<PAGE> 1
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INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
Issued By Jackson National Life Insurance Company in connection with the
Jackson National Separate Account -- I
ANNUITY SERVICE CENTER
Mail Address:
P.O. Box 378002
Denver, Colorado 80237-8002
Telephone Number: 1 (800) 766-4683 Delivery Address:
8055 East Tufts Avenue, Second Floor
Denver, Colorado 80237
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/PUTNAM GROWTH SERIES
JNL/PUTNAM VALUE EQUITY SERIES
PPM AMERICA/JNL BALANCED SERIES
PPM AMERICA/JNL HIGH YIELD BOND SERIES
PPM AMERICA/JNL MONEY MARKET 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.
Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was the PPM
America/JNL Value Equity Series, and the PPM America/JNL Balanced Series was the
JNL/Phoenix Investment Counsel Balanced Series.
A Statement of Additional Information dated May 1, 1997, 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, 1997,
is incorporated herein by reference. The Table of Contents for the Statement of
Additional Information appears in the Prospectus under the heading "Table of
Contents of the Statement of Additional Information." The Securities and
Exchange Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding registrants that file electronically with the
Commission.
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, 1997.
1
<PAGE> 2
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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............................. 10
Accumulation Unit Values.................................. 10
Financial Statements...................................... 11
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT......... 12
SEPARATE ACCOUNT INVESTMENTS................................ 13
Underlying Fund........................................... 13
Voting Rights............................................. 13
Substitution of Securities................................ 13
CONTRACT CHARGES............................................ 14
Mortality and Expense Risk Charge......................... 14
Contract Maintenance Charge............................... 14
Administration Charge..................................... 14
Transfer Fee.............................................. 14
Withdrawal Charge......................................... 15
Premium Taxes............................................. 15
Deduction for Separate Account Income Taxes............... 16
Other Expenses............................................ 16
Reduction of Charges for Sales to Certain Groups.......... 16
DESCRIPTION OF THE CONTRACTS................................ 16
Summary................................................... 16
Owner..................................................... 16
Annuitant................................................. 16
Modification of the Contract.............................. 16
Assignment................................................ 17
DEATH BENEFIT............................................... 17
Death of Contract Owner Before the Annuity Date........... 17
Death Benefit Amount Before the Annuity Date.............. 17
Death Benefit Options Before the Annuity Date............. 17
Death of Contract Owner After the Annuity Date............ 18
Death of Annuitant........................................ 18
Beneficiary............................................... 18
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 19
Premiums.................................................. 19
Automatic Payment Plan.................................... 19
Automatic Dollar Cost Averaging Program................... 19
Rebalancing............................................... 19
Allocation of Premiums.................................... 19
Transfer During Accumulation Period....................... 20
Separate Account Accumulation Unit Value.................. 20
Distribution of Contracts................................. 20
Withdrawals (Redemptions)................................. 21
Systematic Withdrawal Program............................. 21
Restrictions Under the Texas Optional Retirement
Program................................................. 22
ERISA Plans............................................... 22
Minimum Contract Value.................................... 22
ANNUITY PERIOD.............................................. 22
Annuity Date.............................................. 22
Annuity Options........................................... 22
ANNUITY PAYMENTS............................................ 24
Initial Monthly Annuity Payment........................... 24
Subsequent Monthly Payments............................... 24
Annuity Unit Value........................................ 24
ADMINISTRATION.............................................. 25
Statements and Reports.................................... 25
Market Timing and Asset Allocation Services............... 25
TAXES....................................................... 25
General................................................... 25
Withholding Tax on Distributions.......................... 26
Diversification -- Separate Account Investments........... 26
Multiple Contracts........................................ 27
Contracts Owned by Other than Natural Persons............. 27
Tax Treatment of Assignments.............................. 27
Qualified Plans........................................... 27
Tax Treatment of Withdrawals.............................. 27
ADVERTISING................................................. 29
LEGAL PROCEEDINGS........................................... 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 31
APPENDIX A.................................................. A-1
APPENDIX B.................................................. B-1
APPENDIX C.................................................. C-1
</TABLE>
2
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DEFINITIONS
- --------------------------------------------------------------------------------
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
378002, Denver, Colorado 80237-8002, (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, law or regulation, 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.
