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[LOGO]
PERSPECTIVE
FIXED AND VARIABLE ANNUITY
PROSPECTUS
MAY 1, 1996
Issued by Jackson National Life Insurance Company
5901 Executive Drive, Lansing, Michigan 48911
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INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
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Issued By Jackson National Life Insurance Company in connection with the
Jackson National Separate Account -- I
Annuity Service Center:
P.O. Box 30389
Lansing, MI 48909-7889
Telephone Number: 1 (800) 766-4683
The Individual Deferred Fixed and Variable Annuity Contracts ("Contract(s)")
offered by this Prospectus are flexible premium contracts. Reference throughout
this Prospectus to Contracts shall also mean certificates issued under Group
Deferred Fixed and Variable Annuity Contracts. The Contracts are available for
retirement plans which may or may not qualify for Federal tax advantages
available under the Internal Revenue Code. Annuity payments under the Contracts
are deferred until a selected later date.
Premiums are allocated to the Jackson National Separate Account -- I
("Separate Account"), a separate account of Jackson National Life Insurance
Company ("Company"), and the General Account, as directed by the Owner. The
Separate Account uses its assets to purchase shares of one or more of the
following Series of mutual fund(s):
JNL(R) SERIES TRUST
JNL AGGRESSIVE GROWTH SERIES
JNL CAPITAL GROWTH SERIES
JNL GLOBAL EQUITIES SERIES
JNL/ALGER GROWTH SERIES
JNL/PHOENIX INVESTMENT COUNSEL BALANCED SERIES
JNL/PHOENIX INVESTMENT COUNSEL GROWTH SERIES
PPM AMERICA/JNL HIGH YIELD BOND SERIES
PPM AMERICA/JNL MONEY MARKET SERIES
PPM AMERICA/JNL VALUE EQUITY SERIES
SALOMON BROTHERS/JNL GLOBAL BOND SERIES
SALOMON BROTHERS/JNL U.S. GOVERNMENT & QUALITY BOND SERIES
T. ROWE PRICE/JNL ESTABLISHED GROWTH SERIES
T. ROWE PRICE/JNL INTERNATIONAL EQUITY INVESTMENT SERIES
T. ROWE PRICE/JNL MID-CAP GROWTH SERIES
The value of the Separate Account will vary in accordance with the
investment performance of the underlying mutual funds. Therefore, the Owner
bears the investment risk under this Contract for all amounts allocated to the
Separate Account. Amounts allocated to the General Account are guaranteed by the
Company and will earn a specified rate of interest declared periodically.
A Statement of Additional Information dated May 1, 1996, containing further
information about the Contracts and the Separate Account has been filed with the
Securities and Exchange Commission, and is available without charge upon request
from the Company at its Annuity Service Center at the address and telephone
number given above. The Statement of Additional Information, dated May 1, 1996,
is incorporated herein by reference. The Table of Contents for the Statement of
Additional Information appears on Page 30 of the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Please read this Prospectus carefully and retain it for your future
reference. The Prospectus sets forth the information about the Contracts and
Separate Account that the investor should know before investing. The Contracts
offered by this Prospectus are not available in all states.
An interest in the Contract is not a deposit or obligation of, or
guaranteed or endorsed by any bank or financial institution, nor is the Contract
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investment in a Contract is subject to
investment risk, including the possible loss of principal.
This Prospectus is dated May 1, 1996.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
DEFINITIONS.......................................................................................................... 3
FEE TABLES........................................................................................................... 5
Owner Transaction Expenses......................................................................................... 5
Separate Account Expenses.......................................................................................... 5
UNDERLYING FUND EXPENSES............................................................................................. 6
HIGHLIGHTS........................................................................................................... 8
CONDENSED FINANCIAL INFORMATION...................................................................................... 9
Accumulation Unit Values........................................................................................... 9
Financial Statements............................................................................................... 10
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT.................................................................. 11
SEPARATE ACCOUNT INVESTMENTS......................................................................................... 12
Underlying Fund.................................................................................................... 12
Voting Rights...................................................................................................... 12
Substitution of Securities......................................................................................... 12
CONTRACT CHARGES..................................................................................................... 13
Mortality and Expense Risk Charge.................................................................................. 13
Contract Maintenance Charge........................................................................................ 13
Administration Charge.............................................................................................. 13
Transfer Fee....................................................................................................... 13
Withdrawal Charge.................................................................................................. 14
Premium Taxes...................................................................................................... 14
Deduction for Separate Account Income Taxes........................................................................ 15
Other Expenses..................................................................................................... 15
Reduction of Charges for Sales to Certain Groups................................................................... 15
DESCRIPTION OF THE CONTRACTS......................................................................................... 15
Summary............................................................................................................ 15
Owner.............................................................................................................. 15
Annuitant.......................................................................................................... 15
Modification of the Contract....................................................................................... 15
Assignment......................................................................................................... 15
DEATH BENEFIT........................................................................................................ 16
Death of Contract Owner Before the Annuity Date.................................................................... 16
Death Benefit Amount Before the Annuity Date....................................................................... 16
Death Benefit Options Before the Annuity Date...................................................................... 16
Death of Contract Owner After the Annuity Date..................................................................... 17
Death of Annuitant................................................................................................. 17
Beneficiary........................................................................................................ 17
PURCHASES, WITHDRAWALS AND CONTRACT VALUE............................................................................ 17
Premiums........................................................................................................... 17
Automatic Payment Plan............................................................................................. 17
Automatic Dollar Cost Averaging Program............................................................................ 17
Rebalancing........................................................................................................ 18
Allocation of Premiums............................................................................................. 18
Transfer During Accumulation Period................................................................................ 18
Separate Account Accumulation Unit Value........................................................................... 19
Distribution of Contracts.......................................................................................... 19
Withdrawals (Redemptions).......................................................................................... 19
Systematic Withdrawal Program...................................................................................... 20
ERISA Plans........................................................................................................ 20
Minimum Contract Value............................................................................................. 20
ANNUITY PERIOD....................................................................................................... 21
Annuity Date....................................................................................................... 21
Annuity Options.................................................................................................... 21
ANNUITY PAYMENTS..................................................................................................... 23
Initial Monthly Annuity Payment.................................................................................... 23
Subsequent Monthly Payments........................................................................................ 23
Annuity Unit Value................................................................................................. 23
ADMINISTRATION....................................................................................................... 23
Statements and Reports............................................................................................. 23
Market Timing and Asset Allocation Services........................................................................ 24
TAXES................................................................................................................ 24
General............................................................................................................ 24
Withholding Tax on Distributions................................................................................... 24
Diversification -- Separate Account Investments.................................................................... 25
Multiple Contracts................................................................................................. 26
Contracts Owned by Other than Natural Persons...................................................................... 26
Tax Treatment of Assignments....................................................................................... 26
Qualified Plans.................................................................................................... 26
Tax Treatment of Withdrawals....................................................................................... 26
ADVERTISING.......................................................................................................... 28
LEGAL PROCEEDINGS.................................................................................................... 29
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................................................. 30
APPENDIX A........................................................................................................... A-1
APPENDIX B........................................................................................................... B-1
APPENDIX C........................................................................................................... C-1
</TABLE>
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DEFINITIONS
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The following terms, as used in this Prospectus, have the indicated
meanings:
ACCUMULATION PERIOD. The period between the Issue Date and the Annuity
Date; the build-up phase under the Contract.
ACCUMULATION UNIT. A unit of measurement which the Company uses to
calculate the Separate Account Contract Value during the Accumulation Period.
ANNUITY SERVICE CENTER. The address and telephone number are: P.O. Box
30389, Lansing, Michigan 48909-7889, (800) 766-4683. The Company will notify
Contract Owners of any change in address or telephone number.
ANNUITANT. The natural person on whose life the annuity benefit for this
Contract is based.
ACCOUNT VALUE. An accounting maintained by the Company indicating an
Owner's Contract Value under a Contract.
ANNUITIZATION. The process by which an Annuitant converts from the
Accumulation Period to the Annuity Period. Upon Annuitization, the Contract is
converted from the build-up phase to the phase during which the Annuitant or
other payee(s) receive periodic annuity payments.
ANNUITY DATE. The date on which annuity payments are to begin.
ANNUITY PERIOD. The period beginning on the Annuity Date.
ANNUITY UNIT. A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments.
BENEFICIARY(IES). The person(s) designated to receive any benefits under a
Contract upon the death of the Owner.
CODE. The Internal Revenue Code of 1986, as amended, or as the same may be
amended or superseded.
CONTRACT VALUE. The Contract Value is the sum of: (1) the Separate Account
Contract Value; and (2) the General Account Contract Value.
CONTRACT YEAR. A year starting from the Issue Date in one calendar year and
ending on the anniversary of the Issue Date in the succeeding calendar year.
DEFERRED ANNUITY. An annuity contract under which the start of annuity
payments is deferred to a future date.
DUE PROOF OF DEATH. A certified copy of a death certificate, a certified
copy of a decree of a court of competent jurisdiction as to the finding of
death, and any other proof or documentation required by the Company.
FIXED ANNUITY. An Annuity providing for a series of payments which are
guaranteed by the Company as to dollar amount during annuitizations.
FUND. A collective term used to represent an investment entity which may be
selected to be an underlying investment of the Contract.
GENERAL ACCOUNT. This General Account is made up of all assets under the
Contract, other than those in the Separate Account.
GENERAL ACCOUNT CONTRACT VALUE. This will be: (1) the sum of all amounts
credited to the General Account under the Contract; less (2) any amounts
cancelled or withdrawn for charges, deductions, surrenders, or transfers.
HOME OFFICE. The Company's headquarters is located at 5901 Executive Drive,
Lansing, Michigan 48911.
ISSUE DATE. The date a Contract is issued.
LATEST ANNUITY DATE. The date on which the Owner attains age 90 under a
Non-Qualified Plan Contract or such earlier date as required by the applicable
Qualified Plan, unless otherwise approved by the Company.
NON-QUALIFIED PLAN. A retirement plan which does not receive favorable tax
treatment under Section 401, 403, 408 or 457 of the Code.
OWNER ("YOU," "YOUR"). The person or entity named in the application who is
entitled to exercise all rights and privileges under this Contract. Usually, but
not always, the Owner is also the Annuitant. If Joint Owners are named, the
Joint Owner must be the spouse of the other Joint Owner. Joint Owners share
ownership in all respects.
PORTFOLIO. A subdivision of the Separate Account invested wholly in shares
of one of the corresponding Series of the Underlying Funds.
PREMIUM. Amounts paid to the Company for the Contract by or on behalf of an
Owner.
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QUALIFIED PLAN. A retirement plan which receives favorable tax treatment
under Sections 401, 403, 408 or 457 of the Code.
SEPARATE ACCOUNT. A segregated asset account of the Company, named "Jackson
National Separate Account -- I," consisting of several Portfolios, each
investing in a corresponding Series of the Funds.
SEPARATE ACCOUNT CONTRACT VALUE. The Separate Account Contract Value is the
sum of the value of all Portfolio Accumulation Units under this Contract.
SERIES. A separate investment portfolio of a Fund which has distinct
investment objectives. Each Series serves as an underlying investment medium for
Premiums and allocations made to one of the Portfolios of the Separate Account.
UNDERLYING FUND(S). The underlying entities in which the Portfolios invest.
VALUATION DATE. Each day the New York Stock Exchange ("NYSE") is open for
business.
VALUATION PERIOD. The period commencing at the close of normal trading on
the NYSE (currently 4:00 p.m. Eastern time) on each Valuation Date and ending at
the close of the NYSE on the next succeeding Valuation Date.
VARIABLE ANNUITY. A series of payments made during the Annuity Period to a
payee under a Contract which vary in amount in accordance with the investment
experience of the Portfolios to which Contract Values have been allocated.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). A charge which may be
imposed upon certain withdrawals.
WITHDRAWAL VALUE. The Contract Value minus any premium tax payable and
minus any applicable Contract charges.
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FEE TABLES
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OWNER TRANSACTION EXPENSES
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Contingent Deferred Sales Charge (Withdrawal Charge) (as a percentage of
Premiums)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE CONTRACT YEARS
SINCE PREMIUM BEING WITHDRAWN WAS MADE
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year.................................................. 0 1 2 3 4 5 6 7+
Applicable Charge:.................................... 7% 6% 5% 4% 3% 2% 1% 0%
Annual Contract Maintenance Charge........................................................................... $35.00
Transfer Fee (Applies solely to transfers in excess of 15 in a Contract Year)................................ $25.00
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</TABLE>
SEPARATE ACCOUNT EXPENSES
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(As an annual percentage of average net asset value. The daily equivalent is
deducted from each of the Portfolios of the Separate Account.)
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<TABLE>
<S> <C>
Mortality and Expense Risk Charges.......................................................... 1.25%
Administration Charge....................................................................... .15%
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Total Separate Account Annual Expenses.................................................... 1.40%
</TABLE>
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UNDERLYING FUND EXPENSES
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JNL SERIES TRUST
(As an annual percentage of average net assets based on estimates for fiscal
year.)
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<TABLE>
<CAPTION>
OTHER
EXPENSES
MANAGEMENT (AFTER TOTAL FUND
FEE REIMBURSEMENT) ANNUAL EXPENSES
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<S> <C> <C> <C>
JNL Aggressive Growth Series.................................. .95% .15% 1.10%
JNL Capital Growth Series..................................... .95% .15% 1.10%
JNL Global Equities Series.................................... 1.00% .15% 1.15%
JNL/Alger Growth Series....................................... .975% .15% 1.125%
JNL/Phoenix Investment Counsel Balanced Series................ .90% .15% 1.05%
JNL/Phoenix Investment Counsel Growth Series.................. .90% .15% 1.05%
PPM America/JNL High Yield Bond Series........................ .75% .15% .90%
PPM America/JNL Money Market Series........................... .60% .15% .75%
PPM America/JNL Value Equity Series........................... .75% .15% .90%
Salomon Brothers/JNL Global Bond Series....................... .85% .15% 1.00%
Salomon Brothers/JNL U.S. Government & Quality Bond Series.... .70% .15% .85%
T. Rowe Price/JNL Established Growth Series................... .85% .15% 1.00%
T. Rowe Price/JNL International Equity Investment Series...... 1.10% .15% 1.25%
T. Rowe Price/JNL Mid-Cap Growth Series....................... .95% .15% 1.10%
</TABLE>
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The expenses shown above are assessed at the Underlying Fund level and are
not direct charges against Separate Account assets or reductions from Contract
Values. These expenses are taken into consideration in computing each Series'
net asset value, which is the share price used to calculate the Portfolio's unit
value. Currently, all expenses (excluding Management Fees) in excess of .15% are
reimbursed. Prior to reimbursement Total Fund Annual Expenses as a percentage of
net assets are expected to be 2.77%; 2.08%; 2.25%; 1.89%; 3.71%; 5.38%; 1.50%;
1.30%; 2.28%; 2.14%; 2.53%; 2.09%; 2.14%; and 2.10%; respectively. Voluntary
reimbursements to these Series may be modified or discontinued at any time.
EXAMPLE --
If you surrender your contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
JNL Aggressive Growth Portfolio........................................................ $ 97 $ 134
JNL Capital Growth Portfolio........................................................... 97 134
JNL Global Equities Portfolio.......................................................... 98 136
JNL/Alger Growth Portfolio............................................................. 98 135
JNL/Phoenix Investment Counsel Balanced Portfolio...................................... 97 133
JNL/Phoenix Investment Counsel Growth Portfolio........................................ 97 133
PPM America/JNL High Yield Bond Portfolio.............................................. 95 128
PPM America/JNL Money Market Portfolio................................................. 94 123
PPM America/JNL Value Equity Portfolio................................................. 95 128
Salomon Brothers/JNL Global Bond Portfolio............................................. 96 131
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio.......................... 95 126
T. Rowe Price/JNL Established Growth Portfolio......................................... 96 131
T. Rowe Price/JNL International Equity Investment Portfolio............................ 99 139
T. Rowe Price/JNL Mid-Cap Growth Portfolio............................................. 97 134
</TABLE>
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If you do not surrender or if you annuitize your contract at the end of the
applicable time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
JNL Aggressive Growth Portfolio........................................................ $ 27 $84
JNL Capital Growth Portfolio........................................................... 27 84
JNL Global Equities Portfolio.......................................................... 28 86
JNL/Alger Growth Portfolio............................................................. 28 85
JNL/Phoenix Investment Counsel Balanced Portfolio...................................... 27 83
JNL/Phoenix Investment Counsel Growth Portfolio........................................ 27 83
PPM America/JNL High Yield Bond Portfolio.............................................. 25 78
PPM America/JNL Money Market Portfolio................................................. 24 73
PPM America/JNL Value Equity Portfolio................................................. 25 78
Salomon Brothers/JNL Global Bond Portfolio............................................. 26 81
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio.......................... 25 76
T. Rowe Price/JNL Established Growth Portfolio......................................... 26 81
T. Rowe Price/JNL International Equity Investment Portfolio............................ 29 89
T. Rowe Price/JNL Mid-Cap Growth Portfolio............................................. 27 84
</TABLE>
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EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the foregoing table and examples is to assist an investor in
understanding the various costs and expenses that he or she will bear
directly or indirectly by investing in the Separate Account. For additional
information see "Contract Charges," beginning on Page 12 of this Prospectus;
see also the sections relating to management of the Underlying Funds in their
respective prospectuses. The examples do not illustrate the tax consequences
of surrendering a Contract.
2. The examples assume that there were no transactions which would result in the
imposition of the Transfer Fee. The amount of the Transfer Fee is $25, except
that the first 15 transfers per Contract Year are not subject to the fee.
Premium taxes, which range from 0% to 4% of Premiums, are not reflected.
