type of contract you have (non-qualified
or qualified).
NON-QUALIFIED CONTRACTS - GENERAL TAXATION. You will not be taxed on increases
in the value of your contract until a distribution (either as a withdrawal or as
an income payment) occurs. When you make a withdrawal you are taxed on the
amount of the withdrawal that is earnings. For income payments, a portion of
each income payment is treated as a partial return of your premium and will not
be taxed. The remaining portion of the income payment will be treated as
ordinary income. How the income payment is divided between taxable and
non-taxable portions depends on the period over which income payments are
expected to be made. Income payments received after you have received all of
your investment in the contract are treated as income.
If a non-qualified contract is owned by a non-natural person (e.g., corporation
or certain other entities other than a trust holding the contract as an agent
for a natural person), the contract will generally not be treated as an annuity
for tax purposes.
QUALIFIED AND NON-QUALIFIED CONTRACTS. If you purchase the contract as an
individual and not under any pension plan, specially sponsored program or an
individual retirement annuity, your contract is referred to as a non-qualified
contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified contracts are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a qualified contract.
WITHDRAWALS - NON-QUALIFIED CONTRACTS. If you make a withdrawal from your
contract, the Code generally treats the withdrawal as first coming from earnings
and then from your premium payments. Withdrawn earnings are includible in
income. Additional information is provided in the SAI.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a 10% penalty. Some withdrawals will be
exempt from the penalty. They include any amounts: (1) paid on or after the
taxpayer reaches age 59 1/2; (2) paid after you die; (3) paid if the taxpayer
becomes totally disabled (as that term is defined in the Code); (4) paid in a
series of substantially equal payments made annually (or more frequently) for
life or a period not exceeding life expectancy; (5) paid under an immediate
annuity; or (6) which come from premiums made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED CONTRACTS. There are special rules that govern qualified
contracts. We have provided an additional discussion in the SAI.
WITHDRAWALS - TAX-SHELTERED ANNUITIES. The Code limits the withdrawal of amounts
attributable to purchase payments made under a salary reduction agreement by
owners from Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled
(as that term is defined in the Code); or (5) in the case of hardship. However,
in the case of hardship, the owner can only withdraw the premium and not any
earnings.
WITHDRAWALS - ROTH IRAS. Beginning in 1998, individuals may purchase a new type
of non-deductible IRA, known as a Roth IRA. Qualified distributions from Roth
IRAs are entirely federal income tax free. A qualified distribution requires
that the individual has held the Roth IRA for at least five years and, in
addition, that the distribution is made either after the individual reaches age
59 1/2, on account of the individual's death or disability, or as qualified
first-time home purchase, subject to $10,000 lifetime maximum, for the
individual, or for a spouse, child, grandchild, or ancestor.
WITHDRAWALS - INVESTMENT ADVISER FEES. The Internal Revenue Service has, through
a series of Private Letter Rulings, held that the payment of investment adviser
fees from an IRA or a Tax-Sheltered Annuity is permissible under certain
circumstances and will not be considered a distribution for income tax purposes.
The Rulings require that in order to receive this favorable tax treatment, the
annuity contract must, under a written agreement, be solely liable (not jointly
with the contract owner) for payment of the adviser's fee and the fee must
actually be paid from the annuity contract to the adviser. Withdrawals from
non-qualified contracts for the payment of investment adviser fees will be
considered taxable distributions from the contract.
DEATH BENEFITS. Any death benefits paid under the contract are taxable to the
beneficiary. The rules governing the taxation of payments from an annuity
contract, as discussed above, generally apply to the payment of death benefits
and depend on whether the death benefits are paid as a lump sum or as annuity
payments. Estate taxes may also apply.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM (ORP). Contracts issued
to participants in ORP contain restrictions required under the Texas
Administrative Code. In accordance with those restrictions, a participant in ORP
will not be permitted to make withdrawals prior to such participant's
retirement, death, attainment of age 70 1/2 or termination of employment in a
Texas public institution of higher education. The restrictions on withdrawal do
not apply in the event a participant in ORP transfers the contract value to
another approved contract or vendor during the period of ORP participation.
ASSIGNMENT. An assignment may be a taxable event. If the contract is issued
pursuant to a qualified plan, there may be limitations on your ability to assign
the contract.
DIVERSIFICATION. The Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. Jackson National NY believes that the
underlying investments are being managed so as to comply with these
requirements.
OWNER CONTROL. Neither the Code nor the Treasury Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not Jackson
National NY would be considered the owner of the shares of the investment
divisions. If you are considered to be the owner of the shares, it will result
in the loss of the favorable tax treatment for the contract.
It is unknown to what extent owners are permitted to select investment
divisions, to make transfers among the investment divisions or the number and
type of investment divisions owners may select from without being considered the
owner of the shares.
If any guidance is provided by the Internal Revenue Service which is considered
a new position, then the guidance would generally be applied prospectively.
However, if such guidance is considered not to be a new position, it may be
applied retroactively. This would mean that you, as the owner of the contract,
could be treated as the owner of the investment divisions. Due to the
uncertainty in this area, Jackson National NY reserves the right to modify the
contract in an attempt to maintain favorable tax treatment.
OTHER INFORMATION
DOLLAR COST AVERAGING. You can arrange to automatically have a regular amount of
money periodically transferred into the investment divisions from the guaranteed
accounts or any of the other investment divisions. This theoretically gives you
a lower average cost per unit over time than you would receive if you made a one
time purchase. The more volatile investment divisions may not result in lower
average costs and such divisions may not be an appropriate source of dollar cost
averaging transfers in volatile markets. Certain restrictions may apply.
Jackson National NY does not currently charge for participation in this program.
We may do so in the future.
REBALANCING. You can arrange to have Jackson National NY automatically
reallocate money between investment divisions periodically to keep the blend you
select.
Jackson National NY does not currently charge for participation in this program.
We may do so in the future.
FREE LOOK. You may return your contract to the selling agent or to Jackson
National NY within twenty days after receiving it. Jackson National NY will
return the contract value in the investment divisions plus any fees and expenses
deducted from the premium allocated to the investment divisions plus the full
amount of premium you allocated to the guaranteed accounts. We will determine
the contract value in the investment divisions as of the date you mail the
contract to us or the date you return it to the selling agent. Jackson National
NY will return premium payments where required by law.
ADVERTISING. From time to time, Jackson National NY may advertise several types
of performance for the investment divisions.
o Total return is the overall change in the value of an investment in an
investment division over a given period of time.
o Standardized average annual total return is calculated in accordance
with SEC guidelines.
o Non-standardized total return may be for periods other than those
required or may otherwise differ from standardized average annual
total return. For example, if a series has been in existence longer
than the investment division, we may show non-standardized performance
for periods that begin on the inception date of the series, rather
than the inception date of the investment division.
o Yield refers to the income generated by an investment over a given period
of time.