3
<PAGE> 4
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 a Fund.
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.
4
<PAGE> 5
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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
--------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------
</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.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Mortality and Expense Risk Charges.......................... 1.25%
Administration Charge....................................... .15%
-----
Total Separate Account Annual Expenses.................... 1.40%
</TABLE>
5
<PAGE> 6
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UNDERLYING FUND EXPENSES
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JNL SERIES TRUST
(As an annual percentage of average net assets.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER
EXPENSES
MANAGEMENT (AFTER TOTAL FUND
FEE REIMBURSEMENT) ANNUAL EXPENSES
- -----------------------------------------------------------------------------------------
<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/Putnam Growth Series*................................... .90% .15% 1.05%
JNL/Putnam Value Equity Series*............................. .90% .15% 1.05%
PPM America/JNL Balanced Series*............................ .75% .15% .90%
PPM America/JNL High Yield Bond Series...................... .75% .15% .90%
PPM America/JNL Money Market Series......................... .60% .15% .75%
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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* Prior to May 1, 1997, the management fee for the JNL/Putnam Growth Series was
.90%, the management fee for the JNL/Putnam Value Equity Series was .75%, and
the management fee for the PPM America/JNL Balanced Series was .90%.
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, each of the Series are reimbursed for annual expenses
(excluding Management Fees) in excess of .15% of average daily net assets. Prior
to reimbursement, Total Fund Annual Expenses as a percentage of net assets for
the period ended December 31, 1996, were: JNL Aggressive Growth Series -- 1.40%;
JNL Capital Growth Series -- 1.27%; JNL Global Equities Series -- 1.63%;
JNL/Alger Growth Series -- 1.19%; JNL/Putnam Growth Series -- 1.27%; JNL/Putnam
Value Equity Series -- 1.53%; PPM American/JNL Balanced Series -- 1.22%; PPM
America/JNL High Yield Bond Series -- 1.21%; PPM America/JNL Money Market Series
- -- .85%; Salomon Brothers/JNL Global Bond Series -- 1.44%; Salomon Brothers/JNL
U.S. Government & Quality Bond Series -- 1.37%; T. Rowe Price/JNL Established
Growth Series -- 1.11%; T. Rowe Price/JNL International Equity Investment Series
- --1.29%; and T. Rowe Price/JNL Mid-Cap Growth Series -- 1.14%. Voluntary
reimbursements to these Series may be modified or discontinued at any time.
6
<PAGE> 7
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNL Aggressive Growth Portfolio............................. $96 $129 $165 $288
JNL Capital Growth Portfolio................................ 96 129 165 288
JNL Global Equities Portfolio............................... 96 131 168 293
JNL/Alger Growth Portfolio.................................. 96 130 167 291
JNL/Putnam Growth Portfolio................................. 95 128 163 283
JNL/Putnam Value Equity Portfolio........................... 95 128 163 283
PPM America/JNL Balanced Portfolio.......................... 94 123 155 268
PPM America/JNL High Yield Bond Portfolio................... 94 123 155 268
PPM America/JNL Money Market Portfolio...................... 92 119 148 253
Salomon Brothers/JNL Global Bond Portfolio.................. 95 126 160 278
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio................................................. 93 122 153 263
T. Rowe Price/JNL Established Growth Portfolio.............. 95 126 160 278
T. Rowe Price/JNL International Equity Investment
Portfolio................................................. 97 134 173 303
T. Rowe Price/JNL Mid-Cap Growth Portfolio.................. 96 129 165 288
</TABLE>
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNL Aggressive Growth Portfolio............................. $26 $79 135 288
JNL Capital Growth Portfolio................................ 26 79 135 288
JNL Global Equities Portfolio............................... 26 81 138 293
JNL/Alger Growth Portfolio.................................. 26 80 137 291
JNL/Putnam Growth Portfolio................................. 25 78 133 283
JNL/Putnam Value Equity Portfolio........................... 25 78 133 283
PPM America/JNL Balanced Portfolio.......................... 24 73 125 268
PPM America/JNL High Yield Bond Portfolio................... 24 73 125 268
PPM America/JNL Money Market Portfolio...................... 22 69 118 253
Salomon Brothers/JNL Global Bond Portfolio.................. 25 76 130 278
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio................................................. 23 72 123 263
T. Rowe Price/JNL Established Growth Portfolio.............. 25 76 130 278
T. Rowe Price/JNL International Equity Investment
Portfolio................................................. 27 84 143 303
T. Rowe Price/JNL Mid-Cap Growth Portfolio.................. 26 79 135 288
</TABLE>
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7
<PAGE> 8
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," 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.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
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. An Owner
may not allocate Contract Values to more than eighteen options during the life
of the Contract. 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/Putnam Growth Series*
JNL/Putnam Value Equity Series*
PPM America/JNL Balanced Series*
PPM America/JNL High Yield Bond Series
PPM America/JNL Money Market 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
* Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was
the PPM America/JNL Value Equity Series, and the PPM America/JNL Balanced
Series was the JNL/Phoenix Investment Counsel Balanced Series.