3. For purposes of the amounts reported in the examples, the Contract
Maintenance Charge is reflected by applying a percentage equivalent charge,
obtained by dividing the total amount of such charges anticipated to be
collected during the year by the total estimated average net assets of the
Portfolios attributable to the Contracts.
4. A Withdrawal Charge is imposed upon annuitizations which occur within one
year of the Issue Date.
5. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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HIGHLIGHTS
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This Prospectus contains information about the Contract, which provides
variable and fixed benefits. It describes the uses, costs and objectives of the
Contract, and the rights and privileges of the Owner. It also provides
information about the Company and the Separate Account.
Premiums for the Contracts may be allocated to one or more Portfolios of
the Separate Account, and/or the General Account under the Contracts. The
Separate Account invests in shares of the corresponding Series of the Underlying
Fund:
JNL SERIES TRUST
JNL Aggressive Growth Series
JNL Capital Growth Series
JNL Global Equities Series
JNL/Alger Growth Series
JNL/Phoenix Investment Counsel Balanced Series
JNL/Phoenix Investment Counsel Growth Series
PPM America/JNL High Yield Bond Series
PPM America/JNL Money Market Series
PPM America/JNL Value Equity Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL U.S. Government & Quality Bond Series
T. Rowe Price/JNL Established Growth Series
T. Rowe Price/JNL International Equity Investment Series
T. Rowe Price/JNL Mid-Cap Growth Series
The Individual Deferred Fixed and Variable Annuity Contracts offered by
this Prospectus are flexible premium contracts. The Contracts can be purchased
on a non-tax qualified basis ("Non-Qualified Plan Contract") or in connection
with certain plans qualifying for favorable federal income tax treatment
("Qualified Plan Contract"). This Prospectus describes only the variable portion
of the Contract.
A Withdrawal Charge may be imposed upon withdrawals from the Contract.
Withdrawal Charges will vary in amount depending upon the number of completed
years in the Contract from the date of Premium deposit at the time of its
withdrawal. The Withdrawal Charge is found in the Fee Tables. The maximum
Withdrawal Charge is 7%. (See "Withdrawal Charge".)
For purposes of determining federal income tax liability, withdrawals are
deemed to be interest and earnings, first-out basis, which means taxable income
is withdrawn first. There is a 10% penalty tax on the taxable amount of any
premature distribution from Non-Qualified and certain Qualified Plan Contracts.
The penalty tax generally applies to any distribution made prior to the Owner
attaining age 59 1/2. (See "Taxes".)
Withdrawals of amounts attributable to contributions made pursuant to a
salary reduction agreement (as defined in Section 403(b)(11) of the Code) are
limited to circumstances only when the Owner attains age 59 1/2, separates from
service, 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. Owners should consult their tax
adviser regarding the consequences of withdrawals or distributions.
The initial Premium must be at least $5,000 for Non-Qualified Plan
Contracts and $2,000 for Qualified Plan Contracts. Subsequent Premiums must be
at least $500 ($50 if made in connection with an Automatic Payment Plan). The
cumulative total of all Premiums under a Contract may not exceed $1,000,000
without the prior consent of the Company. (See "Purchases, Withdrawals and
Contract Value".) The Company may waive any of these minimums or maximums at any
time.
To be sure that the Owner is satisfied with the Contract, the Owner has a
ten day free look (or longer if required by state law). Within ten days of the
day the Contract is received, it may be returned to the Company's Annuity
Service Center, at the address shown on page 1 of this Prospectus. When the
Contract is received by the Company, the Company will void the Contract and
refund the Contract Value in full unless otherwise required by state and/or
federal law.
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CONDENSED FINANCIAL INFORMATION
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ACCUMULATION UNIT VALUES
The following table presents Accumulation Unit values at the commencement
of operations of the Separate Account and end of the Separate Account's fiscal
year as well as ending Accumulation Units outstanding under each Portfolio of
the Separate Account. This data has been taken from the Separate Account's
financial statements. The Separate Account's financial statements for the period
have been audited by Price Waterhouse LLP, independent accountants. This
information should be read in conjunction with the Separate Account's financial
statements and related notes thereto.
<TABLE>
<CAPTION>
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DECEMBER 31,
PORTFOLIOS 1995(A)
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<S> <C>
JNL Aggressive Growth Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.20
Accumulation units outstanding at
the end of period 4,008
JNL Capital Growth Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.34
Accumulation units outstanding at
the end of period 1,587
JNL Global Equities Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.48
Accumulation units outstanding at
the end of period 4,778
JNL/Alger Growth Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $ 9.93
Accumulation units outstanding at
the end of period 12,285
JNL/Phoenix Investment Counsel
Balanced Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.34
Accumulation units outstanding at
the end of period 12,871
<CAPTION>
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DECEMBER 31,
PORTFOLIOS 1995(A)
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<S> <C>
JNL/Phoenix Investment Counsel
Growth Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.58
Accumulation units outstanding at
the end of period 571
PPM America/JNL High Yield Bond
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.11
Accumulation units outstanding at
the end of period 100
PPM America/JNL Money Market
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.03
Accumulation units outstanding at
the end of period 14,608
PPM America/JNL Value Equity
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.59
Accumulation units outstanding at
the end of period 3,944
Salomon Brothers/JNL Global Bond
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.41
Accumulation units outstanding at
the end of period 3,128
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
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<TABLE>
<CAPTION>
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DECEMBER 31,
PORTFOLIOS 1995(A)
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<S> <C>
Salomon Brothers/JNL U.S. Government
& Quality Bond Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.21
Accumulation units outstanding at
the end of period 1,275
T. Rowe Price/JNL Established Growth
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.36
Accumulation units outstanding at
the end of period 10,564
<CAPTION>
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DECEMBER 31,
PORTFOLIOS 1995(A)
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<S> <C>
T. Rowe Price/JNL International
Equity Investment Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.49
Accumulation units outstanding at
the end of period 3,096
T. Rowe Price/JNL Mid-Cap Growth
Portfolio
Accumulation unit value:
Beginning of period $10.00
End of period $10.37
Accumulation units outstanding at
the end of period 5,120
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
FINANCIAL STATEMENTS
The full financial statements of the Separate Account, the financial
statements of the Company and the auditor's report thereon are contained in the
Statement of Additional Information.
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DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
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COMPANY
The Company is a stock life insurance company organized under the laws of
the state of Michigan in June 1961. Its legal domicile and principal business
address is 5901 Executive Drive, Lansing, Michigan 48911. The Company is a
wholly-owned subsidiary of Prudential Corporation, plc, London, England.
The Company is admitted to conduct life insurance and annuity business in
the District of Columbia and all states except New York. It intends to market
the Contract in all jurisdictions in which it is admitted to conduct variable
annuity business. The Contracts offered by this Prospectus are issued by the
Company and will be funded by the Separate Account.
SEPARATE ACCOUNT
The Separate Account was originally established by the Company on June 14,
1993, pursuant to the provisions of Michigan 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 Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940. This registration does not involve supervision of the management of
the Separate Account or the Company by the Securities and Exchange Commission.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to its reserves and other
Contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains, and losses, whether or
not realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains, or
losses of the Company.
The Separate Account is divided into Portfolios, with the assets of each
Portfolio pertaining to Account Value invested in the shares of the
corresponding Series of the Underlying Fund. The Company does not guarantee the
investment performance of the Separate Account, its Portfolios or the Series of
the Underlying Fund. Values allocated to the Separate Account and the amount of
Variable Annuity payments will vary with the values of shares of the Underlying
Fund, and are also reduced by Contract charges. The Separate Account may also
fund other contracts issued by the Company, which will be accounted for
separately from the Contracts.
The basic objective of a variable annuity contract is to provide payments
which will be to some degree responsive to changes in the economic environment,
including inflationary forces and changes in rates of return available from
various types of investments. However, the Owner bears the entire investment
risk that the basic objective of the Contract may not be realized, and that the
adverse effects of inflation may not be lessened. There can be no assurance that
the aggregate amount of variable annuity payments will equal or exceed the
Premiums made with respect to a Contract.
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<PAGE> 13
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SEPARATE ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
UNDERLYING FUND
Each of the Portfolios of the Separate Account invests in the shares of one
of the following corresponding Series, which are separate investment series of
an open-end management investment company registered under the Investment
Company Act of 1940 (commonly known as a "mutual fund"):
JNL SERIES TRUST
JNL Aggressive Growth Series
JNL Capital Growth Series
JNL Global Equities Series
JNL/Alger Growth Series
JNL/Phoenix Investment Counsel Balanced Series
JNL/Phoenix Investment Counsel Growth Series
PPM America/JNL High Yield Bond Series
PPM America/JNL Money Market Series
PPM America/JNL Value Equity Series
Salomon Brothers/JNL Global Bond Series
Salomon Brothers/JNL U.S. Government & Quality Bond Series
T. Rowe Price/JNL Established Growth Series
T. Rowe Price/JNL International Equity Investment Series
T. Rowe Price/JNL Mid-Cap Growth Series
A summary description of the investment objectives of the Series of the
Underlying Fund in which the Portfolios invest is contained in Appendix B to
this Prospectus. However, there is no assurance that the investment objective of
any of the Series will be met. Contract Owners bear the complete investment risk
for Premiums allocated to a Portfolio. Contract Values will fluctuate in
accordance with the investment performance of the Portfolio(s) to which Premiums
are allocated, and in accordance with the imposition of the fees and charges
assessed under the Contracts.
DETAILED INFORMATION ABOUT THE JNL SERIES TRUST IS CONTAINED IN ITS
ACCOMPANYING CURRENT PROSPECTUS. AN INVESTOR SHOULD CAREFULLY REVIEW THE TRUST'S
PROSPECTUS BEFORE ALLOCATING AMOUNTS TO BE INVESTED IN THE PORTFOLIOS OF THE
SEPARATE ACCOUNT.
VOTING RIGHTS
To the extent required by applicable law, the Company will vote the shares
of the Underlying Fund held in the Separate Account at meetings of the
shareholders of the Underlying Funds in accordance with instructions received
from persons having the voting interest in the corresponding Portfolios. The
Company will vote shares for which it has not received instructions in the same
proportion as it votes shares for which it has received instructions.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Trust not more than 60 days prior to the
meeting of the respective Underlying Fund's shareholders. Voting instructions
will be solicited by written communication in advance of such meeting. Except as
may be limited by the terms of the retirement plan pursuant to which the
Contract was issued, the person having such voting rights will be the Owner
before the Annuity Date; thereafter the payee entitled to receive payments under
the Contract.
SUBSTITUTION OF SECURITIES
If the shares of any of the Series should no longer be available for
investment by the Separate Account or if, in the judgment of the Company's Board
of Directors, further investment in the shares of a Series is no longer
appropriate in view of the purposes of the Contract, the Company may substitute
shares of another mutual fund (or Series thereof) for Underlying Fund shares
already purchased and/or to be purchased in the future by Premiums under the
Contract. No such substitution of securities may take place without prior
approval of the Securities and Exchange Commission and under such requirements
as the Commission may impose.
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CONTRACT CHARGES
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MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from each Portfolio
during each Valuation Period. The aggregate Mortality and Expense Risk Charge is
equal, on an annual basis, to 1.25% of the daily net asset value of each
Portfolio. The mortality risks assumed by the Company arise from its contractual
obligations: (1) to make annuity payments after the Annuity Date for the life of
the Annuitant(s); (2) to waive the Withdrawal Charge in the event of the death
of the Owner; and (3) to provide both a standard and an enhanced Death Benefit
prior to the Annuity Date. A detailed explanation of the standard and Enhanced
Death Benefits may be found under "Death Benefit."
The expense risk assumed by the Company is that the costs of administering
the Contracts and the Separate Account will exceed the amount received from the
Administration Charge and the Contract Maintenance Charge. The Expense Risk
Charge is guaranteed by the Company and cannot be increased. The Mortality and
Expense Risk Charge is assessed during both the Accumulation Period and the
Annuity Period.
CONTRACT MAINTENANCE CHARGE
An annual Contract Maintenance Charge of $35 is charged against each
Contract. The amount of this charge is guaranteed and cannot be increased by the
Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract. The Contract
Maintenance Charge will be assessed on each anniversary of the Contract Date
that occurs on or prior to the Annuity Date. In the event that a total surrender
of the Contract Value is made, the Charge will be assessed as of the date of
surrender without proration. This charge is not assessed during the Annuity
Period.
The total Contract Maintenance Charge is allocated between the Portfolio(s)
and the General Account in proportion to the respective Contract Values
similarly allocated. The Contract Maintenance Charge is at cost with no margin
included for profit. The Company will monitor this charge to ensure that it does
not exceed annual administrative expenses. This charge may be a lesser amount
where required by state law.
ADMINISTRATION CHARGE
The Company assesses an Administration Charge equal, on an annual basis, to
0.15% of the daily net asset value of the Separate Account. The Administration
Charge is designed only to reimburse the Company for administrative expenses
related to the Separate Account and the issuance and maintenance of the
Contract, and the Company will monitor this charge to ensure that it does not
exceed annual administration expenses.
TRANSFER FEE
A Transfer Fee of $25.00 will apply to transfers in excess of 15 in a
Contract Year. The Company may waive the Transfer Fee in connection with
pre-authorized automatic transfer programs, or in those states where a lesser
fee is required.
This fee will be deducted from Contract Values which remain in the
Portfolio(s) from which the transfer was made. If such remaining Contract Value
is insufficient to pay the Transfer Fee, then the fee will be deducted from
transferred Contract Values.
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<PAGE> 15
WITHDRAWAL CHARGE
Federal tax law places a number of constraints on withdrawals from annuity
contracts. Subject to those limitations, the Contract Value may be withdrawn at
any time during the Accumulation Period. Owners should consult their own tax
counsel or other tax advisers regarding any withdrawals. (See "Withdrawals").
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon certain withdrawals. Withdrawal Charges will vary in
amount depending upon the number of completed years in the Contract from the
date of Premium deposit at the time of withdrawal in accordance with the
Withdrawal Charge table shown below.
WITHDRAWAL CHARGE TABLE
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<TABLE>
<CAPTION>
NUMBER OF COMPLETE CONTRACT YEARS APPLICABLE WITHDRAWAL
SINCE PREMIUM BEING WITHDRAWN WAS MADE CHARGE PERCENTAGE
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Zero............................................................................... 7%
First.............................................................................. 6%
Second............................................................................. 5%
Third.............................................................................. 4%
Fourth............................................................................. 3%
Fifth.............................................................................. 2%
Sixth.............................................................................. 1%
Seventh and later.................................................................. 0%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The Withdrawal Charge is deducted from the remaining Contract Value so that
the actual reduction in Contract Value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid. For purposes of
determining the Withdrawal Charge, withdrawals will be allocated first to
earnings, if any (which may generally be withdrawn free of Withdrawal Charge),
and then to Premium on a first-in, first-out basis so that all withdrawals are
allocated to Premium to which the lowest (if any) Withdrawal Charge applies.
Premiums that are no longer subject to the Withdrawal Charge (and not
previously withdrawn), plus earnings in the Owner's Account may be withdrawn
free of Withdrawal Charges at any time ("Initial Free Withdrawal").
Further, there may be an additional free withdrawal amount for the first
withdrawal during a Contract Year ("Additional Free Withdrawal"). The Additional
Free Withdrawal amount is equal to 10% of Premium that remains subject to the
Withdrawal Charge, less earnings in the Owner's account. An Owner will not
receive the benefit of an Additional Free Withdrawal in a full surrender. For an
example of the Additional Free Withdrawal calculation see Appendix C.
If the withdrawal request does not specify from which Portfolio(s) the
withdrawal is to be made, the request will be processed by reducing the Contract
Values in each Portfolio in proportion to their allocations.
The Company will waive the Withdrawal Charge on any withdrawal necessary to
satisfy the minimum distribution
requirements of the Code. In addition, where legally permitted, the Withdrawal
Charge may be eliminated when a Contract is issued to an agent, officer,
director or employee of the Company or its affiliates.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge, to make up any difference.
PREMIUM TAXES
The Company will charge against the Contract Value the amount of any
premium taxes levied by a state or any other governmental entity upon Premiums
received by the Company. To the best of the Company's present knowledge, premium
taxes currently imposed by certain jurisdictions range from 0% to 4.0%. This
range is subject to change. The method used to recoup premium tax expense will
be determined by the Company at its sole discretion and in compliance with
applicable state law. The Company may deduct such charges from an Owner's
Contract Value either: (1) at the time the Contract is surrendered, (2) at
Annuitization, or (3) in those states which require, at the time Premiums are
made to the Contract.
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<PAGE> 16
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company has reserved the right to establish such a provision for taxes in the
future if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient.
OTHER EXPENSES
The charges and expenses applicable to the various Series of the Underlying
Funds are borne indirectly by Owners having Contract Values allocated to the
Portfolios that invest in the respective Series. For a summary of current
estimates of those charges and expenses, see "Fee Tables."
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the Withdrawal and/or Administration charges on
Contracts sold to certain groups or individuals, or to a trustee, employer or
other entity representing a group, where it is expected that such sales will
result in savings of sales or administrative expenses. The entitlement to such
reductions will be determined by the Company by considering the following
factors: (1) the size of the group; (2) the total amount of Premiums expected
to be received; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant in determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for such sales is
contractually guaranteed. Such reductions may be withdrawn or modified by the
Company on a uniform basis. The Company's reductions in charges for such sales
will not be unfairly discriminatory to the interests of any Owners.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
The Contracts provide for the accumulation of Contract Values during the
Accumulation Period. Upon Annuitization, benefits are payable under the
Contracts in the form of an annuity, either for the life of the Annuitant or for
a fixed number of years, as permitted by state law. (See "Annuity Period --
Annuity Options.")