Performance will be calculated by determining the percentage change in the value
of an accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. Performance will
reflect the deduction of the insurance charges and may reflect the deduction of
the contract maintenance charge. The deduction of the contract maintenance
charge would reduce the percentage increase or make greater any percentage
decrease.
MARKET TIMING AND ASSET ALLOCATION SERVICES. Market timing and asset allocation
services must comply with Jackson National NY's administrative systems, rules
and procedures. Jackson National NY does not promote or endorse any such
services.
MODIFICATION OF THE CONTRACT. Only the President, Vice President, Secretary or
Assistant Secretary of Jackson National NY may approve a change to or waive a
provision of the contract. Any change or waiver must be in writing. Jackson
National NY may change the terms of the contract in order to comply with changes
in applicable law, or otherwise as deemed necessary by Jackson National NY.
LEGAL PROCEEDINGS.
There are no material legal proceedings, other than ordinary routine litigation
incidental to the business, to which Jackson National NY is a party.
Jackson National has been named as a defendant in civil litigation proceedings
substantially similar to other litigation brought against many life insurers
alleging misconduct in the sale of insurance products. These matters are
sometimes referred to as market conduct litigation. The litigation against JNL
purports to include purchasers of certain life insurance and annuity products
from JNL during the period from 1981 to present. JNL has retained national and
local counsel experienced in the handling of such litigation, and is vigorously
defending these actions. A favorable outcome is anticipated, and at this time it
is not feasible to make a meaningful estimate of the amount or range of loss
that could result from an unfavorable outcome in such actions. In addition, JNL
is a defendant in several individual actions that involve similar issues,
including an August 1999 verdict against JNL for $32.5 million in punitive
damages. JNL has appealed the verdict on the basis that it is not supported by
the facts or the law, and a ruling reversing the judgment is being sought.
QUESTIONS. If you have questions about your contract, you may call or write to
us at:
o Jackson National NY Annuity Service Center: (800) 599-5651, P.O. Box 0809,
Denver, Colorado 80263-0809
o Institutional Marketing Group Service Center: (800) 777-7779, P.O. Box
30386, Lansing, Michigan 48909-9692
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information and History .................................... 2
Services ........................................................... 2
Purchase of Securities Being Offered ............................... 2
Underwriters ....................................................... 2
Calculation of Performance ......................................... 3
Additional Tax Information ......................................... 5
Annuity Provisions................................................. 16
Financial Statements .............................................. 17
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2000
INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
ISSUED BY THE JNLNY SEPARATE ACCOUNT II
OF JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the Prospectus dated September 1, 2000.
The Prospectus may be obtained from Jackson National Life Insurance Company of
New York by writing P.O. Box 0809, Denver, Colorado 80263-0809, or calling
1-800-599-5651. Not all investment divisions described in this SAI may be
available for investment.
TABLE OF CONTENTS
PAGE
General Information and History............................................. 2
Services.................................................................... 2
Purchase of Securities Being Offered........................................ 2
Underwriters................................................................ 2
Calculation of Performance.................................................. 3
Additional Tax Information.................................................. 5
Annuity Provisions......................................................... 16
Financial Statements ...................................................... 17
<PAGE>
GENERAL INFORMATION AND HISTORY
JNLNY Separate Account II (Separate Account) is a separate investment account of
Jackson National Life Insurance Company of New York (Jackson National NY). In
September 1997, the company changed its name from First Jackson National Life
Insurance Company to its present name. Jackson National NY is a wholly-owned
subsidiary of Jackson National Life Insurance Company, and is ultimately a
wholly-owned subsidiary of Prudential plc, London, England, an insurance company
in the United Kingdom.
SERVICES
Jackson National NY is the custodian of the assets of the Separate Account. The
custodian has custody of all cash of the Separate Account and attends to the
collection of proceeds of shares of the underlying fund bought and sold by the
Separate Account.
Effective October 15, 1999, KPMG LLP, 303 East Wacker Drive, Chicago, Illinois
60601, assumed responsibility for certain of the other audit and reporting
functions previously provided by PricewaterhouseCoopers LLP to Jackson National
NY. These changes were put into effect by Jackson National NY as of the date
referenced above. Neither Jackson National NY nor the Separate Account has
received an adverse opinion, nor were there any disagreements with
PricewaterhouseCoopers LLP.
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided advice
on certain matters relating to the federal securities and income tax laws in
connection with the contracts described in the Prospectus.
PURCHASE OF SECURITIES BEING OFFERED
The contracts will be sold by licensed insurance agents in states where the
contracts may be lawfully sold. The agents will be registered representatives of
broker-dealers that are registered under the Securities Exchange Act of 1934 and
members of the National Association of Securities Dealers, Inc. (NASD).
UNDERWRITERS
The contracts are offered continuously and are distributed by Jackson National
Life Distributors, Inc. (JNLD), 401 Wilshire Boulevard, Suite 1200, Santa
Monica, California 90401. JNLD is a subsidiary of Jackson National Life
Insurance Company. No underwriting commissions are paid by Jackson National NY
to JNLD.
<PAGE>
CALCULATION OF PERFORMANCE
When Jackson National NY advertises performance for an investment division
(except the PPM America/JNL Money Market Division), we will include quotations
of standardized average annual total return to facilitate comparison with
standardized average annual total return advertised by other variable annuity
separate accounts. Standardized average annual total return for an investment
division will be shown for periods beginning on the date the investment division
first invested in the corresponding series. We will calculate standardized
average annual total return according to the standard methods prescribed by
rules of the Securities and Exchange Commission.
Standardized average annual total return for a specific period is calculated by
taking a hypothetical $1,000 investment in an investment division at the
offering on the first day of the period ("initial investment"), and computing
the ending redeemable value ("redeemable value") of that investment at the end
of the period. The redeemable value is then divided by the initial investment
and expressed as a percentage, carried to at least the nearest hundredth of a
percent. Standardized average annual total return is annualized and reflects the
deduction of the insurance charges and the contract maintenance charge. No
deduction is made for premium taxes which may be assessed by certain states.
Jackson National NY may also advertise non-standardized total return.
Non-standardized total return may be for periods other than those required to be
presented or may otherwise differ from standardized average annual total return.
Non-standardized total return may also assume a larger initial investment which
more closely approximates the size of a typical contract.
Standardized average annual total return quotations will be current to the last
day of the calendar quarter preceding the date on which an advertisement is
submitted for publication. Both standardized average annual total return
quotations and non-standardized total return quotations will be based on rolling
calendar quarters and will cover at least periods of one, five, and ten years,
or a period covering the time the investment division has been in existence, if
it has not been in existence for one of the prescribed periods. If the
corresponding series has been in existence for longer than the investment
division, the non-standardized total return quotations will show the investment
performance the investment division would have achieved (reduced by the
applicable charges) had it been invested in the series for the period quoted.