OWNER
The Owner is the person who is entitled to exercise all rights and
privileges of ownership under the Contract.
If Joint Owners are named, the Joint Owner must be the spouse of the other
Joint Owner. The Joint Owner will possess an undivided interest in the Contract.
The Contract Owner retains sole rights in the Contract upon the other's death
prior to the Annuity Date. Unless otherwise provided, when Joint Owners are
named, the exercise of any ownership right in the Contract shall require a
written indication of an intent to exercise that right, which must be signed by
both Owners. Upon the death of a Joint Contract Owner, the surviving Joint
Owner, if any, will be treated as the primary Beneficiary. Any other Beneficiary
designation on record at the time of death will be treated as a contingent
Beneficiary.
ANNUITANT
The Annuitant is the person on whose life annuity payments under a Contract
depend. (In the case of a Contract issued in connection with a plan qualified
under Section 403(b) or 408 of the Code, the Owner is the Annuitant.)
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President, Secretary or Assistant
Secretary may approve a change or waive any provisions of the Contract. Any
change or waiver must be in writing. No agent has the authority to change or
waive the provisions of the Contract.
The Company reserves the right to change the terms of the Contract as may
be necessary to comply with changes in applicable law, or otherwise deemed
necessary by the Company.
ASSIGNMENT
Where permitted, the Owner may assign the Contract at any time during the
lifetime of the Annuitant. Such assignment will take effect upon receipt by the
Company of written notice thereof executed by the Owner. The Company assumes no
responsibility for the validity or sufficiency of any assignment. The Company
shall not be liable as to any payment or other settlement made by the
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<PAGE> 17
Company before receipt of the assignment. Qualified Plan Contracts may not be
assigned, pledged or otherwise transferred except under such conditions as may
be allowed by applicable law.
If this Contract is a Non-Qualified Plan Contract, any portion which is
pledged or assigned shall be treated as a distribution and shall be included in
gross income to the extent that the cash value exceeds the investment in the
Contract, for the taxable year in which the assignment or pledge occurs. In
addition, any portion assigned may, under certain conditions, be subject to a
tax penalty equal to 10% of the amount which is included in gross income.
- --------------------------------------------------------------------------------
DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH OF CONTRACT OWNER BEFORE THE ANNUITY DATE
Upon the death of the Owner, or any Joint Contract Owner, before the
Annuity Date, the death benefit will be paid to the Beneficiary(ies) designated
by the Owner. Upon the death of a Joint Contract Owner, the surviving Joint
Contract Owner, if any, will be treated as the primary Beneficiary. Any other
Beneficiary designation on record at the time of death will be treated as a
contingent Beneficiary.
DEATH BENEFIT AMOUNT BEFORE THE ANNUITY DATE
The standard death benefit is equal to the greater of:
1. the Contract Value at the end of the Valuation Period during which
due proof of death and an election of the type of payment to the
Beneficiary is received by the Company, at the Home Office, or
2. the total Premiums paid prior to the death of the Owner, minus the
sum of:
a) the total withdrawals and any Withdrawal Charges assessed; and
b) premium taxes incurred.
In addition, where permitted by state law, the Company will provide an
enhanced death benefit. The enhanced death benefit is determined by (A)
re-computing the standard death benefit by accumulating all amounts under (2)
above annually at 5% (4% if the Owner was age 70 or older on the Issue Date) to
the date of death, and (B) paying the greater of the amount so determined and
the following amount, which is deemed to be $0 if the Owner dies prior to the
seventh Contract Year:
the Contract Value at the seventh Contract Year, plus any Premiums
paid since that time and prior to death, minus the sum of:
a) total withdrawals and any Withdrawal Charges assessed since
such seventh Contract Year; and
b) premium taxes incurred since the seventh Contract Year,
all accumulated annually at 5% (4% if the Owner was age 70 or older on
the Issue Date) to the date of death.
The enhanced death benefit shall never exceed 250% of all Premiums paid to
the Contract, reduced by the amount of any withdrawals.
NOTE: The portion of the Mortality and Expense Risk Charge
attributable to the enhanced death benefit will be assessed against
Separate Account allocations pursuant to all Contracts issued, whether or
not applicable state laws permit the Contract to offer the enhanced death
benefit.
DEATH BENEFIT OPTIONS BEFORE THE ANNUITY DATE
In the event of the death of the Owner, or any Joint Contract Owner, before
the Annuity Date, a Beneficiary must request that the death benefit be paid
under one of the Death Benefit Options below. In addition, if the Beneficiary is
the spouse of the Contract Owner, he or she may elect to continue the Contract
at the then Contract Value in his or her own name and exercise all the Contract
Owner's rights under the Contract. The following are the Death Benefit Options:
Option 1 -- lump sum payment of the death benefit; or
Option 2 -- the payment of the entire death benefit within 5 years of
the date of the death of the Contract Owner or any Joint Contract Owner; or
Option 3 -- payment of the death benefit under an Annuity Option over
the lifetime of the Beneficiary or over a period not extending beyond the
life expectancy of the Beneficiary with distribution beginning within one
year of the date of Your death or any Joint Contract Owner.
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<PAGE> 18
Any portion of the death benefit not applied under Option 3 within one year
of the date of a Contract Owner's death, must be distributed within five years
of the date of death.
If a lump sum payment is requested, the amount will be paid within seven
(7) days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments Provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be elected
during the sixty-day period beginning with the date of receipt of proof of
death.
DEATH OF CONTRACT OWNER AFTER THE ANNUITY DATE
If the Owner, or any Joint Contract Owner, dies after the Annuity Date, and
the Owner is not an Annuitant, any remaining payments under the Annuity Option
elected will continue at least as rapidly as under the method of distribution in
effect at such Contract Owner's death. Upon Your death after the Annuity Date,
the Beneficiary becomes the Contract Owner.
DEATH OF ANNUITANT
Upon the death of an Annuitant, who is not a Contract Owner, before the
Annuity Date, the Owner may designate a new Annuitant, subject to the Company's
underwriting rules then in effect. If no designation is made within 30 days of
the death the Annuitant, You will become the Annuitant. If the Contract Owner is
a non-natural person, the death of the Annuitant will be treated as the death of
the Contract Owner and a new Annuitant may not be designated.
Upon the death of the Annuitant after the Annuity Date, the death benefit,
if any, will be as specified in the Annuity Option elected. Death benefits will
be paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
BENEFICIARY
The Owner may designate the Beneficiary(ies) to receive any amount payable
on Owner's death. The original Beneficiary(ies) will be named in the
application. If two or more persons are named, those surviving the Owner will
share equally unless otherwise stated. The Owner may change the Beneficiary(ies)
by filing a written request with the Company at its Annuity Service Center,
unless an irrevocable Beneficiary(ies) designation was previously filed. Any
change will take effect when recorded by the Company. The Company is not liable
for any payment made or action taken before it records the change.
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PREMIUMS
Premiums are flexible. This means that the Owner, subject to Company
declared minimums and maximums, may change the amounts, frequency or timing of
Premiums. The initial Premium must be at least $5,000 for Non-Qualified Plan
Contracts and $2,000 for Qualified Plan Contracts. Subsequent Premiums must be
at least $500 ($50 if made in connection with an Automatic Payment Plan). Total
Premiums under a Contract may not exceed $1,000,000 without the prior consent of
the Company. The Company will not issue a Contract to an individual under a
Non-Qualified Plan who is age 80 or older or under a Qualified Plan who is age
70 1/2 or older, without prior Company approval. The Company may waive any of
the maximums or minimums contained in this Section.
The Company reserves the right to refuse any Premium at any time.
AUTOMATIC PAYMENT PLAN
Automatic bank drafts through the Company's Automatic Payment Plan for
scheduled subsequent Premiums may be made at a minimum of $50 or more per month.
An enrollment form for this program is available through the Company's Annuity
Service Center.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Units of the Portfolios may be purchased over a period of time through the
Automatic Dollar Cost Averaging ("DCA") Program. Under this Program, the Owner
may authorize the automatic transfer of a fixed dollar amount ($100 minimum) of
his or her choice at regular intervals from a source account to one or more of
the Portfolios (other than the source account) at the unit values determined on
the dates of the transfers. Currently, all Portfolios are available as source
accounts. The
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<PAGE> 19
intervals between transfers may be monthly, quarterly, semi-annually or
annually, at the option of the Owner. This service is intended to allow the
Owner to utilize DCA, a long-term investment program which provides for regular,
level investments over time. The Company makes no guarantees that DCA will
result in a profit or protect against loss in a declining market. To qualify for
the DCA Program, there must be a minimum total Contract Value of $15,000, unless
such minimum is waived by the Company.
Another option under the DCA Program is the periodic transfer of a selected
percentage of the value of the source account to one of the Portfolios (other
than the source account). A third option is to transfer the entire Contract
Value in the source account in a stated number of transfers as selected by the
Owner. Although the various options under the DCA Program will allow transfers
to be made from any of the Portfolios, the Owner must elect to have the
transfers made exclusively from one of these source accounts.
A written election of this service, on a form provided by the Company, must
be completed by the Contract Owner in order to begin transfers. Once elected,
transfers from the source account will be processed periodically until either
the value of the source account is completely depleted or the Contract Owner
instructs the Company in writing to cancel the transfers. The Company also
reserves the right to assess a processing fee for this service.
REBALANCING
A Contract Owner may elect, on a form provided by the Company, to have
his/her Separate Account Value reallocated among Portfolios in designated
percentages on a periodic basis (monthly, quarterly, semi-annual or annual
basis, or at such other time interval as approved by the Company). The Company
reserves the right to assess a processing fee for this service.
ALLOCATION OF PREMIUMS
Premiums are allocated to the Portfolio(s) selected by the Owner. Owners
making initial Premiums should specify their allocations on the application for
a Contract. If the application is in good order, the Company will apply the
initial Premium to the Portfolio(s), as selected, and credit the Contract with
Accumulation Units within two business days of receipt at the Annuity Service
Center. The number of Accumulation Units in a Portfolio attributable to a
Premium is determined by dividing that portion of the Premium which is allocated
to the Portfolio by that Portfolio's Accumulation Unit value as of the end of
the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER. If the application for a Contract is not in good order, the
Company will attempt to rectify it within five business days of its receipt at
the Annuity Service Center. The Company will credit the initial Premium within
two business days after the application has been rectified. Unless the
prospective Owner consents otherwise, the application and the initial Premium
will be returned if the application cannot be put in good order within five
business days of such receipt.
Just like initial Premiums, Owners making subsequent Premium payments
should specify how they want their Premiums allocated. Otherwise the Company
will automatically process the Premium based on the most recent allocation on
record with the Company.
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Owner may transfer Contract Values
among Portfolios, by written request or if the Owner makes such an election on
the Contract application, by telephone authorization. The Company has in place
procedures which are designed to provide reasonable assurance that telephone
authorizations are genuine, including tape recording of telephone communications
and requesting identifying information. Accordingly, the Company 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 the Owner. However, if the Company fails to employ
reasonable procedures to ensure that all telephone transfers are properly
authorized, the Company may be held liable for such losses. The Company reserves
the right to modify or discontinue at any time and without notice the use of
telephone transfers and accepting transfer instructions from someone other than
the Owner.
Telephone calls authorizing transfers must be completed by the close of
regular trading on the NYSE (normally 4:00 p.m. Eastern time) on a Valuation
Date in order to be effected at the price determined on such date. Transfer
authorizations, whether written or by telephone, which are received after such
close of regular trading will be processed as of the next Valuation Date.
A Transfer Fee may be assessed (See "Transfer Fee".) This transfer
privilege may be suspended, modified or terminated at any time without notice.
The minimum partial transfer amount is $100. Also, no partial transfer may
be made if the value of the Owner's interest in the Portfolio from which a
transfer is being
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<PAGE> 20
made would be less than $100 after the transfer. The Company may waive the
minimum partial transfer amount in connection with pre-authorized automatic
transfer programs.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE
Accumulation Unit value is determined Monday through Friday on each day
that the NYSE is open for business.
A separate Accumulation Unit value is determined for each Portfolio. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Contracts issued in connection
with Non-Qualified and Qualified Plans, respectively, within each Portfolio.
The Accumulation Unit value for each Portfolio will vary with the price of
a share in the corresponding Series and in accordance with the Mortality and
Expense Risk Charge, Administration Charge, and any provision for taxes.
Assessments of Withdrawal Charges, Transfer Fees and Contract Maintenance
Charges are effected by redemption of Accumulation Units and do not affect
Accumulation Unit value.
The Accumulation Unit Value of a Portfolio for any Valuation Period is
calculated by subtracting (2) from (1) and dividing the result by (3) where:
1) is the total value at the end of the given Valuation Period of the
assets attributable to the Accumulation Units of the Portfolio minus the
total liabilities;
2) is the cumulative unpaid charge for assumptions of Mortality and
Expense Risk Charge, and for Administration Charge; and
3) is the number of Accumulation Units outstanding at the end of the
given Valuation Period.
DISTRIBUTION OF CONTRACTS
Contracts are sold by registered representatives of broker-dealers who are
licensed insurance agents of the Company, either individually or through an
incorporated insurance agency. Commissions may vary, but are not anticipated to
exceed 8.00% of any Premium (including any promotional and sales incentives).
Under certain circumstances, certain sellers of the Contracts may be paid
persistency incentives which will take into account, among other things, the
length of time Premiums have been held under a Contract, and Contract Values. A
persistency incentive is not anticipated to exceed 1.50%, on an annual basis, of
the Contract Values considered in connection with the incentive. All such
commissions and incentives are paid by the Company.
Jackson National Financial Services, Inc., located at 5901 Executive Drive,
Lansing, Michigan 48911, serves as distributor of the Contract. Jackson National
Financial Services, Inc. is a wholly owned subsidiary of the Company and is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, an Owner may redeem a Contract for all or a
portion of its Contract Value during the Accumulation Period. Withdrawal Charges
may be applicable, however, which would reduce the Contract Value upon
redemption.
Withdrawals and distributions from Contracts issued in connection with
certain Qualified Plans may be subject to a mandatory 20% withholding
requirement, in addition, certain tax withdrawal penalties may apply (see
"Taxes").
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
service, 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.
Except in connection with a Systematic Withdrawal Program, described below,
the minimum partial withdrawal amount is $500, or, if less, the Owner's entire
interest in the Portfolio from which a withdrawal is requested. The Owner's
interest in the Portfolio from which the withdrawal is requested must be at
least $100 after the withdrawal is completed.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company at its Annuity Service
Center. The required program form will not be in good
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order unless it includes the Owner's Tax I.D. Number (e.g., Social Security
Number) and provides instructions regarding withholding of income taxes. The
Company provides the required forms.
The Company may also accept telephone requests for certain partial
withdrawals from Owners who elect this option either through the Contract
application or by completing a Telephone Redemption Authorization Form provided
by the Company. The Company reserves the right to impose maximum withdrawal
amounts and procedural requirements regarding this privilege. The proceeds of a
telephone withdrawal will be sent by check to the Owner at the address of record
only. Telephone calls authorizing withdrawals must be completed by the close of
regular trading on the NYSE (normally 4:00 p.m. Eastern time) on a Valuation
Date in order to be effected at the price determined on such date. The Company
reserves the right to terminate or modify the telephone withdrawal service at
any time.
If the request is for total withdrawal, the Contract, or a Lost Contract
Affidavit, must be submitted as well. The Withdrawal Value is determined on the
basis of the Contract Values next computed following receipt of a request in
proper order. The Withdrawal Value will normally be paid within seven days after
the day a proper request is received by the Company at its Annuity Service
Center. However, the Company may suspend the right of withdrawal from the
Separate Account or delay payment for such withdrawal more than seven days: (1)
during any period when the NYSE is closed (other than customary weekend and
holiday closings); (2) when trading on the NYSE is restricted or an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Separate Account's investments or determination of Accumulation Unit
value is not reasonably practicable; or (3) for such other periods as the
Securities and Exchange Commission, by order, may permit for protection of
Owners.
SYSTEMATIC WITHDRAWAL PROGRAM
A Contract Owner may elect in writing on a form provided by the Company to
take Systematic Withdrawals by surrendering a specified dollar amount (of at
least $50) on a monthly, quarterly, semiannual, or annual basis. Unless
otherwise directed by the Contract Owner, the Company will process the
withdrawals by surrendering on a pro-rata basis Accumulation Units from all
Portfolios in which the Contract Owner has an interest. A Withdrawal Charge may
apply to Systematic Withdrawals in accordance with the considerations under
"Withdrawal Charge." Each Systematic Withdrawal is subject to federal income
taxes on the taxable portion. In addition, a 10% federal penalty tax may be
assessed on Systematic Withdrawals if the Contract Owner is under age 59 1/2. If
directed by the Contract Owner, the Company will withhold federal taxes from
each Systematic Withdrawal. The Contract Owner may discontinue Systematic
Withdrawals at any time by notifying the Company in writing.
The Company reserves the right to discontinue offering Systematic
Withdrawals upon 30 days' written notice to Contract Owners; however, any such
discontinuation would not affect Systematic Withdrawal programs already
commenced. The Company also reserves the right to assess a processing fee for
this service.
ERISA PLANS
Spousal consent may be required when a married Owner seeks a distribution
from a Contract that has been issued in connection with a Qualified Plan (or a
Non-Qualified Plan that is subject to Title 1 of ERISA). Owners should obtain
competent legal and/or tax advice.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $500 and no Premiums have been made
during the previous three full calendar years, the Company reserves the right,
after 60 days' written notice to the Owner, to terminate the Contract and
distribute its Withdrawal Value to the Owner. This privilege will be exercised
only if the Contract Value has been reduced to less than $500 as a result of
withdrawals, and state law permits. In no instance shall such termination occur
if the value has fallen below $500 due to either decline in Accumulation Unit
value or the imposition of fees and charges.