Standardized average annual total return is not available for periods before the
investment division was in existence.
Quotations of standardized average annual total return and non-standardized
total return are based upon historical earnings and will fluctuate. Any
quotation of performance should not be considered a guarantee of future
performance. Factors affecting the performance of an investment division and its
corresponding series include general market conditions, operating expenses and
investment management. An owner's withdrawal value upon surrender of a contract
may be more or less than original cost.
Jackson National NY may advertise the current annualized yield for a 30-day
period for an investment division. The annualized yield of an investment
division refers to the income generated by the investment division over a
specified 30-day period. Because this yield is annualized, the yield generated
by an investment division during the 30-day period is assumed to be generated
each 30-day period. The yield is computed by dividing the net investment income
per accumulation unit earned during the period by the price per unit on the last
day of the period, according to the following formula:
a-b 6
YIELD = 2[(---+1) -1]
cd
Where:
a = net investment income earned during the period by
the Series attributable to shares owned by the
investment division.
b = expenses for the investment division accrued for
the period (net of reimbursements).
c = the average daily number of accumulation units
outstanding during the period.
d = the maximum offering price per accumulation unit on
the last day of the period.
Net investment income will be determined in accordance with rules established by
the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all contracts.
Because of the charges and deductions imposed by the Separate Account, the yield
for an investment division will be lower than the yield for the corresponding
series. The yield on amounts held in the investment divisions normally will
fluctuate over time. Therefore, the disclosed yield for any given period is not
an indication or representation of future yields or rates of return. An
investment division's actual yield will be affected by the types and quality of
portfolio securities held by the series and the series operating expenses.
Any current yield quotations of the PPM America/JNL Money Market Division,
subject to Rule 482 under the Securities Act of 1933, will consist of a seven
calendar day historical yield, carried at least to the nearest hundredth of a
percent. We may advertise yield for the Division based on different time
periods, but we will accompany it with a yield quotation based on a seven day
calendar period. The PPM America/JNL Money Market Division's yield will be
calculated by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit at the beginning of the base period, subtracting a
hypothetical charge reflecting deductions from contracts, and dividing the net
change in account value by the value of the account at the beginning of the
period to obtain a base period return and multiplying the base period return by
(365/7). The PPM America/JNL Money Market Division's effective yield is computed
similarly but includes the effect of assumed compounding on an annualized basis
of the current yield quotations of the Division.
The PPM America/JNL Money Market Division's yield and effective yield will
fluctuate daily. Actual yields will depend on factors such as the type of
instruments in the series' portfolio, portfolio quality and average maturity,
changes in interest rates, and the series' expenses. Although the investment
division determines its yield on the basis of a seven calendar day period, it
may use a different time period on occasion. The yield quotes may reflect the
expense limitations described in the series' Prospectus or Statement of
Additional Information. There is no assurance that the yields quoted on any
given occasion will be maintained for any period of time and there is no
guarantee that the net asset values will remain constant. It should be noted
that neither a contract owner's investment in the PPM America/JNL Money Market
Division nor that Division's investment in the PPM America/JNL Money Market
Series, is guaranteed or insured. Yields of other money market funds may not be
comparable if a different base or another method of calculation is used.
ADDITIONAL TAX INFORMATION
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. INFORMATION
CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE OF A PERSONAL TAX
ADVISER. JACKSON NATIONAL NY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX
STATUS OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS. PURCHASERS
BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS "ANNUITY
CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT
THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL RULES NOT DESCRIBED
HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN
MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
General
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"),
governs taxation of annuities in general. An individual owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a withdrawal or as annuity payments under the annuity option elected.
For a withdrawal received as a total surrender (total redemption or a death
benefit), the recipient is taxed on the portion of the payment that exceeds the
cost basis of the contract. For a payment received as a partial withdrawal,
federal tax liability generally is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the contract is
withdrawn. For contracts issued in connection with non-qualified plans, the cost
basis is generally the premiums, while for contracts issued in connection with
qualified plans there may be no cost basis. The taxable portion of a withdrawal
is taxed at ordinary income tax rates. Tax penalties may also apply.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the contract (adjusted for any period certain or refund
feature) bears to the expected return under the contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the contract has been recovered (i.e. when the
total of the excludable amounts equals the investment in the contract) are fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of qualified plans there may be no cost basis in the contract within the
meaning of Section 72 of the Code. Owners, annuitants and beneficiaries under
the contracts should seek competent financial advice about the tax consequences
of distributions.
Jackson National NY is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
Jackson National NY and its operations form a part of Jackson National NY.
Withholding Tax on Distributions
The Code generally requires Jackson National NY (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from contracts
issued under certain types of qualified plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct transfer. This requirement is mandatory and
cannot be waived by the owner.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax sheltered annuity qualified under Section
403(b) of the Code (other than (1) a series of substantially equal annuity
payments for the life (or life expectancy) of the employee, or joint lives (or
joint life expectancies) of the employee, and his or her designated beneficiary,
or for a specified period of ten years or more); (2) minimum distributions
required to be made under the Code; and (3) hardship withdrawals. Failure to
"rollover" the entire amount of an eligible rollover distribution (including an
amount equal to the 20% portion of the distribution that was withheld) could
have adverse tax consequences, including the imposition of a penalty tax on
premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
Generally, the amount of any payment of interest to a non-resident alien of the
United States shall be subject to withholding of a tax equal to thirty (30%)
percent of such amount or, if applicable, a lower treaty rate. A payment may not
be subject to withholding where the recipient sufficiently establishes that such
payment is effectively connected to the recipient's conduct of a trade or
business in the United States and such payment is included in recipient's gross
income.
Diversification -- Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S.
government securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations establishing diversification
requirements for the mutual funds underlying variable contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, a mutual fund will be deemed adequately diversified if
(1) no more than 55% of the value of the total assets of the mutual fund is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the mutual fund is represented by any two investments; (3) no
more than 80% of the value of the total assets of the mutual fund is represented
by any three investments; and (4) no more than 90% of the value of the total
assets of the mutual fund is represented by any four investments.
Jackson National NY intends that each series of the JNL Series Trust will be
managed by its respective investment adviser in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which contract owner control
of the investments of the Separate Account will cause the contract owner to be
treated as the owner of the assets of the Separate Account, thereby resulting in
the loss of favorable tax treatment of the contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of owner control which may be exercised under the contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the owner with
respect to earnings allocable to the contract prior to receipt of payments under
the contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, Jackson National NY reserves the right to
modify the contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple annuity contracts which are issued within a
calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining the tax consequences
of any distribution. Such treatment may result in adverse tax consequences
including more rapid taxation of the distributed amounts from such multiple
contracts. For purposes of this rule, contracts received in a Section 1035
exchange will be considered issued in the year of the exchange. Owners should
consult a tax adviser prior to purchasing more than one annuity contract in any
calendar year.