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ANNUITY PERIOD
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ANNUITY DATE
The Owner selects an Annuity Date (the date on which annuity payments are
to begin) at the time of application. In selecting an Annuity Date, the Owner
may wish to consider the applicability of a Withdrawal Charge, which is imposed
upon Annuitizations which occur within one year of the Issue Date. Annuity
payments will begin no later than the Latest Annuity Date. If no Annuity Date is
selected, the Annuity Date will be the Latest Annuity Date. The Owner may change
the Annuity Date, at any time at least seven days prior to the Annuity Date then
indicated on the Company's records, by written notice to the Company at its
Annuity Service Center.
ANNUITY OPTIONS
The Owner, or any Beneficiary who is so entitled, may elect to receive a
lump sum at the end of the Accumulation Period. However, a lump sum distribution
may be deemed to be a withdrawal, and at least a portion of it may be subject to
applicable Contract charges and income tax. Alternatively, an Annuity Option may
be elected. The Owner may, upon prior written notice to the Company, elect an
Annuity Option at any time prior to the Annuity Date.
A change of Annuity Option is permitted if made at least 7 days before the
Annuity Date. If no other Annuity Option is elected, monthly annuity payments
will be made in accordance with Option 3 below, a Life annuity with a 120-month
period certain. Annuity payments will be made in monthly, quarterly, semi-annual
or annual installments as selected by the Owner. However, if the amount
available to apply under an Annuity Option is less than $5,000, and state law
permits, the Company has the right to pay the annuity in one lump sum. In
addition, if the first payment provided would be less than $50, and state law
permits, the Company shall have the right to require the frequency of payments
be at quarterly, semi-annual or annual intervals so as to result in an initial
payment of at least $50.
NO WITHDRAWALS OF CONTRACT VALUE ARE PERMITTED DURING THE ANNUITY PERIOD
FOR ANY ANNUITY OPTION UNDER WHICH PAYMENTS ARE BEING MADE PURSUANT TO LIFE
CONTINGENCIES.
The following Annuity Options are generally available under the Contract.
However, there may be restrictions in the retirement plan pursuant to which a
Contract has been purchased.
OPTION 1 -- LIFE INCOME
An annuity payable monthly during the lifetime of the Annuitant. Under this
Option, no further payments are payable after the death of the Annuitant and
there is no provision for a death benefit payable to the Beneficiary. Therefore,
it is possible under Option 1 for the payee to receive only one monthly annuity
payment under this Contract.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both the Annuitant and a designated second
person are living. Upon the death of either person, the monthly income payable
will continue during the lifetime of the survivor at either the full amount
previously payable or as a percentage (either one-half or two-thirds) of the
full amount, as chosen at the time of election of this Option.
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Annuity payments terminate automatically and immediately upon the death of
the surviving person without regard to the number or total amount of payments
received.
There is no minimum number of guaranteed payments and it is possible to
have only one annuity payment if both the Annuitant and the designated second
person die before the due date of the second payment.
OPTION 3 -- LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant, with the
guarantee that if, at the death of the Annuitant, payments have been made for
fewer than the guaranteed 120 or 240 monthly periods, as elected by the Owner,
the balance of the guaranteed number of payments will be made to the
Beneficiary.
OPTION 4 -- INCOME FOR A SPECIFIED PERIOD
Under this Option, as permitted by state law, a payee can elect an annuity
payable monthly for any period of years from 5 to 30. This election must be made
for full 12 month periods. In the event the payee dies before the specified
number of payments has been made, the Beneficiary may elect to continue
receiving the scheduled payments or may alternatively elect to receive the
discounted present value of any remaining guaranteed payments in a lump sum.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available. However, to the extent that Withdrawal Charges would otherwise apply
to a withdrawal or termination, the identical Withdrawal Charge may apply with
respect to any additional options.
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ANNUITY PAYMENTS
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INITIAL MONTHLY ANNUITY PAYMENT
The initial annuity payment attributable to investment in a Portfolio is
determined by taking the Contract Value allocated to that Portfolio, less any
premium tax and any applicable Contract changes, and then applying it to the
annuity table specified in the Contract. Those tables are based on a set amount
per $1,000 of proceeds applied. 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 then 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 annuity payment. That amount is divided by the value of an
Annuity Unit as of the Annuity Date to establish the number of Annuity Units
representing each Variable Annuity payment. The number of Annuity Units
determined for the first Variable Annuity payment remains constant for the
second and subsequent monthly Variable Annuity payments, assuming that no
reallocation of Contract Values is made. The total Variable Annuity payment is
equal to the sum of the annuity payments as determined above for each Portfolio
to which Contract Value is allocated on the Annuity Date.
SUBSEQUENT MONTHLY PAYMENTS
The amount of the second and each subsequent monthly Variable Annuity
payment is determined by multiplying the number of Annuity Units, as determined
in connection with the determination of the initial monthly payment, above, by
the Annuity Unit Value as of the Valuation Period next preceding the date on
which each annuity payment is due.
ANNUITY UNIT VALUE
The initial value of an Annuity Unit of each Portfolio was set when the
Portfolios were established. The value may increase or decrease from one
Valuation Period to the next. The annuity tables contained in the Contract are
based on a 3.0% per annum assumed investment rate. If the actual net investment
rate experienced by a Portfolio exceeds 3.0%, Variable Annuity payments derived
from allocations to that Portfolio will increase over time. Conversely, if the
actual rate is less than 3.0%, Variable Annuity payments will decrease over
time. If the net investment rate equals 3.0%, the Variable Annuity payments will
remain constant. If a higher assumed investment rate had been used, the initial
monthly payment would be higher, but the actual net investment rate would also
have to be higher in order for annuity payments to increase (or not to
decrease).
The payee receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the Portfolios elected, and the amount of each annuity payment
will vary accordingly.
For each Portfolio, the value of an Annuity Unit for any Valuation Period
is determined by multiplying the Annuity Unit Value for the immediately
preceding Valuation Period by the Net Investment Factor for the Valuation Period
for which the Annuity Unit Value is being calculated. The result is then
multiplied by a second factor which offsets the effect of the assumed net
investment rate of 3.0% per annum which is assumed in the annuity tables
contained in the Contract. The Net Investment Factor, which reflects changes in
the net asset value of the shares of the Series in which the Portfolio invests,
is described in greater detail in the Statement of Additional Information.
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ADMINISTRATION
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Please direct all service inquiries to the Company at (800) 766-4683. Be
sure to provide the policy number and Owner's name.
STATEMENTS AND REPORTS
The Company will mail to Contract Owners, at their last known address of
record, any statements and reports required by applicable law or regulation.
Contract Owners should therefore give the Company prompt notice of any address
change. The Company will send a confirmation statement to Contract Owners each
time a transaction is made affecting the Owner's Contract Value, such as making
additional Premiums, transfers, exchanges or withdrawals. Quarterly statements
are also mailed detailing the Contract activity during the calendar quarter.
Instead of
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receiving an immediate confirmation of transactions made pursuant to some
types of periodic payment plans (such as a Dollar Cost Averaging Program) or
salary reduction arrangement, the Contract Owner may receive confirmation of
such transactions in their quarterly statements. The Contract Owner should
review the information in these statements carefully. All errors or corrections
must be reported to the Company immediately to assure proper crediting to the
Owner's Contract. The Company will assume all transactions are accurate unless
the Contract Owner notifies the Company otherwise within thirty (30) days after
receipt of the statement. The Company will also send to Contract Owners such
additional reports and information as may be required by Federal securities
laws.
MARKET TIMING AND ASSET ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, the Company will honor
transfer instructions from such third parties provided such market timing and
asset allocation services comply with the Company's administrative systems,
rules and procedures, which may be modified by the Company at any time. PLEASE
NOTE that fees and charges assessed for such market timing and asset allocation
services are separate and distinct from the Contract fees and charges set forth
herein. The Company neither recommends nor discourages such market timing and
asset allocation services.
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TAXES
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NOTE: INFORMATION CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE
OF A PERSONAL TAX ADVISER. THE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE
TAX STATUS OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
GENERAL
Section 72 of 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 non-annuity distribution or as
annuity payments under the Annuity Option elected. For a lump sum payment
received as a total surrender (total redemption), the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. For a
payment received as a withdrawal (partial redemption), Federal tax liability 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 the lump sum payment 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 equal the investment in the Contract) are fully
taxable. The taxable portion is taxed at ordinary income tax rates. Owners,
Annuitants and Beneficiaries under the Contracts should seek competent financial
advice about the tax consequences of distributions under the retirement plan for
which the Contracts are purchased.
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.
The Company is taxed as a life insurance company under the Code. For
Federal income tax purposes, the Separate Account is not a separate entity from
the Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (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
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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. Withholding
on other types of distributions can be waived.
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) 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; and (2) minimum distributions required to be made under the
Code). 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.
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 investment portfolios underlying variable contracts such as
the Contract. 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, an investment portfolio
will be deemed adequately diversified if (1) no more than 55% of the value of
the total assets of the portfolio is represented by any one investment; (2) no
more than 70% of the value of the total assets of the portfolio is represented
by any two investments; (3) no more than 80% of the value of the total assets of
the portfolio is represented by any three investments; and (4) no more than 90%
of the value of the total assets of the portfolio is represented by any four
investments.
The Company intends that each Series of the Underlying Funds 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 for 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 Contract 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 Contract Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Contract Owner to be considered as the owner of the
assets of the Separate Account resulting in the imposition of federal income tax
to the Contract 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.
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However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Contract Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in any 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. The Company believes that Congress intended to affect the purchase of
multiple deferred annuity contracts which may have been purchased to avoid
withdrawal income tax treatment. Owners should consult a tax adviser prior to
purchasing more than one annuity contract in any calendar year.
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 Contract 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 Qualified
Plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-qualified person.
TAX TREATMENT OF ASSIGNMENTS
An assignment 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 their Contracts.
QUALIFIED PLANS
The Contracts offered by this 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.
For a more detailed description of the various types of plans under which the
Contracts may be purchased, see the Statement of Additional Information.
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (tax-sheltered annuities) and 408(b) (IRAs).
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) 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; and
(6) distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
Limitations imposed by the Code on withdrawals from tax-sheltered annuities
are described above under "Purchases, Withdrawals and Contract Value --
Withdrawals (Redemptions)."
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 any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") that is transferred
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within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, 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 retirements accounts or certain other plans, subject to limitations
set forth in the Code.
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 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); (4) in a series of substantially equal periodic payments made at least
annually for the life of the taxpayer or for the joint lives 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.
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ADVERTISING
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The Company may from time to time advertise several types of historical
performance for the Portfolios of the Separate Account.
The Company may advertise for the Portfolios standardized "average annual
total return", calculated in a manner prescribed by the Securities and Exchange
Commission, and non-standardized "total return". "Average annual total return"
will show the percentage rate of return of a hypothetical initial investment of
$1,000 for at least the most recent one, five and ten year period, or for a
period covering the time the mutual fund held in the Portfolio has been in
existence, if the Portfolio has not been in existence for one of the prescribed
periods. This calculation reflects the deduction of all applicable charges made
to the Contracts except for premium taxes, which may be imposed by certain
states.
Nonstandardized total return may be for periods other than those required
to be presented or may otherwise differ from standardized total return.
If a Series or mutual fund has been in existence for a longer period of
time than the corresponding Portfolio, the standardized average annual total
return and non-standardized total return quotations will show the investment
performance such Series or mutual fund would have achieved (reduced by the
applicable charges) had they been held in a Portfolio for the period quoted.
A "yield" may also be advertised for a Portfolio (other than the PPM
America/JNL Money Market Portfolio). "Yield" refers to the annualized income
generated by an investment in the Portfolio over a specified thirty-day period.
The "yield" is calculated by assuming that the income generated by the
investment during that thirty-day period is generated each thirty-day period
over a twelve-month period and is shown as a percentage of the investment.
A "yield" and "effective yield" may also be advertised for the PPM
America/JNL Money Market Portfolio. "Yield" is a measure of the net dividend and
interest income earned over a specific seven-day period (which period will be
stated in the advertisement) expressed as a percentage of the offering price of
the Portfolio's units. Yield is an annualized figure, which means that it is
assumed that the Portfolio generates the same level of net income over a 52-week
period. The "effective yield" is calculated under rules prescribed by the
Securities and Exchange Commission and assumes a weekly reinvestment of income
earned. The effective yield will be slightly higher than the yield due to this
compounding effect.
The Company may also from time to time advertise the performance of the
Portfolios of the Separate Account relative to the performance of variable
annuities or mutual funds of other companies with similar or different
objectives, or the investment industry as a whole. Other investments to which
the Portfolios may be compared include, but are not limited to: precious metals;
real estate; stocks and bonds; closed-end funds; CD's; bank money market deposit
accounts and passbook savings; and the Consumer Price Index.
The Portfolios of the Separate Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 1/2 Year CD Rates;
and Dow Jones Industrial Average.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA Technologies, Morningstar, Donoghue's,
Weisenberger; magazines such as Money, Forbes, Kiplinger's Personal Finance
Magazine, Financial World, Consumer Reports, Business Week, Time, Newsweek, U.S.
News & World Report, National Underwriter; rating services such as LIMRA, Value,
Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports; and
other publications such as the Wall Street Journal, Barron's, Investor's Daily,
and Standard & Poor's Outlook. In addition, Variable Annuity Research & Data
Service (The VARDS Report) is an independent rating service that ranks over 500
variable annuity funds based upon total return performance. These rating
services and publications rank the performance of the Series against all funds
over specified periods and against funds in specified categories. The rankings
may or may not include the effects of sales or other charges.
The Company is also ranked and rated by independent financial rating
services, among which are Standard & Poor's, A. M. Best Company and Duff &
Phelps. The purpose of these ratings is to reflect the financial strength or
claims-paying ability of the Company. The ratings are not intended to reflect
the investment experience or financial strength of the Separate Account. The
28
<PAGE> 30
Company may advertise these ratings from time to time. In addition, the Company
may include in certain advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend the Company or the
Contracts. Furthermore, the Company may occasionally include in advertisements
comparisons of currently taxable and tax deferred investment programs, based on
selected tax brackets, or discussions of alternative investment vehicles and
general economic conditions. All performance information and comparative
material advertised by the Company is historical in nature and is not intended
to represent or guarantee future results. A CONTRACT OWNER'S CONTRACT VALUE AT
REDEMPTION MAY BE MORE OR LESS THAN ORIGINAL COST.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no material legal proceedings, other than ordinary routine
litigation incidental to the business to which the Company and the Separate
Account are parties or to which any of their property is the subject.
The General Distributor, Jackson National Financial Services, Inc., is not
engaged in any litigation of any material nature.
29
<PAGE> 31
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History................................................................. 2
Services........................................................................................ 2
Purchase of Securities Being Offered............................................................ 2
Underwriters.................................................................................... 2
Calculation of Performance...................................................................... 2
Additional Tax Information...................................................................... 6
Annuity Payments; Net Investment Factor......................................................... 8
Financial Statements............................................................................ 10
- -------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 32
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
GENERAL ACCOUNT
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933 ("1933 Act"),
nor is the General Account registered as an investment company under the
Investment Company Act of 1940 ("1940 Act"). Accordingly, neither the General
Account nor any interest therein is generally subject to the provisions of the
1933 or 1940 Acts, and the staff of the Securities and Exchange Commission,
typically, does not review the disclosures in a prospectus which relate to the
General Account portion. Disclosures regarding the General Account portion of
the Contract may be subject to certain generally applicable provisions of the
Federal securities laws relating to accuracy and completeness of statements made
in prospectuses.
Investors should review Jackson National Life Insurance Company's Contract
for a full description of the General Account portion of the Contract. Any
questions regarding these Contracts should be directed to the Company's Annuity
Service Center.
A-1
<PAGE> 33
[This Page Intentionally Left Blank]
<PAGE> 34
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
Below are the investment objectives of each Series of the Underlying Funds
available through the Separate Account. There can be no assurance that any
Series will achieve its investment objectives.
JNL SERIES TRUST
The JNL Series Trust (the "Trust") is an open-end management investment
company created under the laws of Massachusetts, by a Declaration of Trust,
dated June 1, 1994. Shares of the Trust will be sold primarily to life insurance
companies to fund the benefits under variable insurance or annuity policies.
Jackson National Financial Services, Inc. ("JNFSI"), a wholly owned subsidiary
of Jackson National Life Insurance Company, serves as investment adviser for all
the Series of the Trust. Janus Capital Corporation ("Janus Capital") serves as
sub-adviser for JNL Aggressive Growth, JNL Capital Growth and JNL Global
Equities Series; Fred Alger Management, Inc. ("Alger Management") serves as
sub-adviser for the JNL/Alger Growth Series; Phoenix Investment Counsel, Inc.
("PIC") serves as sub-adviser for the JNL/Phoenix Investment Counsel Balanced
and JNL/Phoenix Investment Counsel Growth Series; PPM America, Inc. ("PPM")
serves as sub-adviser for the PPM America/JNL High Yield Bond, PPM America/JNL
Money Market and PPM America/JNL Value Equity Series; Salomon Brothers Asset
Management Inc ("Salomon Brothers") serves as sub-adviser for the Salomon
Brothers/JNL Global Bond and Salomon Brothers/JNL U.S. Government & Quality Bond
Series; T. Rowe Price Associates, Inc. ("T. Rowe") serves as sub-adviser for the
T. Rowe Price/JNL Established Growth and T. Rowe Price/JNL Mid-Cap Growth
Series; and Rowe Price-Fleming International, Inc. ("Price-Fleming") serves as
sub-adviser for the T. Rowe Price/JNL International Equity Investment Series.