Partial 1035 Exchanges
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. Historically, it was presumed
that only the exchange of an entire contract, as opposed to a partial exchange,
would be accorded tax-free status. In 1998 in Conway vs. Commissioner, the Tax
Court held that the direct transfer of a portion of an annuity contract into
another annuity contract qualified as a non-taxable exchange. On November 22,
1999, the Internal Revenue Service filed an Action on Decision which indicated
that it acquiesced in the Tax Court decision in Conway. However, in its
acquiesence with the decision of the Tax Court, the Internal Revenue Service
stated that it will challenge transactions where taxpayers enter into a series
of partial exchanges and annuitizations as part of a design to avoid application
of the 10% premature distribution penalty or other limitations imposed on
annuity contracts under the Code. In the absence of further guidance from the
Internal Revenue Service it is unclear what specific types of partial exchange
designs and transactions will be challenged by the Internal Revenue Service. Due
to the uncertainty in this area owners should consult their own tax advisers
prior to entering into a partial exchange of an annuity contract.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for
contracts will be taxed currently to the owner if the owner is a non-natural
person, e.g., a corporation or certain other entities. Such contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to contracts held by a trust or other entity as an
agent for a natural person nor to contracts held by certain qualified plans.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should, therefore, consult
competent legal advisers should they wish to assign or pledge their contracts.
Death Benefits
Any death benefits paid under the Contact are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
Qualified Plans
The contracts offered by the Prospectus are designed to be suitable for use
under various types of qualified plans. Taxation of owners in each qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, annuitants and beneficiaries are cautioned that benefits under a
qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued to fund the plan.
Tax Treatment of Withdrawals
Non-Qualified Plans
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate premiums
made, any amount withdrawn not in the form of an annuity payment will be treated
as coming first from the earnings and then, only after the income portion is
exhausted, as coming from the principal. Withdrawn earnings are included in a
taxpayer's gross income. Section 72 further provides that a 10% penalty will
apply to the income portion of any distribution. The penalty is not imposed on
amounts received: (1) after the taxpayer reaches 59 1/2; (2) upon the death of
the owner; (3) if the taxpayer is totally disabled as defined in Section
72(m)(7) of the Code; (4) in a series of substantially equal periodic payments
made at least annually for the life (or life expectancy) of the taxpayer or for
the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (5) under an immediate annuity; or (6) which are allocable to
premium payments made prior to August 14, 1982.
With respect to (4) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Qualified Plans
In the case of a withdrawal under a qualified contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a qualified
contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (Pension and Profit Sharing plans),
403(b) (tax-sheltered annuities) and 408 and 408A (IRAs). To the extent amounts
are not included in gross income because they have been rolled over to an IRA or
to another eligible qualified plan, no tax penalty will be imposed.
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the owner or annuitant (as
applicable) reaches age 59 1/2; (2) distributions following the death or
disability of the owner or annuitant (as applicable) (for this purpose
"disability" is defined in Section 72(m)(7) of the Code); (3) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the owner or annuitant (as applicable) or the joint lives (or
joint life expectancies) of such owner or annuitant (as applicable) and his or
her designated beneficiary; (4) distributions to an owner or annuitant (as
applicable) who has separated from service after he has attained age 55; (5)
distributions made to the owner or annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the owner or annuitant (as applicable) for amounts paid during
the taxable year for medical care; (6) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (7) distributions made on
account of an IRS levy upon the qualified contracts; (8) distributions from an
IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D)
of the Code) for the contract owner or annuitant (as applicable) and his or her
spouse and dependents if the contract owner or annuitant (as applicable) has
received unemployment compensation for at least 12 weeks (this exception will no
longer apply after the contract owner or annuitant (as applicable) has been
re-employed for at least 60 days); (9) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the owner or annuitant (as
applicable) for the taxable year; and (10) distributions from an Individual
Retirement Annuity made to the owner or annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exception stated in items (4) and (6) above do not apply in the
case of an IRA. The exception stated in (3) above applies to an IRA without the
requirement that there be a separation from service.
With respect to (3) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Code) are
limited to the following: when the owner attains age 59 1/2, separates from
services, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Hardship withdrawals do not include any
earnings on salary reduction contributions. These limitations on withdrawals
apply to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain qualified plans. Tax penalties may
also apply. While the foregoing limitations only apply to certain contracts
issued in connection with Section 403(b) qualified plans, all owners should seek
competent tax advice regarding any withdrawals or distributions.
The taxable portion of a withdrawal or distribution from contracts issued under
certain types of plans may, under some circumstances, be "rolled over" into
another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for an "eligible
rollover distribution" made by certain types of plans (as described above under
"Taxes -- Withholding Tax on Distributions") that is transferred within 60 days
of receipt into another eligible plan or an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct transfer of the distribution to the transferee
plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs, individual
retirement accounts or certain other plans, subject to limitations set forth in
the Code.
Generally, distributions from a qualified plan must commence no later than April
1 of the calendar year following the year in which the employee attains the
later of age 70 1/2 or the date of retirement. In the case of an IRA,
distribution must commence no later than April 1 of the calendar year following
the year in which the owner attains age 70 1/2. Required distributions must be
over a period not exceeding the life or life expectancy of the individual or the
joint lives or life expectancies of the individual and his or her designated
beneficiary. If the required minimum distributions are not made, a 50% penalty
tax is imposed as to the amount not distributed.
Tax-Sheltered Annuities - Withdrawal Limitations
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Code) are
limited to the following: when the owner attains age 59 1/2, separates from
services, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Hardship withdrawals do not include any
earnings on salary reduction contributions. These limitations on withdrawals
apply to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain qualified plans. Tax penalties may
also apply. While the foregoing limitations only apply to certain contracts
issued in connection with Section 403(b) qualified plans, all owners should seek
competent tax advice regarding any withdrawals or distributions.
Types of Qualified Plans
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. The Company is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the terms of a Contract, unless the Company specifically consents
to be bound. Owners, Annuitants and Beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a Qualified Plan that is tax deferred. However, the
Contract has features and benefits other than tax deferral that may make it an
appropriate investment for a Qualified Plan. Following are generally
descriptions of the types of Qualified Plans with which the Contracts may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and will
have differing applications depending on individual facts and circumstances.
Each purchaser should obtain competent tax advice prior to purchasing a Contract
issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contract issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
certain Qualified Plans will utilize tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
(a) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c) (3) of the Code.