JNL AGGRESSIVE GROWTH SERIES is a non-diversified Series that seeks as its
investment objective long-term growth of capital by investing primarily in
common stocks of issuers of any size, including larger, well-established
companies and smaller, emerging growth companies.
JNL CAPITAL GROWTH SERIES is a non-diversified Series that seeks as its
investment objective long-term growth of capital by emphasizing investments in
common stocks of companies with an average market capitalization between $1
billion and $5 billion. Although the Series expects to emphasize such
securities, it may also invest in smaller or larger companies.
JNL GLOBAL EQUITIES SERIES seeks as its investment objective long-term
growth of capital by investing primarily in common stocks of foreign and
domestic issuers of any size. This Series normally invests in issuers from at
least five different countries including the United States.
JNL/ALGER GROWTH SERIES seeks as its investment objective long-term capital
appreciation by investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with total market capitalization of $1
billion or greater.
JNL/PHOENIX INVESTMENT COUNSEL BALANCED SERIES seeks as its investment
objective reasonable income, long-term capital growth and preservation of
capital. It is intended that this Series will invest in common stocks and fixed
income securities, with emphasis on income-producing securities which appear to
have some potential for capital enhancement.
JNL/PHOENIX INVESTMENT COUNSEL GROWTH SERIES seeks as its investment
objective long-term appreciation of capital. Since income is not an objective,
any income generated by the investment of this Series' assets will be incidental
to its objective. It is intended that this Series will invest primarily in the
common stocks of companies believed by the sub-adviser to have appreciation
potential.
PPM AMERICA/JNL HIGH YIELD BOND SERIES seeks as its investment objective a
high level of current income; its secondary investment objective is capital
appreciation by investing in fixed-income securities, with emphasis on
higher-yielding, higher-risk, lower-rated or unrated corporate bonds.
PPM AMERICA/JNL MONEY MARKET SERIES seeks as its investment objective as
high a level of current income as is consistent with the preservation of capital
and maintenance of liquidity by investing in high quality, short-term money
market instruments.
PPM AMERICA/JNL VALUE EQUITY SERIES seeks as its investment objective a
high total return by investing in common stocks which the sub-adviser believes
to be undervalued relative to the stock market in general at the time of
purchase.
B-1
<PAGE> 35
SALOMON BROTHERS/JNL GLOBAL BOND SERIES seeks as its investment objective a
high level of current income. As a secondary objective, the Series will seek
capital appreciation. The Series seeks to achieve its objectives by investing in
a globally diverse portfolio of fixed income investments and by giving the
sub-adviser broad discretion to deploy the Series assets among certain segments
of the fixed income market that the sub-adviser believes will best contribute to
achievement of the Series' investment objectives. In pursuing its investment
objectives, the Series reserves the right to invest predominantly in securities
rated in medium or lower rated categories or as determined by the sub-adviser to
be of comparable quality. Although the Series has the ability to invest up to
100% of the Series' assets in lower-rated securities, the Series does not
anticipate investing in excess of 75% of the Series' assets in such securities.
SALOMON BROTHERS/JNL U.S. GOVERNMENT & QUALITY BOND SERIES seeks as its
investment objective a high level of current income, by investing primarily in
debt obligations and mortgage-backed securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities including collateralized mortgage
obligations backed by such securities. The Series may also invest a portion of
its assets in investment-grade bonds.
T. ROWE PRICE/JNL ESTABLISHED GROWTH SERIES seeks as its investment
objective long-term growth of capital and increasing dividend income through
investment primarily in common stocks of well-established growth companies.
T. ROWE PRICE/JNL INTERNATIONAL EQUITY INVESTMENT SERIES seeks as its
investment objective long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
T. ROWE PRICE/JNL MID-CAP GROWTH SERIES seeks as its investment objective
long-term growth of capital by investing primarily in the common stock of
companies with medium-sized market capitalizations ("mid-cap") and the potential
for above average growth.
B-2
<PAGE> 36
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 -- Assume a single premium of $50,000 is paid into the contract,
no transfers are made, no additional premiums are paid and there are no partial
withdrawals. The table below illustrates three examples of the Withdrawal
Charges that would be imposed if the contract is completely surrendered, based
on hypothetical contract values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
WITHDRAWAL
COMPLETE HYPOTHETICAL CHARGES
CONTRACT CONTRACT PREMIUMS ---------------
YEARS VALUE LIQUIDATED PERCENT AMOUNT
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1 $ 55,000 $ 50,000(1) 6% $3,000
4 45,000 50,000(2) 3% 1,500
7 70,000 50,000 0%(3) 0
- ---------------------------------------------------------
</TABLE>
NOTES:
(1) Earnings are withdrawn free of Withdrawal Charge.
(2) On full surrender, premium payments are fully liquidated, even if the
contract value is less than unliquidated premiums.
(3) There is no Withdrawal Charge on any premiums liquidated that have been in
the Contract for at least seven years.
- --------------------------------------------------------------------------------
EXAMPLE 2 -- Assume a single premium of $50,000 is paid into the contract,
no transfers are made, no additional premiums are paid and that there are a
series of four partial withdrawals of $2,000, $7,000, $4,000 and $10,000 made
mid-year in the second, third, fourth and seventh contract years. The table
below illustrates the Withdrawal Charges that would be imposed based on
hypothetical contract values.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COMPLETE HYPOTHETICAL PARTIAL FREE WITHDRAWAL CHARGE
CONTRACT CONTRACT UNLIQUIDATED EARNINGS(6) WITHDRAWAL WITHDRAWAL PREMIUMS ------------------
YEARS VALUE PREMIUM (LOSS) REQUESTED AMOUNT LIQUIDATED PERCENT AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 $ 65,000 $ 50,000 $15,000 $ 2,000 $ 15,000(1) $ 0 5% $ 0(2)
3 54,000 50,000 4,000 7,000 5,000(3) 2,000(4) 4% 80(5)
4 47,000 48,000 (1,000) 4,000 4,800 0 3% 0(7)
7 50,000 48,000 2,000 10,000 2,000(8) 8,000 0%(9) 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Earnings exceed 10% of unliquidated premium, accordingly there was no
Additional Free Withdrawal amount.
(2) Earnings could be withdrawn free of Withdrawal Charges.
(3) The Additional Free Withdrawal amount is 10% of unliquidated premium
($5,000) less earnings ($4,000), giving a total Free Withdrawal amount of
$5,000.
(4) The Additional Free Withdrawal amount is treated as an advance of earnings,
accordingly only $2,000 is liquidated.
(5) The Withdrawal Charge is liquidated premium multiplied by the Withdrawal
Charge.
(6) Earnings is the difference between the Contract Value and unliquidated
premium.
(7) If the contract was fully surrendered shortly after the partial withdrawal,
then the Withdrawal Charge would be 3% of $4,800 ($144).
(8) There were no premium payments made in the last seven years, accordingly
there would be no Additional Free Withdrawal amount.
(9) There is no Withdrawal Charge on premium payments made over seven years ago.
C-1
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
ISSUED BY THE JACKSON NATIONAL SEPARATE ACCOUNT - I
OF JACKSON NATIONAL LIFE INSURANCE COMPANY
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 May 1, 1996. The
Prospectus may be obtained from Jackson National Life Insurance Company by
writing P. O. Box 30389 Lansing, MI 48909-7889, or calling 1-800-766-4683.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
General Information and History 2
Services 2
Purchase of Securities Being Offered 2
Underwriters 2
Calculation of Performance 2
Additional Tax Information 6
Annuity Payments; Net Investment Factor 8
Financial Statements 10
</TABLE>
GENERAL INFORMATION AND HISTORY
The Jackson National Separate Account - I ("Separate Account") is a
separate investment account of Jackson National Life Insurance Company
("Company"). The Company is a wholly-owned subsidiary of Brooke Life Insurance
Company, and is ultimately a wholly-owned subsidiary of Prudential Corporation,
plc, London, England.
SERVICES
The Company, which has responsibility for administration of the Contracts
and the Separate Account, maintains records of the name, address, taxpayer
identification number, and other pertinent information for each Contract Owner
and the number and type of Contract issued to each Contract Owner, and records
with respect to the Contract Value of each Contract.
The Custodian of the assets of the Separate Account is the Company. The
Company maintains a record of all purchases and redemptions of shares of the
underlying mutual funds.
1
<PAGE> 38
Price Waterhouse LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, audits and reports on the Company's financial statements, including the
financial statements of the Separate Account, and perform other professional
accounting, auditing and advisory services when engaged to do so by the
Company.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts will be sold by licensed insurance agents in the states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers,
Inc., ("NASD").
UNDERWRITERS
The Contracts, which are offered continuously, are distributed by Jackson
National Financial Services, Inc. ("JNFSI"), 5901 Executive Drive, Lansing,
Michigan 48911, a subsidiary of the Company.
CALCULATION OF PERFORMANCE
All performance advertising (except for performance advertising
pertaining to the PPM America/JNL Money Market Portfolio) will include
quotations of standardized total return, calculated in accordance with standard
methods prescribed by rules of the Securities and Exchange Commission, to
facilitate comparison with standardized total return advertised by other
variable annuity separate accounts. Standardized total return advertised for a
specific period is found by first taking a hypothetical $1,000 investment in
each of the Portfolios' units on the first day of the period at the offering
price, which is the Accumulation Unit value per unit ("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 which is then expressed as a percentage, carried to at least the
nearest hundredth of a percent. Standardized total return reflects the
deduction of a Contract Maintenance Charge and a Mortality
2
<PAGE> 39
and Expense Risk and Administration Charge. The redeemable value also reflects
the effect of any applicable Withdrawal Charge that may be imposed at the end
of the period. No deduction is made for premium taxes which may be assessed by
certain states. The standardized total return for each Portfolio (except the
PPM America/JNL Money Market Portfolio) for the period from commencement of
operations of the corresponding Series of the JNL Series Trust to December 31,
1995, is as follows:
<TABLE>
<S> <C>
JNL Aggressive Growth Portfolio* 15.62%
JNL Capital Growth Portfolio* 25.07%
JNL Global Equities Portfolio* 20.79%
JNL/Alger Growth Portfolio** -9.39%
JNL/Phoenix Investment Counsel Balanced Portfolio* 7.13%
JNL/Phoenix Investment Counsel Growth Portfolio* 19.02%
PPM America/JNL High Yield Bond Portfolio* -1.82%
PPM America/JNL Value Equity Portfolio* 14.42%
Salomon Brothers/JNL Global Bond Portfolio* -0.97%
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio* -1.13%
T. Rowe Price/JNL Established Growth Portfolio* 13.09%
T. Rowe Price/JNL International Equity Investment Portfolio* -1.05%
T. Rowe Price/JNL Mid-Cap Growth Portfolio* 20.60%
</TABLE>
* Corresponding Series of JNL Series Trust commenced operations on May 15,
1995.
** Corresponding Series of JNL Series Trust commenced operations on October 16,
1995.
Nonstandardized total return may also be advertised. Nonstandardized
total return may be for periods other than those required to be presented or
may otherwise differ from standardized total return. Because the Contract is
designed for long term investment, nonstandardized total return that does not
reflect the deduction of the Withdrawal Charge may be advertised. Reflecting
the deduction of the Withdrawal Charge decreases the level of performance
advertised. Nonstandardized total return may also assume a larger initial
investment which more closely approximates the size of a typical Contract. The
nonstandardized total return for each Portfolio (except the PPM America/JNL
Money Market Portfolio), calculated in a manner similar to standardized
total return but assuming a hypothetical initial investment of $10,000,
deducting a maximum $35 Contract Maintenance Charge, and without deducting the
Withdrawal Charge, for the period from
3
<PAGE> 40
commencement of operations of the Corresponding Series of the JNL Series Trust
to December 31, 1995, is as follows:
<TABLE>
<S> <C>
JNL Aggressive Growth Portfolio* 22.92%
JNL Capital Growth Portfolio* 32.31%
JNL Global Equities Portfolio* 28.05%
JNL/Alger Growth Portfolio** -2.26%
JNL/Phoenix Investment Counsel Balanced Portfolio* 14.42%
JNL/Phoenix Investment Counsel Growth Portfolio* 26.19%
PPM America/JNL High Yield Bond Portfolio* 5.27%
PPM America/JNL Value Equity Portfolio* 21.54%
Salomon Brothers/JNL Global Bond Portfolio* 6.16%
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio* 5.96%
T. Rowe Price/JNL Established Growth Portfolio* 20.40%
T. Rowe Price/JNL International Equity Investment Portfolio* 6.21%
T. Rowe Price/JNL Mid-Cap Growth Portfolio* 28.01%
</TABLE>
* Corresponding Series of the JNL Series Trust commenced operations on May 15,
1995.
** Corresponding Series of the JNL Series Trust commenced operations on October
16, 1995.
The standardized 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 the standardized
total return and the nonstandardized total return will be based on the
rolling calendar quarters and will cover at least periods of one, five, and ten
years, or a period covering the time the Portfolio has been in existence, if it
has not been in existence for one of the prescribed periods. If a Series has
been in existence for longer than the corresponding Portfolio, the standardized
total return and nonstandardized total return quotations will show the
investment performance such Series would have achieved (reduced by the
applicable charges) had they been held in a Portfolio for the period quoted.
Quotations of standardized total return and nonstandardized total return
are based upon historical earnings and will fluctuate. Any quotation of
performance, therefore, should not be considered a guarantee of future
performance. Factors affecting the performance of a Series include general
market conditions, operating expenses and investment management. A Contract
Owner's withdrawal value upon surrender of a Contract may be more or less than
original cost.
The current annualized yield for 30-day periods may also be advertised for
the JNL/Phoenix Investment Counsel Balanced Portfolio, the PPM America/JNL High
Yield Bond Portfolio, the Salomon Brothers/JNL Global Bond Portfolio and the
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio. The annualized
yield of a Portfolio refers to the income generated by the Portfolio over a
specified 30-day period. Because this yield is annualized, the yield generated
by a Portfolio 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:
4
<PAGE> 41
6
YIELD = 2[ ((a - b) + 1) - 1]
----------
cd
Where:
a = net investment income earned during the period by the Series.
b = expenses for the Portfolio accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share 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.
The yield for the 30-day period ended December 31, 1995, for each of the
above-referenced Portfolios is as follows:
<TABLE>
<S> <C>
JNL/Phoenix Investment Counsel Balanced Portfolio 0.83%
PPM America/JNL High Yield Bond Portfolio 7.61%
Salomon Brothers/JNL Global Bond Portfolio 7.81%
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio 4.87%
</TABLE>
Because of the charges and deductions imposed by the Separate Account, the
yield for the Portfolio will be lower than the yield for the corresponding
Series. The yield on amounts held in the Portfolios 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. A
Portfolio's actual yield will be affected by the types and quality of portfolio
securities held by the Series and its operating expenses.
Any current yield quotations of the PPM America/JNL Money Market
Portfolio, subject to Rule 482 of the Securities Act of 1933, shall consist of
a seven calendar day historical yield, carried at least to the nearest
hundredth of a percent. The yield shall 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 Contract Owner Accounts, and dividing the net change in account value by
the value of the account at the beginning of the
5
<PAGE> 42
period to obtain a base period return and multiplying the base period return by
(365/7). The PPM America/JNL Money Market Portfolio's yield and effective
yield is computed similarly but includes the effect of assumed compounding on
an annualized basis of the current yield quotations of the Portfolio. The PPM
America/JNL Money Market Portfolio's yield and effective yield for the seven
day period ended December 31, 1995 were 2.91% and 2.95%, respectively.
The PPM America/JNL Money Market Portfolio'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
corresponding Portfolio 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 Portfolio nor that Portfolio's investment in the PPM
America/JNL Money Market Series, is guaranteed or insured. Yield of other
money market funds may not be comparable if a different base or another method
of calculation is used.
ADDITIONAL TAX INFORMATION
The following are general descriptions of the types of Qualified Plans
with which the Contracts may be used. Such descriptions are not exhaustive and
are for general information 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 and described
in this Prospectus. Generally, Contracts 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 Plan Contracts.
(A) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to
establish Qualified Plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
Plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the Plan. The tax
consequences to Owners may vary depending upon the particular Plan
design. However, the Code places limitations and restrictions on all
Plans on such items as: amounts of
6
<PAGE> 43
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,
withdrawals and surrenders. Purchasers of Contracts for use with an H.R.
10 Plan should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(B) 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. Any employee should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(C) 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 gross 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.
(D) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers 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, withdrawals and
surrenders. Purchasers of Contracts
7
<PAGE> 44
for use with corporate 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 Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under these
plans, contributions made for the benefit of the employees will not be
included in the employees' gross income until distributed from the plan.
However, under a 457 plan all the plan assets shall remain solely the
property of the employer, subject only to the claims of the employer's
general creditor until such time as made available to an Owner or a
Beneficiary.
ANNUITY PAYMENTS; NET INVESTMENT FACTOR
See "Annuity Payments" on page 20 of the Prospectus.
The Net Investment Factor is an index applied to measure the net
investment performance of a Portfolio from one Valuation Date to the next.
Since the Net Investment Factor may be greater or less than or equal to one,
and the factor that offsets the 3% investment rate assumed is slightly less
than one, the value of an Annuity Unit (which changes with the product of that
factor) and the net investment may increase, decrease or remain the same.
The Net Investment Factor for any Portfolio for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a Series share held in the
Portfolio determined as of the Valuation Date at the end of
the Valuation Period, plus
(2) the per share amount of any dividend or other
distribution declared by the Series if the "ex-dividend" date
occurs during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any
taxes paid or reserved for by the Company during the Valuation
Period which are determined by the Company to be attributable
to the operation of the Portfolio (no federal income taxes are
applicable under present law );
8
<PAGE> 45
(b) is the net asset value of the Series share held in the
Portfolio determined as of the Valuation Date at the end of the
preceding Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the charges for assuming the mortality
and expense risks and the administration charge.
9
<PAGE> 46
JACKSON NATIONAL
SEPARATE ACCOUNT - I
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
TO JACKSON NATIONAL LIFE INSURANCE COMPANY AND
CONTRACT OWNERS OF JACKSON NATIONAL SEPARATE ACCOUNT - I
IN OUR OPINION, THE ACCOMPANYING STATEMENT OF ASSETS AND LIABILITIES, INCLUDING
THE SCHEDULE OF INVESTMENTS, AND THE RELATED STATEMENTS OF OPERATIONS AND
CHANGES IN NET ASSETS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL
POSITION OF JACKSON NATIONAL SEPARATE ACCOUNT - I AND THE JNL AGGRESSIVE GROWTH
DIVISION, JNL CAPITAL GROWTH DIVISION, JNL GLOBAL EQUITIES DIVISION, JNL/ALGER
GROWTH DIVISION, JNL/PHOENIX INVESTMENT COUNSEL BALANCED DIVISION, JNL/PHOENIX
INVESTMENT COUNSEL GROWTH DIVISION, PPM AMERICA/JNL HIGH YIELD BOND DIVISION,
PPM AMERICA/JNL MONEY MARKET DIVISION, PPM AMERICA/JNL VALUE EQUITY DIVISION,
SALOMON BROTHERS/JNL GLOBAL BOND DIVISION, SALOMON BROTHERS/JNL U.S. GOVERNMENT
& QUALITY BOND DIVISION, T. ROWE PRICE/JNL ESTABLISHED GROWTH DIVISION, T. ROWE
PRICE/JNL INTERNATIONAL EQUITY INVESTMENT DIVISION AND T. ROWE PRICE/JNL
MID-CAP GROWTH DIVISION THEREOF AT DECEMBER 31, 1995, THE RESULTS OF THEIR
OPERATIONS AND THE CHANGES IN THEIR NET ASSETS FOR THE PERIOD OCTOBER 16, 1995
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1995 IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THESE FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF JACKSON NATIONAL LIFE INSURANCE COMPANY'S MANAGEMENT; OUR
RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED ON
OUR AUDIT. WE CONDUCTED OUR AUDIT OF THESE STATEMENTS IN ACCORDANCE WITH
GENERALLY ACCEPTED AUDITING STANDARDS WHICH 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, ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES
MADE BY MANAGEMENT, AND EVALUATING THE OVERALL FINANCIAL STATEMENT
PRESENTATION. WE BELIEVE THAT OUR AUDIT PROVIDES A REASONABLE BASIS FOR THE
OPINION EXPRESSED ABOVE.
/S/ PRICE WATERHOUSE LLP
FEBRUARY 22, 1996
<PAGE> 48
JACKSON NATIONAL SEPARATE ACCOUNT - I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Division
------------------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM
JNL JNL JNL Investment Investment America/JNL
Aggressive Capital Global JNL/Alger Counsel Counsel High Yield
Growth Growth Equities Growth Balanced Growth Bond
---------- --------- ---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in JNL Series Trust,
at market value
(See schedule of investments) $ 39,018 $ 14,665 $ 50,054 $122,027 $133,052 $ 6,042 $ 1,011
-------- -------- -------- -------- -------- -------- --------
Due from Jackson National Life
Insurance Company 1,850 1,750 - - - - -
-------- -------- -------- -------- -------- -------- --------
Total assets 40,868 16,415 50,054 122,027 133,052 6,042 1,011
LIABILITIES:
Due to Jackson National Life
Insurance Company 1 1 2 5 5 - -
-------- -------- -------- -------- -------- -------- --------
NET ASSETS $ 40,867 $ 16,414 $ 50,052 $122,022 $133,047 $ 6,042 $ 1,011
======== ======== ======== ======== ======== ======== ========
Number of units outstanding 4,008 1,587 4,778 12,285 12,871 571 100
======== ======== ======== ======== ======== ======== ========
Unit value (net assets divided by
units outstanding) $ 10.20 $ 10.34 $ 10.48 $ 9.93 $ 10.34 $ 10.58 $ 10.11
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Division
------------------------------------------------------------------------------------
Salomon
PPM PPM Salomon Brothers/ T. Rowe T. Rowe T. Rowe
America/ America/ Brothers/ JNL Price/ Price/ Price/
JNL JNL JNL U.S. Gov't. JNL JNL JNL
Money Value Global & Quality Established International Mid-Cap
Market Equity Bond Bond Growth Equity Growth
---------- --------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in JNL Series Trust,
at market value
(See schedule of investments) $109,323 $ 41,762 $ 32,557 $ 13,023 $109,472 $ 32,488 $ 49,496
---------- --------- ---------- ----------- ----------- ----------- ----------
Due from Jackson National Life
Insurance Company 37,260 - - - - - 3,600
---------- --------- ---------- ----------- ----------- ----------- ----------
Total assets 146,583 41,762 32,557 13,023 109,472 32,488 53,096
LIABILITIES:
Due to Jackson National Life
Insurance Company 4 2 1 1 4 1 2
---------- --------- ---------- ----------- ----------- ----------- ----------
NET ASSETS $146,579 $ 41,760 $ 32,556 $ 13,022 $109,468 $ 32,487 $ 53,094
========== ========= ========== =========== =========== =========== ==========
Number of units outstanding 14,608 3,944 3,128 1,275 10,564 3,096 5,120
========== ========= ========== =========== =========== =========== ==========
Unit value (net assets divided by
units outstanding) $ 10.03 $ 10.59 $ 10.41 $ 10.21 $ 10.36 $ 10.49 $ 10.37
========== ========= ========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 49
JACKSON NATIONAL SEPARATE ACCOUNT - I
STATEMENT OF OPERATIONS
For the Period from October 16, 1995 (commencement of operations) to December
31, 1995
<TABLE>
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM
JNL JNL JNL Investment Investment America/JNL
Aggressive Capital Global JNL/Alger Counsel Counsel High Yield
Growth Growth Equities Growth Balanced Growth Bond
---------- ------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET REALIZED GAIN/(LOSS) ON
INVESTMENTS:
Proceeds from sales $ 8,031 $ 11 $ 23 $ 9,873 $ 4,945 $ 15 $ 1
Cost of investments sold 7,815 11 22 9,672 4,950 15 1
--------- ------- -------- --------- --------- -------- --------
Net realized gain/(loss) on
investments 216 - 1 201 (5) - -
NET UNREALIZED GAIN
ON INVESTMENTS:
Unrealized gain/(loss)
beginning of year - - - - - - -
Unrealized gain end of year 620 554 891 2,552 1,640 301 12
--------- ------- -------- --------- --------- -------- --------
Net unrealized gain on
investments 620 554 891 2,552 1,640 301 12
--------- ------- -------- --------- --------- -------- --------
NET GAIN ON INVESTMENTS 836 554 892 2,753 1,635 301 12
EXPENSES:
Administrative charge 3 1 3 6 5 1 -
Mortality and expense charge 25 5 22 49 46 7 1
--------- ------- -------- --------- --------- -------- --------
Total expenses 28 6 25 55 51 8 1
--------- ------- -------- --------- --------- -------- --------
Increase in net assets
resulting from operations $ 808 $ 548 $ 867 $ 2,698 $ 1,584 $ 293 $ 11
========= ======= ======== ========= ========= ======== ========
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
PPM PPM Salomon Salomon T. Rowe T. Rowe T. Rowe
America/JNL America/JNL Brothers/JNL Brothers/JNL Price/JNL Price/JNL Price/JNL
Money Value Global U.S. Gov't & Established International Mid-Cap
Market Equity Bond Quality Bond Growth Equity Growth
----------- ----------- ------------ ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET REALIZED GAIN/(LOSS) ON
INVESTMENTS:
Proceeds from sales $ 50,018 $ 1,252 $ 1,029 $ 9 $ 3,109 $ 20 $ 27
Cost of investments sold 50,018 1,246 1,017 9 3,105 20 27
--------- ------- -------- --------- --------- -------- --------
Net realized gain/(loss) on
investments - 6 12 - 4 - -
NET UNREALIZED GAIN
ON INVESTMENTS:
Unrealized gain/(loss)
beginning of year - - - - - - -
Unrealized gain end of year 393 1,099 494 111 3,012 671 1,039
--------- ------- -------- --------- --------- -------- --------
Net unrealized gain on
investments 393 1,099 494 111 3,012 671 1,039
--------- ------- -------- --------- --------- -------- --------
NET GAIN ON INVESTMENTS 393 1,105 506 111 3,016 671 1,039
EXPENSES:
Administrative charge 11 4 2 1 8 2 3
Mortality and expense charge 90 34 13 9 68 19 26
--------- ------- -------- --------- --------- -------- --------
Total expenses 101 38 15 10 76 21 29
--------- ------- -------- --------- --------- -------- --------
Increase in net assets
resulting from operations $ 292 $ 1,067 $ 491 $ 101 $ 2,940 $ 650 $ 1,010
========= ======= ======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 50
JACKSON NATIONAL SEPARATE ACCOUNT - I
STATEMENT OF CHANGES IN NET ASSETS
For the Period from October 16, 1995 (commencement of operations) to December
31, 1995
<TABLE>
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM
JNL JNL JNL Investment Investment America/JNL
Aggressive Capital Global JNL/Alger Counsel Counsel High Yield
Growth Growth Equities Growth Balanced Growth Bond
---------- ------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) on
investments $ 216 $ - $ 1 $ 201 $ (5) $ - $ -
Net unrealized gain on investments 620 554 891 2,552 1,640 301 12
Administrative charge (3) (1) (3) (6) (5) (1) -
Mortality and expense charge (25) (5) (22) (49) (46) (7) (1)
--------- ------- -------- --------- --------- -------- --------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 808 548 867 2,698 1,584 293 11
NET DEPOSITS INTO SEPARATE ACCOUNT
(NOTE 6) 40,059 15,866 49,185 119,324 131,463 5,749 1,000
--------- ------- -------- --------- --------- -------- --------
Increase in net assets 40,867 16,414 50,052 122,022 133,047 6,042 1,011
NET ASSETS:
BEGINNING OF PERIOD - - - - - - -
--------- ------- -------- --------- --------- -------- --------
END OF PERIOD $ 40,867 $16,414 $ 50,052 $ 122,022 $ 133,047 $ 6,042 $ 1,011
========= ======= ======== ========= ========= ======== ========
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
PPM PPM Salomon Salomon T. Rowe T. Rowe T. Rowe
America/JNL America/JNL Brothers/JNL Brothers/JNL Price/JNL Price/JNL Price/JNL
Money Value Global U.S. Gov't & Established International Mid-Cap
Market Equity Bond Quality Bond Growth Equity Growth
----------- ----------- ------------ ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) on
investments $ - $ 6 $ 12 $ - $ 4 $ - $ -
--------- ------- -------- --------- --------- -------- --------
Net unrealized gain on investments 393 1,099 494 111 3,012 671 1,039
Administrative charge (11) (4) (2) (1) (8) (2) (3)
Mortality and expense charge (90) (34) (13) (9) (68) (19) (26)
--------- ------- -------- --------- --------- -------- --------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 292 1,067 491 101 2,940 650 1,010
NET DEPOSITS INTO SEPARATE ACCOUNT
(NOTE 6) 146,287 40,693 32,065 12,921 106,528 31,837 52,084
--------- ------- -------- --------- --------- -------- --------
Increase in net assets 146,579 41,760 32,556 13,022 109,468 32,487 53,094
NET ASSETS:
BEGINNING OF PERIOD - - - - - - -
--------- ------- -------- --------- --------- -------- --------
END OF PERIOD $ 146,579 $41,760 $ 32,556 $ 13,022 $ 109,468 $ 32,487 $ 53,094
========= ======= ======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 51
JACKSON NATIONAL SEPARATE ACCOUNT - I
SCHEDULE OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES COST VALUE
--------- ------------- -----------
<S> <C> <C> <C>
JNL Series Trust:
JNL Aggressive Growth Portfolio 3,252 $ 38,398 $ 39,018
JNL Capital Growth Portfolio 1,172 14,111 14,665
JNL Global Equities Portfolio 3,985 49,163 50,054
JNL/Alger Growth Portfolio 12,401 119,475 122,027
JNL/Phoenix Investment Counsel Balanced Portfolio 12,030 131,412 133,052
JNL/Phoenix Investment Counsel Growth Portfolio 523 5,741 6,042
PPM America/JNL High Yield Bond Portfolio 100 999 1,011
PPM America/JNL Money Market Portfolio 109,322 108,930 109,323
PPM America/JNL Value Equity Portfolio 3,498 40,663 41,762
Salomon Brothers/JNL Global Bond Portfolio 3,217 32,063 32,557
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio 1,263 12,912 13,023
T. Rowe Price/JNL Established Growth Portfolio 10,174 106,460 109,472
T. Rowe Price/JNL International Equity Investment Portfolio 3,031 31,817 32,488
T. Rowe Price/JNL Mid-Cap Growth Portfolio 3,995 48,457 49,496
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 52
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Jackson National Life Insurance Company (JNL) established Jackson National
Separate Account - I (the Separate Account) on October 16, 1995, pursuant to
the laws of the State of Michigan. The Separate Account commenced operations
on October 16, 1995 and is registered under the Investment Company Act of 1940
as a unit investment trust. The Separate Account receives and invests net
premiums for individual flexible premium variable annuity contracts issued by
JNL. The contracts can be purchased on a non-tax qualified basis or in
connection with certain plans qualifying for favorable federal income tax
treatment. The Separate Account contains fourteen Divisions, each of which
invests in the following corresponding portfolios of the JNL Series Trust (the
Funds):
JNL Aggressive Growth Portfolio
JNL Capital Growth Portfolio
JNL Global Equities Portfolio
JNL/Alger Growth Portfolio
JNL/Phoenix Investment Counsel Balanced Portfolio
JNL/Phoenix Investment Counsel Growth Portfolio
PPM America/JNL High Yield Bond Portfolio
PPM America/JNL Money Market Portfolio
PPM America/JNL Value Equity Portfolio
Salomon Brothers/JNL Global Bond Portfolio
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio
T. Rowe Price/JNL Established Growth Portfolio
T. Rowe Price/JNL International Equity Investment Portfolio
T. Rowe Price/JNL Mid-Cap Growth Portfolio
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and
<PAGE> 53
- 2 -
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments
The Separate Account's investments in the Funds of the JNL Series Trust are
stated at the net asset values of the respective Funds. The average cost
method is used in determining the cost of the shares sold on withdrawals by the
Separate Account. Fund share transactions are recorded on trade date (same as
settlement date). The Funds follow the accounting practice known as consent
dividending, whereby all of its net investment income and realized gains are
treated as being distributed daily to the Separate Account and are immediately
reinvested in the Funds.
Federal Income Taxes
The operations of the Separate Account are included in the federal income tax
return of JNL, which is taxed as a "life insurance company" under the
provisions of the Internal Revenue Code. JNL anticipates no tax liability
resulting from the operations of the Separate Account. Therefore, no federal
income tax has been provided.
NOTE 3 - POLICY CHARGES
Charges are deducted from the Separate Account to compensate JNL for providing
the insurance benefits set forth in the contracts, administering the contracts,
distributing the contracts and assuming certain risks in connection with the
contract.
Contract Maintenance Charge
An annual contract maintenance charge of $35 is charged against each contract
to reimburse JNL for expenses incurred in establishing and maintaining records
relating to the contract. The contract maintenance charge is assessed on each
anniversary of the contract date that occurs on or prior to the annuity date.
The charge is deducted by redeeming shares. For the period ended December 31,
1995, no contract maintenance charges were assessed.
<PAGE> 54
- 3 -
Transfer Fee Charge
A transfer fee of $25 will apply to transfers in excess of 15 transfers in a
contract year. JNL may waive the transfer fee in connection with
pre-authorized automatic transfer programs, or in those states where a lesser
fee is required.
This fee will be deducted from contract values which remain in the portfolio(s)
from which the transfers were made. If such remaining contract value is
insufficient to pay the transfer fee, then the fee will be deducted from
transferred contract values. For the period ended December 31, 1995, no
transfer fees were assessed.
Surrender or Contingent Deferred Sales Charge
During the first contract years, certain contracts include a provision for a
charge upon the surrender or partial surrender of the contract. The amount
assessed under the contract terms, if any, depends upon the cost associated
with distributing the particular contracts. The amount, if any, depends on a
number of factors, including the amount withdrawn, the contract year of
surrender, or the number and amount of withdrawals in a calendar year. For the
period ended December 31, 1995, no contracts were assessed this charge.
Administration Charge
JNL deducts a daily charge for administrative expenses from the net assets of
the Separate Account equivalent to an annual rate of 0.15%. The
administration charge is designed to reimburse JNL for administrative expenses
related to the Separate Account and the issuance and maintenance of contracts.
Mortality and Expense Charge
A daily charge is made for the mortality and expense risks assumed by JNL. JNL
deducts a daily charge from the net assets of the Separate Account equivalent
to an annual rate of 1.25% for the assumption of mortality and expense risks.
The mortality risk assumed by JNL is that the insured may receive benefits
greater than those anticipated by JNL. The expense risk assumed by JNL is that
the costs of administering the contracts of the Separate Account will exceed
the amount received from the administration charge and the contract maintenance
charge.