These qualifying employers may make contributions to the contracts for
the benefit of their employees. Such contributions are not included in
the gross income of the employee until the employee receives
distributions from the contract. The amount of contributions to the
tax-sheltered annuity is limited to certain maximums imposed by the
Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions,
non-discrimination and withdrawals. Employee loans are not allowed
under these contracts. Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(b) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute
to an individual retirement program known as an "Individual Retirement
Annuity" ("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the individual's
taxable income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. Sales of contracts
for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure
be given to persons desiring to establish an IRA. Purchasers of
contracts to be qualified as IRAs should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
(c) Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals
may purchase a new type of non-deductible IRA, known as a Roth IRA.
Purchase payments for a Roth IRA are limited to a maximum of $2,000 per
year and are not deductible from taxable income. Lower maximum
limitations apply to individuals with adjusted gross incomes between
$95,000 and $110,000 in the case of single taxpayers, between $150,000
and $160,000 in the case of married taxpayers filing joint returns, and
between $0 and $10,000 in the case of married taxpayers filing
separately. An overall $2,000 annual limitation continues to apply to
all of a taxpayer's IRA contributions, including Roth IRAs and non-Roth
IRAs.
Qualified distributions from Roth IRAs are free from federal income
tax. A qualified distribution requires that the individual has held the
Roth IRA for at least five years and, in addition, that the
distribution is made either after the individual reaches age 59 1/2, on
the individual's death or disability, or as a qualified first-time home
purchase, subject to a $10,000 lifetime maximum, for the individual, a
spouse, child, grandchild, or ancestor. Any distribution which is not a
qualified distribution is taxable to the extent of earnings in the
distribution. Distributions are treated as made from contributions
first and therefore no distributions are taxable until distributions
exceed the amount of contributions to the Roth IRA. The 10% penalty tax
and the regular IRA exceptions to the 10% penalty tax apply to taxable
distributions from a Roth IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, an individual may make a rollover contribution from a
non-Roth IRA to a Roth IRA, unless the individual has adjusted gross
income over $100,000 or the individual is a married taxpayer filing a
separate return. The individual must pay tax on any portion of the IRA
being rolled over that represents income or a previously deductible IRA
contribution. There are no similar limitations on rollovers from a Roth
IRA to another Roth IRA.
(d) Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including
self-employed individuals, to establish various types of retirement
plans for employees. These retirement plans may permit the purchase of
the contracts to provide benefits under the plan. Contributions to the
plan for the benefit of employees will not be included in the gross
income of the employee until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations on all plans on such items
as amount of allowable contributions; form, manner and timing of
distributions; vesting and non-forfeitability of interests;
nondiscrimination in eligibility and participation; and the tax
treatment of distributions, transferability of benefits, withdrawals
and surrenders. Purchasers of contracts for use with pension or profit
sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(e) Non-Qualified Deferred Compensation Plans -- Section 457
Under Code provisions, employees and independent contracts performing
services for state and local governments and other tax-exempt
organizations may participate in Deferred Compensation Plans Under
Section 457 of the Code. The amounts deferred under a Plan which meets
the requirements of Section 457 of the Code are not taxable as income
to the participant until paid or otherwise made available to the
participant or beneficiary. As a general rule, the maximum amount which
can be deferred in any one year is the lesser of $8,000 or 33 1/3
percent of the participant's includible compensation. However, in
limited circumstances, the plan may provided for additional catch-up
contributions in each of the last three years before normal retirement
age. Furthermore, the Code provides additional requirements and
restrictions regarding eligibility and distributions.
All of the assets and income of a Plan established by governmental
employer after August 20, 1996, must be held in trust for the exclusive
benefit of participants and their beneficiaries. For this purpose,
custodial accounts and certain annuity contracts are treated as trusts.
Plans that were in existence on August 20, 1996 may be amended to
satisfy the trust and exclusive benefit requirement any time prior to
January 1, 1999, and must be amended not later than that date to
continue to receive favorable tax treatment. The requirement of a trust
does not apply to amounts under a Plan of a tax-exempt
(non-governmental) employer. In addition, the requirement of a trust
does not apply to amounts under a Plan of a governmental employer if
the Plan is not an eligible plan within the meaning of section 457(b)
of the Code. In the absence of such a trust, amounts under the plan
will be subject to the claims of the employer's general creditor's.
In general, distributions from a Plan are prohibited under section 457
of the Code unless made after the participation employee:
o attains age 70 1/2,
o separates from service,
o dies, or
o suffers an unforeseeable financial emergency as defined in the
Code.
Under present federal tax law, amounts accumulated in a Plan under
section 457 of the Code cannot be transferred or rolled over on a
tax-deferred basis except for certain transfers to other Plans under
section 457.
<PAGE>
ANNUITY PROVISIONS
Variable Annuity Payment. The initial annuity payment is determined by taking
the Contract value allocated to that Investment Division, less any premium tax
and any applicable Contract charges, and then applying it to the income option
table specified in the Contract. The appropriate rate must be determined by the
sex (except where, as in the case of certain Qualified Plans and other
employer-sponsored retirement plans, such classification is not permitted) and
age of the annuitant and designated second person, if any.
The dollars applied are divided by 1,000 and the result multiplied by the
appropriate annuity factor appearing in the table to compute the amount of the
first monthly payment. That amount is divided by the value of an annuity unit as
of the Income Date to establish the number of annuity units representing each
variable payment. The number of annuity units determined for the first variable
payment remains constant for the second and subsequent monthly variable
payments, assuming that no reallocation of Contract values is made.
The amount of the second and each subsequent monthly variable payment is
determined by multiplying the number of annuity units by the annuity unit value
as of the business day next preceding the date on which each payment is due.
The mortality and expense experience will not adversely affect the dollar amount
of the variable annuity payments once payments have commenced.
Annuity Unit Value. The initial value of an annuity unit of each Investment
Division was set when the Investment Divisions were established. The value may
increase or decrease from one business day to the next. The income option tables
contained in the Contract are based on a 4.5% per annum assumed investment rate.
The value of a fixed number of annuity units will reflect the investment
performance of the Investment Divisions elected, and the amount of each payment
will vary accordingly.
For each Investment Division, the value of an annuity unit for any business day
is determined by multiplying the annuity unit value for the immediately
preceding business day by the percentage change in the value of an accumulation
unit from the immediately preceding business day to the business day of
valuation. The result is then multiplied by a second factor which offsets the
effect of the assumed net investment rate of 4.5% per annum.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY OF NEW YORK
[GRAPHIC OMITTED]
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Jackson National Life Insurance Company of New York
We have audited the accompanying balance sheet of Jackson National Life
Insurance Company of New York as of December 31, 1999 and the related statements
of income, stockholder's equity and comprehensive income, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying statements of Jackson
National Life Insurance Company of New York as of December 31, 1998 and 1997,
were audited by other auditors whose report thereon dated February 19, 1999,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jackson National Life Insurance
Company of New York as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
February 2, 2000
<PAGE>
Jackson National Life Insurance Company of New York
(a wholly owned subsidiary of Jackson National Life Insurance Company)
Financial Statements.
BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1999 1998
------------------- ------------------
<S> <C> <C>
Investments:
Fixed maturities available for sale (amortized
cost: 1999, $68,805,183; 1998, $5,963,201) $ 67,908,242 $ 5,977,820
Cash and short-term investments 14,643,874 1,920,324
------------------- ------------------
Total investments 82,552,116 7,898,144
Accrued investment income 1,149,063 77,935
Deferred acquisition costs 10,508,000 107,000
Furniture and equipment 233,998 283,118
State tax recoverable 45,000 67,200
Federal income tax recoverable - 174,802
Deferred income taxes 509,170 108,674
Reinsurance recoverable 138,176 6,702
Other assets 155,539 287
Variable annuity assets 77,023,997 104,912
------------------- ------------------
Total assets $172,315,059 $ 8,828,774
=================== ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policy reserves and liabilities
Reserves for future policy benefits $ 121,256 $ 3,869
Deposits on investment contracts 75,110,492 705,839
General expenses payable 125,238 100,156
Payable to parent 1,098,264 32,158
Other liabilities 2,301,472 46,631
Variable annuity liabilities 77,023,997 104,912
------------------- ------------------
Total liabilities 155,780,719 993,565
------------------- ------------------
STOCKHOLDER'S EQUITY
Capital stock, $1,000 par value; 2,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 16,000,000 6,000,000
Accumulated other comprehensive income (loss) (436,762) 9,502
Retained earnings (deficit) (1,028,898) (174,293)
------------------- ------------------
Total stockholder's equity 16,534,340 7,835,209
------------------- ------------------
Total liabilities and stockholder's equity $172,315,059 $ 8,828,774
=================== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF JACKSON NATIONAL LIFE INSURANCE COMPANY)
FINANCIAL STATEMENTS
INCOME STATEMENT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $ 13,874 $ 2,275 $ -
Net investment income 1,536,382 582,397 469,601
Net realized investment gains - 70,414 -
Fee income:
Mortality charges 1,151 - -
Expense charges 2,054 - -
Surrender charges 62,034 - -
Variable annuity fees 364,384 90 -
------------------ ------------------ ------------------
Total fee income 429,623 90 -
Other income 190,575 7,686 -
------------------ ------------------ ------------------
Total revenues 2,170,454 662,862 469,601
------------------ ------------------ ------------------
BENEFITS AND EXPENSES
Interest credited on deposit liabilities 1,261,745 14,059 -
Increase in reserves, net of reinsurance
recoverables 11,379 747 -
Commissions 9,226,887 52,601 -
General and administrative expenses 2,967,330 1,534,101 116,215
Taxes, licenses and fees 193,918 (31,137) 51,651
Deferral of policy acquisition costs (10,372,000) (110,000) -
Amortization of acquisition costs 196,000 3,000 -
------------------ ------------------ ------------------
Total benefits and expenses 3,485,259 1,463,371 167,866
------------------ ------------------ ------------------
Pretax income (loss) (1,314,805) (800,509) 301,735
Income tax expense (benefit) (460,200) (280,200) 105,607
------------------ ------------------ ------------------
NET INCOME (LOSS) $ (854,605) $ (520,309) $ 196,128
================== ================== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF JACKSON NATIONAL LIFE INSURANCE COMPANY)
FINANCIAL STATEMENTS
STATEMENT OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
----------------- ------------------ -------------------
<S> <C> <C> <C>
CAPITAL STOCK
Beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000
----------------- ------------------ -------------------
ADDITIONAL PAID-IN CAPITAL
Beginning of year 6,000,000 6,000,000 6,000,000
Capital contribution 10,000,000 - -
----------------- ------------------ -------------------
End of year 16,000,000 6,000,000 6,000,000
----------------- ------------------ -------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of year 9,502 65,881 (2,843)
Net unrealized gain (loss) on investments,
net of tax of $(240,296) in 1999, $(30,357) in 1998,
and $37,005 in 1997 (446,264) (56,379) 68,724
----------------- ------------------ -------------------
End of year (436,762) 9,502 65,881
----------------- ------------------ -------------------
RETAINED EARNINGS (DEFICIT)
Beginning of year (174,293) 346,016 149,888
Net income (loss) (854,605) (520,309) 196,128
----------------- ------------------ -------------------
End of year (1,028,898) (174,293) 346,016
----------------- ------------------ -------------------
TOTAL STOCKHOLDER'S EQUITY $16,534,340 $ 7,835,209 $ 8,411,897
================= ================== ===================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
COMPREHENSIVE INCOME (LOSS)
Net Income (loss) $ (854,605) $ (520,309) $ 196,128
Net unrealized holding gains (losses) arising during
the period, net of tax of $(240,296) in 1999,
$(12,076) in 1998, and $37,005 in 1997 (446,264) (22,429) 68,724
Reclassification adjustment for gains included in net
income, net of tax of $(18,281) in 1998 - (33,950) -
------------------ ------------------ -------------------
COMPREHENSIVE INCOME (LOSS) $ (1,300,869) $ (576,688) $ 264,852
================== ================== ===================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF JACKSON NATIONAL LIFE INSURANCE COMPANY)
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (854,605) $ (520,309) $ 196,128
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net realized investment gains - (70,414) -
Interest credited on deposit liabilities 1,261,745 14,059 -
Amortization of discount and premium on
investments (25,921) 2,374 1,155
Other charges (65,239) - -
Change in:
Deferred income taxes (160,200) (113,791) -
Accrued investment income (1,071,128) (8,944) (28,385)
Deferred acquisition costs (10,176,000) (107,000) -
Federal income taxes recoverable 174,802 (166,409) 14,207
Other assets and liabilities, net 3,248,314 (242,520) (69,575)
------------------ ------------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,668,232) (1,212,954) 113,530
------------------ ------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of:
Fixed maturities available for sale 1,642,676 7,302,300 -
Purchases of:
Fixed maturities available for sale (64,458,803) (4,954,688) (7,739,134)
------------------ ------------------- -------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (62,816,127) 2,347,612 (7,739,134)
------------------ ------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholder's account balances:
Deposits 137,196,675 802,091 -
Withdrawals (2,476,840) (9,811) -
Net transfers to separate accounts (61,511,926) (100,500) -
Capital contribution from Parent 10,000,000 - -
------------------ ------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 83,207,909 691,780 -
------------------ ------------------- -------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS 12,723,550 1,826,438 (7,625,604)
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD 1,920,324 93,886 7,719,490
------------------ ------------------- -------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $14,643,874 $ 1,920,324 $ 93,886
================== =================== ===================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Jackson National Life Insurance Company of New York, (the "Company" or "JNL/NY")
is wholly owned by Jackson National Life Insurance Company, ("JNL" or the
"Parent") a wholly owned subsidiary of Brooke Life Insurance Company ("Brooke
Life") which is ultimately a wholly owned subsidiary of Prudential plc
("Prudential"), London, England. JNL/NY is licensed to sell group and individual
annuity products, including immediate and deferred annuities, guaranteed
investment contracts, variable annuities, and individual life insurance products
in the states of New York, Delaware and Michigan. Product sales commenced in the
second quarter of 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). Certain prior year
amounts have been reclassified to conform with the current year
presentation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results may differ from those estimates.
COMPREHENSIVE INCOME
Effective January 1, 1998, JNL/NY adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and presentation of comprehensive
income and its components in the financial statements. Comprehensive income
includes all changes in stockholder's equity (except those arising from
transactions with owners/shareholders) and, in the Company's case, includes
net income and net unrealized gains/(losses) on securities. SFAS 130
requires additional disclosures in the financial statements, but it has no
impact on the Company's financial position or net income.
INVESTMENTS
Cash and short-term investments which primarily include commercial paper
and money market instruments are carried at cost. These investments have
maturities of three months or less and are considered cash equivalents for
reporting cash flows.
Fixed maturities include bonds and mortgage-backed securities. All fixed
maturities are considered available for sale and are carried at aggregate
market value.
Realized gains and losses on the sale of investments are recognized in
income at the date of sale and are determined using the specific cost
identification method. Acquisition premiums and discounts on investments
are amortized to investment income using call or maturity dates. The
changes in unrealized gains or losses of investments classified as
available for sale, net of tax and the effect of the deferred acquisition
cost adjustment, are excluded from net income and included as a component
of comprehensive income and stockholder's equity.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED ACQUISITION COSTS
Certain costs of acquiring new business, principally commissions and
certain costs associated with policy issue and underwriting which vary with
and are primarily related to the production of new business, have been
capitalized as deferred acquisition costs. Deferred acquisition costs are
increased by interest thereon and amortized in proportion to anticipated
premium revenues for traditional life policies and in proportion to
estimated gross profits for annuities and interest-sensitive life products.
As certain fixed maturity securities available for sale are carried at
aggregate fair value, an adjustment is made to deferred acquisition costs
equal to the change in amortization that would have occurred if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment is
included with the change in fair value of fixed maturity securities
available for sale, net of tax, that is credited or charged directly to
stockholder's equity and is a component of other comprehensive income.
Deferred acquisition costs have been increased by $225,000 at December 31,
1999 to reflect this credit. There was no adjustment at December 31, 1998.
FEDERAL INCOME TAXES
The Company provides deferred income taxes on the temporary differences
between the tax and financial statement basis of assets and liabilities.
The Company files a consolidated federal income tax return with Jackson
National Life Insurance Company and Brooke Life. For tax years ending
December 31, 1997 and prior, the Company filed a federal income tax return
on a separate company basis. The Company has entered into a written tax
sharing agreement which is generally based on separate return calculations.
Intercompany balances are settled on a quarterly basis.
POLICY RESERVES AND LIABILITIES
RESERVES FOR FUTURE POLICY BENEFITS:
For traditional life insurance contracts, reserves for future policy
benefits are determined using the net level premium method and assumptions
as of the issue date as to mortality, interest, policy lapsation and
expenses plus provisions for adverse deviations. Mortality assumptions
range from 30% to 135% of the 1975-1980 Basic Select and Ultimate tables
depending on underwriting classification and policy duration. Interest rate
assumptions range from 6.0% to 8.0%. Lapse and expense assumptions are
based on the Parent's experience.
DEPOSITS ON INVESTMENT CONTRACTS:
For the company's interest-sensitive life contracts, reserves approximate
the policyholder's accumulation account. For deferred and variable annuity
contracts, the reserve is the policyholder's account value.
VARIABLE ANNUITY ASSETS AND LIABILITIES
The assets and liabilities resulting from individual variable annuity
contracts which aggregated $77,023,997 and $104,912 at December 31, 1999
and 1998, respectively, are segregated in a separate account. The Company
receives fees for assuming mortality and expense risks and other
administrative fees related to the issuance and maintenance of the
contracts. Such fees are recorded as earned and included in fee income in
the income statement.
REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance are reported as revenues when due.
Benefits, claims and expenses are associated with earned revenues in order
to recognize profit over the lives of the contracts. This association is
accomplished by provisions for future policy benefits and the deferral and
amortization of acquisition costs.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deposits on interest-sensitive life products and investment contracts,
principally universal life contracts and deferred annuities, are treated as
policyholder deposits and excluded from revenue. Revenues consist primarily
of investment income and charges assessed against the policyholder's
account value for mortality charges, surrenders and administrative
expenses. Surrender benefits are treated as repayments of the policyholder
account. Annuity benefit payments are treated as reductions to the
policyholder account. Death benefits in excess of the policyholder account
are recognized as an expense when incurred. Expenses consist primarily of
the interest credited to the policyholder deposit. Underwriting expenses
are associated with gross profit in order to recognize profit over the life
of the business. This is accomplished by deferral and amortization of
acquisition costs.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the basis used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS:
Carrying value is considered to be a reasonable estimate of fair value.
FIXED MATURITIES:
Fair values are based on quoted market prices, if available. For securities
that are not actively traded, fair values are estimated using independent
pricing services or analytically determined values.
VARIABLE ANNUITY ASSETS:
Variable annuity assets are carried at the market value of the underlying
securities.
ANNUITY RESERVES:
Fair values for immediate annuities, without mortality features, are
derived by discounting the estimated cash flows using current interest
rates with similar maturities. Fair values for deferred annuities are based
on surrender value. The carrying value and fair value of such annuities
approximated $74,975,238 and $71,375,168, respectively, at December 31,
1999 and $705,839 and $642,314, respectively, at December 31, 1998.
VARIABLE ANNUITY LIABILITIES:
Fair value of contracts in the accumulation phase is based on account value
less surrender charges. Fair value of contracts in the payout phase is
based on the present value of future cash flows at assumed interest rates.
The fair value approximated $72,530,323 and $97,875 at December 31, 1999
and 1998, respectively.
4. INVESTMENTS
Investments are comprised primarily of fixed-income securities, primarily
publicly-traded industrial, mortgage-backed and government bonds. The
Company's investments resulted primarily from the capital investment by its
parent and deposits related to interest sensitive individual annuity
products, on which it has committed to pay a declared rate of interest. The
Company's strategy of investing in fixed-income securities aims to ensure
matching of the asset yield with the interest-sensitive insurance
liabilities and to earn a stable return on its investments.