<PAGE> 55
- 4 -
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
During the period October 16, 1995 (commencement of operations) to December 31,
1995, purchases and proceeds from sales of investments in the JNL Series Trust
were as follows:
<TABLE>
<CAPTION>
Division Purchases Sales
--------------------------------------- --------- -----
<S> <C> <C>
JNL Aggressive Growth $46,213 $8,031
JNL Capital Growth 14,122 11
JNL Global Equities 49,185 23
JNL/Alger Growth 129,147 9,873
JNL/Phoenix Investment Counsel Balanced 136,362 4,945
JNL/Phoenix Investment Counsel Growth 5,756 15
PPM America/JNL High Yield Bond 1,000 1
PPM America/JNL Money Market 158,948 50,018
PPM America/JNL Value Equity 41,909 1,252
Salomon Brothers/JNL Global Bond 33,080 1,029
Salomon Brothers/JNL U.S. Government
& Quality Bond 12,921 9
T. Rowe Price/JNL Established Growth 109,565 3,109
T. Rowe Price/JNL International Equity
Investment 31,837 20
T. Rowe Price/JNL Mid-Cap Growth 48,484 27
</TABLE>
NOTE 5 - ACCUMULATION OF UNIT ACTIVITY
The following is a reconciliation of the accumulation of unit activity for the
period October 16, 1995 (commencement of operations) to December 31, 1995:
<TABLE>
<CAPTION>
Units Units
Outstanding Units Units Outstanding
at 10/16/95 Issued Redeemed at 12/31/95
----------- ------ -------- -----------
<S> <C> <C> <C> <C>
JNL Aggressive Growth - 4,794 (786) 4,008
JNL Capital Growth - 1,587 - 1,587
JNL Global Equities - 4,778 - 4,778
JNL/Alger Growth - 13,268 (983) 12,285
JNL/Phoenix Investment
</TABLE>
<PAGE> 56
- 5 -
<TABLE>
<S> <C> <C> <C> <C>
Counsel Balanced - 13,361 (490) 12,871
JNL/Phoenix Investment
Counsel Growth - 572 (1) 571
PPM America/JNL High
Yield Bond - 100 - 100
PPM America/JNL Money
Market - 19,600 (4,992) 14,608
PPM America/JNL Value
Equity - 4,064 (120) 3,944
Salomon Brothers/JNL
Global Bond - 3,226 (98) 3,128
Salomon Brothers/JNL
U.S. Government
& Quality Bond - 1,275 - 1,275
T. Rowe Price/JNL
Established Growth - 10,866 (302) 10,564
T. Rowe Price/JNL
International Equity
Investment - 3,096 - 3,096
T. Rowe Price/JNL
Mid-Cap Growth - 5,120 - 5,120
</TABLE>
<PAGE> 57
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTE 6 - RECONCILIATION OF GROSS AND NET DEPOSITS INTO THE SEPARATE ACCOUNT
Deposits into the Separate Account purchase shares of the JNL Series Trust. Net
deposits represent the amounts available for investment in such shares after
the deduction of applicable policy charges. The following is a summary of net
deposits made for the period October 16, 1995 (commencement of operations) to
December 31, 1995:
<TABLE>
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM
JNL JNL JNL Investment Investment America/JNL
Aggressive Capital Global JNL/Alger Counsel Counsel High Yield
Growth Growth Equities Growth Balanced Growth Bond
---------- ------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from units issued $ 48,063 $15,872 $ 49,185 $ 129,147 $ 136,362 $ 5,756 $ 1,000
Value of units redeemed (8,004) (6) - (9,823) (4,899) (7) -
Transfers between funds and
general account - - - - - - -
---------- ------- -------- --------- ----------- ------------ ------------
Total gross deposits net of
transfers to general account 40,059 15,866 49,185 119,324 131,463 5,749 1,000
DEDUCTIONS:
Policyholder charges - - - - - - -
---------- ------- -------- --------- ----------- ------------ ------------
Total deductions - - - - - - -
Net deposits from policyholders $ 40,059 $15,866 $ 49,185 $ 119,324 $ 131,463 $ 5,749 $ 1,000
========== ======= ======== ========= =========== ============ ============
<CAPTION>
Divisions
----------------------------------------------------------------------------------------
PPM PPM Salomon Salomon T. Rowe T. Rowe T. Rowe
America/JNL America/JNL Brothers/JNL Brothers/JNL Price/JNL Price/JNL Price/JNL
Money Value Global U.S. Gov't & Established International Mid-Cap
Market Equity Bond Quality Bond Growth Equity Growth
---------- ------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from units issued $ 196,208 $41,909 $ 33,080 $ 12,921 $ 109,565 $ 31,837 $ 52,084
Value of units redeemed (49,921) (1,216) (1,051) - (3,037) - -
Transfers between funds and
general account - - - - - - -
--------- ------- -------- --------- --------- -------- --------
Total gross deposits net of
transfers to general account 146,287 40,693 32,065 12,921 106,528 31,837 52,084
DEDUCTIONS:
Policyholder charges - - - - - - -
---------- ------- -------- --------- ----------- ------------ ------------
Total deductions - - - - - - -
Net deposits from policyholders $ 146,287 $40,693 $ 32,065 $ 12,921 $ 106,528 $ 31,837 $ 52,084
========= ======= ======== ========= ========= ======== ========
</TABLE>
<PAGE> 58
JACKSON NATIONAL LIFE INSURANCE COMPANY
AND SUBSIDIARIES
[JACKSON NATIONAL LIFE LOGO]
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Jackson National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of
Jackson National Life Insurance Company and subsidiaries (the "Company") at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 2 to the financial statements, effective January 1, 1994
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
/s/ Price Waterhouse LLP
February 21, 1996
<PAGE> 60
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DECEMBER 31,
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Fixed maturities held to maturity, at amortized cost
(market value: 1995, $4,199,528; 1994, $3,125,866) $ 4,118,883 $ 3,353,067
Investments available for sale, at market value:
Fixed maturities (amortized cost: 1995, $18,248,600; 1994, $16,767,035) 19,252,534 15,774,009
Equities (cost: 1995, $191,908; 1994, $183,719) 236,095 193,292
Short-term investments 64,406 261,702
Mortgage loans, net of reserves 174,463 37,936
Policy loans 527,041 437,690
Other invested assets 45,567 48,475
----------- -----------
Total investments 24,418,989 20,106,171
Cash 23,682 19,342
Accrued investment income 327,022 311,553
Deferred policy acquisition costs 891,355 1,686,725
Fixed assets, at cost less accumulated depreciation 30,981 22,820
Reinsurance recoverable 5,143 2,675
Value of acquired insurance in force 196,563 208,942
Deferred income taxes 63,287 451,192
Other assets and receivables 37,642 35,794
----------- -----------
Total assets $25,994,664 $22,845,214
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policy reserves and liabilities:
Reserves for future policy benefits $ 490,142 $ 446,462
Deposits on investment contracts 22,827,836 20,875,785
Other policyholder funds 20,215 26,855
Guaranteed interest contracts 100,080
Claims payable 130,067 94,640
Payable for securities purchased - 108,893
Commissions payable 7,034 9,849
General expense and administrative fees payable 27,548 12,986
Liability for guaranty fund assessments 94,853 71,143
Income taxes currently payable to Parent 102,047 43,375
Other liabilities 301,607 242,663
----------- -----------
Total liabilities 24,101,429 21,932,651
----------- -----------
Contingencies
STOCKHOLDER'S EQUITY
Capital stock, $1.15 par value; authorized 50,000 shares;
outstanding 12,000 shares 13,800 13,800
Additional paid-in capital 603,982 603,982
Net unrealized gain(loss) on debt and equity securities available for sale,
net of tax of $209,937 in 1995 and ($190,447) in 1994 389,883 (353,692)
Retained earnings 885,570 648,473
----------- -----------
Total stockholder's equity 1,893,235 912,563
----------- -----------
Total liabilities and stockholder's equity $25,994,664 $22,845,214
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 61
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
________________________________________________________________________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $ 310,231 $ 303,759 $ 305,713
Net investment income 1,836,372 1,617,557 1,527,332
Net realized investment gain (loss) 84,626 (18,820) 156,996
Fee income on interest sensitive products:
Mortality charges 128,695 115,460 108,981
Expense charges 20,308 20,349 19,546
Surrender charges 54,380 42,168 38,830
---------- ---------- ----------
Total fee income 203,383 177,977 167,357
Other income 40 214 2,918
---------- ---------- ----------
Total revenues 2,434,652 2,080,687 2,160,316
---------- ---------- ----------
BENEFITS AND EXPENSES
Death benefits 281,011 247,310 229,351
Interest credited on deposit liabilities 1,379,435 1,266,497 1,311,527
Increase in reserves 43,680 62,206 62,556
Other policyholder benefits 17,511 11,496 9,788
Commissions 209,694 225,097 192,990
General and administrative expenses 122,658 90,878 85,826
Taxes, licenses and fees 56,472 45,334 29,902
Deferral of policy acquisition costs (227,093) (220,633) (181,790)
Amortization of policy acquisition costs 142,308 144,506 113,144
Amortization of insurance in force 12,379 11,464 10,469
---------- ---------- ----------
Total benefits and expenses 2,038,055 1,884,155 1,863,763
---------- ---------- ----------
Income before income tax expense 396,597 196,532 296,553
Income tax expense 140,000 41,450 100,700
---------- ---------- ----------
Net income $ 256,597 $ 155,082 $ 195,853
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 62
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
________________________________________________________________________________
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
CAPITAL STOCK, beginning and end of year $ 13,800 $ 13,800 $ 13,800
---------- ---------- ----------
ADDITIONAL PAID-IN CAPITAL, beginning and end of year 603,982 603,982 603,982
---------- ---------- ----------
UNREALIZED GAIN (LOSS) ON INVESTMENTS
Beginning of year (353,692) 22,027 13,867
Net effect of adoption of SFAS 115 (See Note 2) - 321,547 -
Unrealized gain (loss) on securities
available for sale net of taxes and
related deferred acquisition costs 743,575 (697,266) -
Net unrealized gains on equity securities - - 8,160
---------- ---------- ----------
End of year 389,883 (353,692) 22,027
---------- ---------- ----------
RETAINED EARNINGS
Beginning of year 648,473 512,891 336,538
Net income 256,597 155,082 195,853
Dividends paid to stockholder (19,500) (19,500) (19,500)
---------- ---------- ----------
End of year 885,570 648,473 512,891
---------- ---------- ----------
Total stockholder's equity $1,893,235 $ 912,563 $1,152,700
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 63
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
________________________________________________________________________________
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 256,597 $ 155,082 $ 195,853
Adjustments to reconcile net income to net cash
provided by operating activities:
Net realized investment (gains) losses (84,626) 18,820 (156,996)
Interest credited on deposit liabilities 1,379,435 1,266,497 1,311,527
Other charges (203,383) (177,977) (167,357)
Amortization of discount and premium on investments (32,261) (32,411) (33,348)
Change in:
Deferred income taxes (364) 6,105 (30,128)
Accrued investment income (15,469) (12,634) (13,871)
Deferred policy acquisition costs (84,785) (76,127) (68,646)
Value of acquired insurance in force 12,379 11,464 10,469
Income taxes currently payable to Parent 58,672 (52,997) (23,656)
Other assets and liabilities, net (46,171) 74,612 264
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,240,024 1,180,434 1,024,111
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from investments sold or matured:
Sales of:
Fixed maturities and equities available for sale 2,994,755 4,438,513 -
Fixed maturities held to maturity - - 2,146,719
Principal repayments, maturities, calls and redemptions
available for sale 257,793 1,725,628 -
Principal repayments, maturities, calls and redemptions
held to maturity 289,266 211,878 4,195,573
Purchases of:
Fixed maturities and equities available for sale (4,782,081) (6,947,423) -
Fixed maturities held to maturity (1,050,039) (1,666,194) (8,575,620)
Short-term investments, net 197,296 (244,472) 121,152
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,093,010) (2,482,070) (2,112,176)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders account balances:
Deposits 2,589,863 2,491,506 1,974,791
Withdrawals (1,713,037) (1,159,070) (881,795)
Payment of cash dividends to Parent (19,500) (19,500) (19,500)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 857,326 1,312,936 1,073,496
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,340 11,300 (14,569)
CASH AND CASH EQUIVALENTS, beginning of period 19,342 8,042 22,611
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 23,682 $ 19,342 $ 8,042
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 64
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
1. DESCRIPTION OF THE BUSINESS
Jackson National Life Insurance Company, Inc. ("the Company" or "JNL") is a
wholly-owned subsidiary of Brooke Life Insurance Company ("Brooke Life" or
the "Parent") and is ultimately a wholly-owned subsidiary of Prudential
Corporation, plc ("Prudential"), London, England. JNL is licensed to sell
individual annuity products and individual life insurance products in 48
states and the District of Columbia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Effective December 31, 1995, Jackson National Life Insurance Company of
Michigan ("JNL-M"), a former wholly-owned subsidiary, was merged into its
parent, Jackson National Life Insurance Company.
The accompanying consolidated financial statements include JNL and its
wholly-owned subsidiaries, Chrissy Corporation, an advertising agency;
Jackson National Financial Services, Inc., an investment advisor and broker
dealer, and Jackson National Life Distributors, Inc., a limited broker
dealer. The Company also consolidates Jackson National Compania De Seguros
De Vida S.A. ("Argentina"), a Life Insurance Company of which the Company
retains 90% of the common stock. All significant intercompany accounts and
transactions have been eliminated.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") which
differ in some respects from statutory accounting practices required by
regulatory authorities for life insurance companies.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results may differ from those estimates.
INVESTMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," as
of January 1, 1994. The cumulative effect of implementing SFAS 115 was to
report appreciation on available for sale fixed maturities of $887,174, less
the effect on related deferred policy acquisition costs of $(392,486) and
deferred income taxes of $(173,141), for a net increase to stockholder's
equity of $321,547.
Fixed maturities, (including bonds, redeemable preferred stocks, and
mortgage-backed securities) which the Company has the positive intent and
ability to hold to maturity are classified as held to maturity and are
reported at amortized cost. Fixed maturities classified as available for
sale and all equity securities (common and nonredeemable preferred stocks)
are carried at estimated market value, with changes in unrealized gains and
losses recorded directly to stockholder's equity, net of applicable income
taxes and related deferred acquisition costs. As of December 31, 1995, the
Company had no trading portfolio.
Fixed maturities, whether available for sale or held to maturity, are
reduced to estimated net realizable value for declines in market value
considered to be other than temporary. Gains or losses on the sale of
securities are computed on the specific identification method. Fixed
maturity purchase premiums and discounts are amortized to call or maturity
dates.
<PAGE> 65
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mortgage loans and policy loans are carried at the unpaid principal balance
less unamortized discounts and net of valuation reserves. Real estate owned
is carried at cost less allowances for impairment in value. Limited
partnership investments are carried using the equity method of accounting.
Short-term investments are stated at cost which approximates market value.
DERIVATIVES
The Company hedges certain portions of its exposure to fluctuations in
interest rate risks by entering into interest rate swap and put-swaption
transactions. With the use of put-swaptions, JNL obtains the right, but not
the obligation to require the writers to pay JNL the present value of a ten
year swap. As consideration for this right, JNL pays a premium. The net
differential to be paid or received on interest rate swaps is recognized
over the lives of the agreements and is classified as investment income in
the statement of operations. The premium on the put-swaptions is amortized
ratably into investment income over the term of the options. Both interest
rate swaps and put-swaptions are held for purposes other than trading and
hedge fixed maturity available for sale securities, and are carried at fair
value with the change in fair value reflected in stockholder's equity. The
fair value is based on estimates received from financial institutions.
Realized gain (loss) from the settlement or termination of the interest rate
swaps are deferred and amortized over the life of the specific hedged assets
as an adjustment to the yield. Realized gain (loss) from the settlement of
the put-swaptions is included in realized gain (loss) in the statement of
operations in the period of settlement.
DEFERRED POLICY 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 policy acquisition costs. Deferred policy 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 debt and equity securities are carried at aggregate fair value,
an adjustment is made to deferred policy 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. At December 31, 1995 and 1994, deferred acquisition costs
have been decreased by $440.8 million and increased $439.3 million,
respectively, to reflect this change.
VALUE OF ACQUIRED INSURANCE IN FORCE AT ACQUISITION DATE
The value of acquired insurance in force at acquisition date ("VOB")
represents the present value of anticipated profits of the business in force
on November 25, 1986 (the date the Company was acquired by Prudential) net
of amortization. The VOB is being amortized in proportion to anticipated
premium revenues for traditional life insurance contracts and estimated
gross profits for annuities and interest-sensitive life products over a
period of 20 years.
FEDERAL INCOME TAXES
The Company provides deferred income taxes on the temporary differences
between the tax and financial statement basis of assets and liabilities as
required by SFAS No. 109, "Accounting for Income Taxes".
JNL files a consolidated federal income tax return with Brooke Life. The
non-life insurance company subsidiaries file separate federal income tax
returns. Income tax expense is calculated on a separate company basis.
<PAGE> 66
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY RESERVES AND LIABILITIES
For traditional life insurance contracts, reserves for future policy
benefits are determined using the net level premium method and assumptions
as to mortality, interest, policy lapsation and expenses. Mortality
assumptions, based upon the 1975-1980 Basic Select and Ultimate tables,
range from 59% to 90% depending on underwriting classification and policy
duration. Interest rate assumptions range from 6.0% to 9.5%. Lapse and
expense assumptions are based on Company experience.
For the Company's universal life-type contracts, reserves approximate the
policyholder's accumulation account. For deferred annuity and other
investment contracts, the reserve is the policyholder's account value.
SEPARATE ACCOUNTS
The Company established Jackson National Separate Account - I (the "Separate
Account") which commenced operations on October 16, 1995, and is registered
under the Investment Company Act of 1940 as a unit investment trust. The
Separate Account receives and invests net premiums for individual flexible
premium annuity contracts issued by JNL. Separate account assets and
separate account liabilities total $.8 million and are included in other
assets and liabilities at December 31, 1995. Investment income and gains
and losses of the Separate Accounts accrue directly to the contractholders
and are, therefore, not included in the Company's consolidated statement of
operations.