<PAGE>
4. INVESTMENTS (CONTINUED)
FIXED MATURITIES
The following table sets forth fixed maturity investments at December 31,
1999, classified by rating categories as assigned by nationally recognized
statistical rating organizations or the National Association of Insurance
Commissioners ("NAIC"). For purposes of the table, if not otherwise rated
higher by a nationally recognized statistical rating organization, NAIC
Class 1 investments are included in the A rating and Class 2 in the BBB
rating.
PERCENT OF TOTAL
INVESTMENT RATING ASSETS
-------------------------
AAA 7.4%
A 4.0
BBB 28.1
-------------------------
Total fixed maturities 39.5
Other assets 60.5
-------------------------
Total assets 100.0%
=========================
The amortized cost and estimated fair value of fixed maturities are as
follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
-------------------------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,969,089 $ - $ 325,339 $ 5,643,750
Public utilities 3,412,842 - 62,692 3,350,150
Corporate securities 52,281,180 18,291 481,250 51,818,221
Mortgage-backed securities 7,142,072 - 45,951 7,096,121
--------------- ---------------- ---------------- ----------------
Total $68,805,183 $ 18,291 $ 915,232 $67,908,242
=============== ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
--------------------------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,963,201 $ 33,854 $ 19,235 $ 5,977,820
---------------- ---------------- --------------- ----------------
Total $ 5,963,201 $ 33,854 $ 19,235 $ 5,977,820
================ ================ =============== ================
</TABLE>
<PAGE>
4. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities at December
31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without early redemption
penalties.
Fixed maturities:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------------------- ---------------------
<S> <C> <C>
Due after 1 year through 5 years $ 43,951,849 $ 43,354,469
Due after 5 years through 10 years 17,711,262 17,457,652
Mortgage-backed securities 7,142,072 7,096,121
--------------------- ---------------------
Total $ 68,805,183 $ 67,908,242
===================== =====================
</TABLE>
Acquisition discounts and premiums on mortgage-backed securities are
amortized over the estimated redemption period using the effective interest
method. Effective yields, which are used to calculate premium/discount
amortization, are adjusted periodically to reflect payments to date and
anticipated future payments.
Resulting adjustments to carrying values are included in investment income.
Fixed maturities with a carrying value of $500,000 and $1,041,870 were on
deposit with the State of New York at December 31, 1999 and 1998,
respectively, as required by state insurance law.
5. INVESTMENT INCOME AND REALIZED GAINS AND LOSSES
All investment income for 1999, 1998, and 1997 related to interest income
on short-term investments and fixed maturity securities. Investment
expenses totaled $36,915, $15,338, and $2,000 in 1999, 1998 and 1997,
respectively. Gross realized investment gains in 1998 totaled $70,414.
There were no realized investment losses in 1998. No realized gains or
losses were recognized in either 1999 or 1997.
6. REINSURANCE
The Company cedes reinsurance to other insurance companies in order to
limit losses from large exposures; however, if the reinsurer is unable to
meet its obligations, the originating issuer of the coverage retains the
liability. The maximum amount of life insurance risk retained by the
Company on any one life is generally $100,000. Amounts not retained are
ceded to other companies on a yearly renewable-term or a coinsurance basis.
The effect of reinsurance on premiums and other considerations is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
<S> <C> <C>
Direct Premiums $ 216,094 $ 9,961
Ceded 202,220 7,686
Net premiums $ 13,874 $ 2,275
================ ================
----------------------------------------------------------------------------------------------------
</TABLE>
Components of the reinsurance recoverable asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Ceded reserves $ 109,130 $ 3,122
Ceded - other 29,046 3,580
================ ================
Total $ 138,176 $ 6,702
================ ================
</TABLE>
<PAGE>
7. FEDERAL INCOME TAXES
The components of the provision for federal income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Current tax expense (benefit) $ (300,000) $ (166,409) $ 105,607
Deferred tax (benefit) (160,200) (113,791) -
----------------- ----------------- ----------------
Provision for income taxes $ (460,200) $ (280,200) $ 105,607
================= ================= ================
</TABLE>
The federal income tax provisions differ from the amounts determined by
multiplying pretax income by the statutory federal income tax rate of 35%
for 1999, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Income taxes at statutory rate $ (460,182) $ (280,178) $ 105,607
Other (18) (22) -
----------------- ----------------- ----------------
Provision for income taxes $ (460,200) $ (280,200) $ 105,607
================= ================= ================
Effective tax rate 35.0% 35.0% 35.0%
================= ================= ================
</TABLE>
Federal income taxes of $474,802 were recovered from JNL in 1999. There
were no federal income taxes paid in 1998. In 1997, federal income taxes
paid were $91,400.
The tax effects of significant temporary differences that give rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---------------- ----------------
<S> <C> <C>
GROSS DEFERRED TAX ASSET
Net operating loss carryforward $ - $ 152,291
Policy reserves and other insurance items 3,353,556 -
Net unrealized losses on available for sale securities 313,950 -
Other 11,143
---------------- ----------------
Total deferred tax asset 3,678,649 152,291
---------------- ----------------
GROSS DEFERRED TAX LIABILITY
Deferred acquisition costs (3,169,479) (38,500)
Net unrealized gains on available for sale securities - (5,117)
---------------- ----------------
Total deferred tax liability (3,169,479) (43,617)
---------------- ----------------
Net deferred tax asset $ 509,170 $ 108,674
================ ================
</TABLE>
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
deferred tax asset.
<PAGE>
8. CONTINGENCIES
The Company is involved in no litigation that would have a material adverse
affect on the Company's financial condition or results of operations.
9. STOCKHOLDER'S EQUITY
The declaration of dividends which can be paid by the Company is regulated
by New York Insurance Law. The Company must file a notice of its intention
to declare a dividend and the amount thereof with the superintendent at
least thirty days in advance of any proposed dividend declaration. No
dividends were paid to JNL in 1999, 1998 or 1997.
Statutory capital and surplus of the Company was $12,182,135 and $7,538,428
at December 31, 1999 and 1998, respectively. Statutory net income (loss) of
the Company was $(5,061,575), $(599,045) and $196,128 in 1999, 1998 and
1997, respectively.
10. LEASE OBLIGATION
The Company is party to a cancelable operating lease agreement under which
it occupies office space. Rent expense totaled $108,480 in 1999 and 1998.
The future lease obligations relating to this lease are as follows:
2000 $ 108,932
2001 111,192
2002 112,096
2003 116,616
2004 117,520
Thereafter 345,780
------------
Total $ 912,136
===========
11. RELATED PARTY TRANSACTIONS
The Company's investment portfolio is managed by PPM America, Inc. ("PPM"),
a registered investment advisor and ultimately a wholly owned subsidiary of
Prudential. The Company paid $10,450 and $7,498 to PPM for investment
advisory services during 1999 and 1998, respectively.
The Company has a service agreement with its parent, JNL, under which JNL
provides certain administrative services. Administrative fees were $450,536 and
$29,758 during 1999 and 1998, respectively.