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 deferred policy acquisition costs.
Deposits on interest sensitive life products are credited to the
policyholder account. Revenues consist of amounts assessed against the
policyholder's account value, including mortality, contract initiation and
administration (expense charges) and surrender charges. Surrender benefits
are treated as repayments of the policyholder account. Death benefits, net
of the policyholder account, are recognized as an expense when incurred.
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 policy acquisition costs.
Deposits on investment contracts, principally deferred annuities, are
treated as policyholder deposits and excluded from revenue. Revenues
consist primarily of the investment income earned on those deposits.
Benefit payments for such contracts are treated as reductions to the
policyholder account. Expenses consist primarily of the interest credited
to the policyholder deposit.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the basis used by the Company in estimating its
fair value disclosures for financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES - Fair values are based upon quoted
market prices, if available. For securities not actively traded, fair
values are estimated using independent pricing services or analytically
determined values.
POLICY LOANS - The carrying amount reported in the balance sheet
approximates fair value since policy loans reduce the amount payable at
death or at surrender of the contract.
SHORT-TERM INVESTMENTS, CASH AND ACCRUED INVESTMENT INCOME - The carrying
amounts reported in the balance sheet approximate fair value.
<PAGE> 67
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
SEPARATE ACCOUNT ASSETS - Separate account assets are carried at the market
value of the underlying securities.
ANNUITY RESERVES (without mortality features) - Fair values for immediate
and deferred annuities are derived by discounting the future estimated cash
flows using current interest rates with similar maturities.
At December 31, 1995, the carrying value and fair value of such annuities
approximated $18.2 billion and $17.2 billion, respectively, and $16.4
billion and $15.4 billion, respectively, at December 31, 1994.
GUARANTEED INTEREST CONTRACTS RESERVES - Fair value is based on the
present value of future cash flows at current pricing rates.
LIABILITY FOR GUARANTEE FUND ASSESSMENTS - It is not practical to estimate
the fair value of liabilities for guarantee fund assessments. Such
liabilities are based on current estimates of the Company's portion of the
undiscounted liability at the time of a known insolvency.
OTHER LIABILITIES - Payables for securities purchased, commissions
payable, general expense and administrative fees payable and other
liabilities represent net transactions of a short term nature for which the
carrying amounts reported in the balance sheet approximate fair value.
SEPARATE ACCOUNT LIABILITIES - Fair value of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the
payout phase are based on the present value of future cash flows at assumed
investment rates. At December 31,1995, all separate account contracts are
in the accumulation phase.
4. INVESTMENTS
Investments are comprised primarily of fixed-interest securities, primarily
publicly-traded industrial, mortgage-backed, utility and government bonds.
The Company generates the vast majority of its premium from
interest-sensitive individual annuity and life insurance products, on which
it has committed to pay a declared rate of interest. The Company's strategy
of investing in fixed-interest securities aims to ensure matching of the
asset yield with the interest-sensitive insurance liabilities and to earn a
stable return on its investments.
The Company's holdings of non-investment grade bonds at December 31, 1995
constituted approximately 9% of total assets. Approximately 2% of its total
assets are invested in common stocks or commercial real estate and
mortgages. Approximately 69% of the Company's investment grade bonds have
Standard and Poors ("S&P") ratings of A and higher, while 19% is rated BBB.
The fixed-interest portfolio has a weighted average S&P rating of AA-.
The amortized cost and estimated market value of fixed maturity investments
held to maturity are as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
U.S. Government agencies
and foreign governments $ 134,893 $ 839 $2,233 $ 133,499
Corporate securities 809,925 15,108 3,029 822,005
Collateralized mortgage obligations 3,174,065 76,362 6,403 3,244,024
---------- ---------- ------- ----------
Total $4,118,883 $92,309 $11,665 $4,199,528
========== ========== ======= ==========
</TABLE>
<PAGE> 68
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1994 COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies
and foreign governments $1,239,102 $ - $144,697 $1,094,405
Corporate securities 670,835 17 3,511 667,341
Collateralized mortgage obligations 1,443,130 7 79,017 1,364,120
---------- --- -------- ----------
Total $3,353,067 $24 $227,225 $3,125,866
========== === ======== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturity investments
available for sale are as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
--------- ------------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 354,506 $3,136 $ 2 $ 357,640
U.S. Government agencies
and foreign governments 1,543,055 68,360 940 1,610,475
Public utilities 954,297 59,767 5,441 1,008,623
Corporate securities 9,013,057 699,519 27,386 9,685,190
Collateralized mortgage obligations 6,383,685 239,881 32,960 6,590,606
----------- ---------- ------- -----------
Total $18,248,600 $1,070,663 $66,729 $19,252,534
=========== ========== ======= ===========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1994 COST GAINS LOSSES VALUE
----------- -------------------- ------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 368,134 $ 6 $ 8,089 $ 360,051
U.S. Government agencies
and foreign governments 1,703,266 7,147 90,628 1,619,785
Public utilities 947,588 17,993 41,769 923,812
Corporate securities 8,317,602 96,893 466,939 7,947,556
Collateralized mortgage obligations 5,430,445 12,750 520,390 $ 4,922,805
----------- -------- ---------- -----------
Total $16,767,035 $134,789 $1,127,815 $15,774,009
=========== ======== ========== ===========
</TABLE>
Gross unrealized gains pertaining to equity securities at December 31, 1995
were $51.2 million and $19.7 million, respectively. Gross unrealized losses
at December 31, 1995 and 1994 were $7.0 million and $10.1 million,
respectively.
<PAGE> 69
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
4. INVESTMENTS (CONTINUED)
The amortized cost and estimated market value of fixed maturities at
December 31, 1995, 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 call or
prepayment penalties.
Fixed maturities held to maturity (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------------- ------------
<S> <C> <C>
Due after 1 year through 5 years $ 393,820 $ 405,900
Due after 5 years through 10 years 416,105 416,104
Mortgage-backed securities 3,308,958 3,377,524
---------- ----------
Total $4,118,883 $4,199,528
========== ==========
</TABLE>
Fixed maturities available for sale (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------------- ------------
<S> <C> <C>
Due within 1 year or less $ 187,355 $ 188,750
Due after 1 year through 5 years 2,708,297 2,915,856
Due after 5 years through 10 years 3,836,308 4,055,629
Due after 10 years through 20 years 1,255,804 1,386,772
Due after 20 years 2,578,495 2,770,406
Mortgage-backed securities 7,682,341 7,935,121
---------- -----------
Total $18,248,600 $19,252,534
=========== ===========
</TABLE>
Discounts and premiums on collateralized mortgage obligations are amortized
over the estimated redemption period using the effective interest method.
Yields which are used to calculate premium/discount amortization are
adjusted periodically for prepayments.
At December 31, 1995, fixed maturities with a carrying value of $5.3 million
were on deposit with regulatory authorities as required by law in various
states in which the insurance operations conduct business.
At December 31, 1995, New American Holdings with a carrying value and
estimated market value of $192.8 million and $218.7 million, respectively,
was the only entity (other than the United States government agencies and
authorities) in which the Company's investment exceeded ten percent of
stockholder's equity. The security was rated a Class 2 by the National
Association of Insurance Commissioners ("NAIC") and a "BBB" by S&P.
The Company held two types of derivative instruments at December 31, 1995;
interest rate swaps and put-swaptions. At December 31, 1995, the notional
amount of the interest rate swaps outstanding was $1.0 billion, with
unexpired terms of these agreements varying from 32 to 111 months and
interest rates ranging from 6.25% to 8.59%. The fair value of the swap
agreements was $68.0 million. During 1995, the Company recorded $14.4
million in net interest income from swaps. The termination of swaps in 1994
resulted in a $18.3 million loss (net of tax) which was to be amortized over
the remaining life of the underlying assets being hedged. During 1995, the
Company recognized $5.6 million in losses relating to those swaps.
<PAGE> 70
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
5. INVESTMENT INCOME AND REALIZED GAINS AND LOSSES
The Company entered into six put-swaption agreements during 1995. These
swaptions were entered into as a hedge against significant upward
fluctuations in interest rates. The notional amount of these securities at
December 31, 1995 was $12 billion, with a fair value of $7.3 million. The
unexpired terms of these agreements vary from 23 to 47 months.
The Company has entered into a securities lending agreement whereby large
blocks of securities are loaned to third parties, primarily major brokerage
firms. As of December 31, 1995 the estimated fair value of loaned
securities was $572.6 million. The Company's policy requires a minimum of
102 percent of the fair value of the loaned securities as collateral,
calculated on a daily basis. The collateral and related amounts due to
counterparties are not reflected in the consolidated balance sheet. To
further minimize the credit risks related to this program, the financial
condition of counterparties are monitored on a regular basis.
Major categories of investment income are summarized below (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Fixed maturities $1,766,654 $1,550,367 $1,458,918
Other investment income 82,614 79,802 78,974
---------- ---------- ----------
Total investment income 1,849,268 1,630,169 1,537,892
Less - investment expenses 12,896 12,612 10,560
---------- ---------- ----------
Net investment income $1,836,372 $1,617,557 $1,527,332
========== ========== ==========
</TABLE>
Proceeds from principal payments and maturities of fixed maturities held to
maturity were $.3 billion and $.2 billion in 1995 and 1994, respectively.
Proceeds from sales, principal payments and maturities of fixed maturities
available for sale were $3.3 billion and $6.2 billion in 1995 and 1994,
respectively.
Net realized investment gains (losses) are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------- ------------ ------------
<S> <C> <C> <C>
Sales of fixed maturities
Gross gains $101,682 $ 131,620 $197,008
Gross losses (27,897) (200,135) (18,851)
Sales of equity securities
Gross gains 47,883 58,270 18,192
Gross losses (1,576) (6,082) (2,947)
Impairment losses (29,824) (123) (35,276)
Other invested assets, net (5,642) (2,370) (1,130)
-------- ------------ ------------
Total $ 84,626 $ (18,820) $156,996
======== ============ ============
</TABLE>
<PAGE> 71
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
6. VALUE OF ACQUIRED INSURANCE IN FORCE
The VOB was determined by using assumptions as to interest, persistency and
mortality. Profits were then discounted to arrive at the value of the
insurance in force.
The balances and amortization of insurance in force are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 208,942 $ 220,406
Amortization, net of interest (12,379) (11,464)
----------- -----------
Balance, end of year $ 196,563 $ 208,942
=========== ==========
</TABLE>
The VOB is expected to be amortized as follows (dollars in thousands):
<TABLE>
<S> <C>
1996 $ 13,000
1997 14,000
1998 15,000
1999 16,000
Thereafter 138,563
-------------
$ 196,563
=============
</TABLE>
7. POLICY RESERVES AND LIABILITIES
A summary of the components of policy reserves and liabilities is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
Term life and other traditional life $ 490,142 $ 446,462
Interest sensitive life 4,323,805 4,091,546
Deferred and immediate annuities 18,504,031 16,784,239
Guaranteed interest contracts 100,080 -
------------- -------------
Subtotal 23,418,058 21,322,247
Claims payable and other policyholder
funds 150,282 121,495
------------- -------------
Total $ 23,568,340 $ 21,443,742
============= =============
</TABLE>
8. REINSURANCE
The Company assumes and cedes reinsurance from and 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 assumes the liability. The maximum amount of life insurance risk
retained by the Company on any one life is generally $1.5 million. Amounts
not retained are ceded to other companies on a yearly renewable-term or a
coinsurance basis.
<PAGE> 72
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
8. REINSURANCE (CONTINUED)
Policy reserves and liabilities are stated net of reinsurance ceded to
other companies. At December 31, 1995 and 1994, reserves were reduced by
approximately $163.2 million and $157.7 million, respectively, of which
$18.5 million and $16.9 million, respectively, was reinsured with
Mercantile and General Reinsurance Company, a wholly-owned subsidiary of
Prudential. Additionally $91.6 million and $93.0 million was reinsured
through Brooke Life at December 31, 1995 and 1994, respectively.
Premiums and other considerations are stated net of premiums on
reinsurance assumed from and ceded to other companies. Net premiums ceded
during 1995 and 1994 approximated $62.5 million and $65.0 million,
respectively.
9. FEDERAL INCOME TAXES
The components of the provision for federal income taxes as computed in
accordance with SFAS 109 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------- ---------- ------------
<S> <C> <C> <C>
Current tax expense $ 152,480 $ 26,835 $ 135,545
Deferred tax expense (benefit) (12,480) 14,615 (34,845)
---------- --------- -----------
Provision for income taxes $ 140,000 $ 41,450 $ 100,700
========== ========= ===========
</TABLE>
The federal income tax provisions differ from the amounts determined by
multiplying pre-tax income by the statutory federal income tax rate of 35% for
1995, 1994 and 1993 as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
------------ ---------- ------------
<S> <C> <C> <C>
Income taxes at statutory rate $ 138,809 $ 68,786 $ 103,794
Increase (reduction) in taxes
resulting from:
Release of accrued Federal tax due
to IRS settlement - (27,000) -
Enacted rate changes - - (7,178)
Other 1,191 (336) 4,084
------------ ---------- -------------
Provision for income taxes $ 140,000 $ 41,450 $ 100,700
============ ========== =============
Effective tax rate 35.3% 21.1% 34.0%
====== ====== ======
</TABLE>
The Company made income tax payments of $116.1 million in 1995, $79.9
million in 1994 and $159.2 million in 1993.
<PAGE> 73
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
________________________________________________________________________________
9. FEDERAL INCOME TAXES (CONTINUED)
The significant temporary differences included in the deferred tax asset
as of December 31, 1995 and 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- --------------
<S> <C> <C>
GROSS DEFERRED TAX ASSET
Policy reserves and other insurance items $ 669,247 $ 644,999
Difference between financial reporting and
the tax basis of:
Assets acquired 17,483 17,597
Insolvency fund assessments 32,483 23,251
Other, net 12,688 11,086
Net unrealized losses on available for sale securities - 344,209
---------- -------------
Total deferred tax asset $ 731,901 $ 1,041,142
---------- -------------
GROSS DEFERRED TAX LIABILITY
Deferred policy acquisition costs (216,636) (507,155)
Difference between financial reporting and the tax
basis of the value of the insurance in-force (68,797) (69,296)
Difference between financial reporting and
the tax basis of other assets (7,468) (9,444)
Net unrealized gains on available for sale securities (364,116) -
Other, net (11,597) (4,055)
---------- -------------
Total deferred tax liability (668,614) (589,950)
---------- -------------
Net deferred tax asset $ 63,287 $ 451,192
========== =============
</TABLE>
In 1994, the Company reached settlements with the Internal Revenue Service
("IRS") under which the IRS agreed to changes in the Company's federal
income tax liability for the tax years through 1990. Based on these and
subsequent settlements, federal income tax returns are closed to further
assessment through 1991.
10. CONTINGENCIES
The Company and its subsidiaries are involved in litigation arising in the
ordinary course of business. It is the opinion of management that the
ultimate disposition of such litigation will not have a material adverse
affect on the Company's financial condition or results of operations.
During 1994, the Company undertook an initiative to improve the quality of
service to policyholders. The Company expects to incur approximately $31
million in costs associated with this project, of which $19 million was
incurred through 1995. The remaining expense is expected to be incurred
in 1996.
<PAGE> 74
JACKSON NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, A
11. STOCKHOLDER'S EQUITY
DIVIDEND RESTRICTIONS
Under Michigan State Insurance Law, dividends on capital stock can only be
distributed out of earned surplus. Furthermore, without the prior
approval of the Commissioner, dividends cannot be declared or distributed
which exceed the greater of 10% of the Company's statutory surplus as of
December 31 next preceding or the Company's statutory net gain from
operations for such period. On January 1, 1996 the maximum amount of
dividends that can be paid by the Company without prior approval of the
Commissioner under this limitation approximated $156.6 million.
Statutory capital and surplus of the Company at December 31, 1995 and 1994
was $1,196.1 million and $1,050.8 million, respectively. Statutory net
income of the Company was $156.6 million, $125.3 million and $149.2
million in 1995, 1994 and 1993, respectively.
12. RELATED PARTY TRANSACTIONS
The Company's investment portfolio is managed by PPM America ("PPM"), a
registered investment advisor and a wholly-owned subsidiary of Prudential.
The Company paid $6.8 million, $5.8 million and $4.9 million to PPM for
investment advisory services during 1995, 1994, and 1993, respectively.
On August 26, 1987, Brooke Life issued a ten-year $180 million note to
Prudential as part of an exchange whereby 100% of the common stock of JNL
was transferred to Brooke Life. On December 28, 1988, Brooke Life issued
an additional ten-year $20 million note to Prudential. Each note contains
repayment options and accrues interest at 12% per annum. On October 31,
1991, Brooke Life issued an additional $200 million note to Prudential
Finance BV, a Prudential subsidiary, due October 31, 2001 with interest of
9.75% payable on October 31 of each year. In 1995, 1994, and 1993, JNL
made dividend payments to Brooke Life of $19.5 million to pay down the
accrued interest on the notes. At December 31, 1995, the amount
outstanding on these notes was as follows (in millions):
<TABLE>
<S> <C>
Principal $ 400
Accrued interest 155
-----
Total $ 555
=====
</TABLE>
13. BENEFIT PLANS
The Company has a defined contribution plan covering substantially all
employees. To be eligible, an employee must have attained the age of 21
and completed at least 1,000 hours of service in a 12-month period. The
Company's annual contributions, as declared by the board of directors, are
based on a percentage of covered compensation paid to participating
employees during the year. The Company expensed $2.3 million related to
this plan during 1995 and $2.2 million during both 1994 and 1993.