8
<PAGE> 9
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
right to examine the policy. Within ten days (or longer if required by state
law) 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 unless otherwise required by state and/or federal law.
The Contract Value at the time of refund may be more or less than the Premium
paid.
9
<PAGE> 10
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT VALUES
The following table presents Accumulation Unit values for the Separate
Account at the beginning and end of the periods indicated as well as ending
Accumulation Units outstanding under each Portfolio of the Separate Account as
of December 31, 1996, and December 31, 1995. This data has been taken from the
Separate Account's financial statements. The Separate Account's financial
statements for the periods ended December 31, 1996, and December 31, 1995, 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>
- -----------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- -----------------------------------------------------------
<S> <C> <C>
JNL Aggressive Growth
Portfolio
Accumulation unit value:
Beginning of period $10.20 $10.00
End of period $11.95 $10.20
Accumulation units
outstanding at the end of
period 2,355,530 4,008
JNL Capital Growth Portfolio
Accumulation unit value:
Beginning of period $10.34 $10.00
End of period $11.87 $10.34
Accumulation units
outstanding at the end of
period 2,985,668 1,587
JNL Global Equities Portfolio
Accumulation unit value:
Beginning of period $10.48 $10.00
End of period $13.57 $10.48
Accumulation units
outstanding at the end of
period 3,090,234 4,778
JNL/Alger Growth Portfolio
Accumulation unit value:
Beginning of period $9.93 $10.00
End of period $11.11 $ 9.93
Accumulation units
outstanding at the end of
period 3,310,810 12,285
JNL/Putnam Growth Portfolio(b)
Accumulation unit value:
Beginning of period $10.58 $10.00
End of period $13.22 $10.58
Accumulation units
outstanding at the end of
period 1,682,604 571
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- -----------------------------------------------------------
<S> <C> <C>
JNL/Putnam Value Equity
Portfolio(b)
Accumulation unit value:
Beginning of period $10.59 $10.00
End of period $12.98 $10.59
Accumulation units
outstanding at the end of
period 1,330,288 3,944
PPM America/JNL Balanced
Portfolio(b)
Accumulation unit value:
Beginning of period $10.34 $10.00
End of period $11.29 $10.34
Accumulation units
outstanding at the end of
period 2,120,529 12,871
PPM America/JNL High Yield
Bond Portfolio
Accumulation unit value:
Beginning of period $10.11 $10.00
End of period $11.26 $10.11
Accumulation units
outstanding at the end of
period 1,147,840 100
PPM America/JNL Money Market
Portfolio
Accumulation unit value:
Beginning of period $10.03 $10.00
End of period $10.37 $10.03
Accumulation units
outstanding at the end of
period 2,193,176 14,608
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
(b) Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series and the management fee was .90%, the
JNL/Putnam Value Equity Series was the PPM America/JNL Value Equity
Series and the management fee was .75%; and the PPM America/JNL Balanced
Series was the JNL/Phoenix Investment Counsel Balanced Series and the
management fee was .90%.
10
<PAGE> 11
<TABLE>
<CAPTION>
- -----------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- -----------------------------------------------------------
<S> <C> <C>
Salomon Brothers/JNL Global
Bond Portfolio
Accumulation unit value:
Beginning of period $10.41 $10.00
End of period $11.74 $10.41
Accumulation units
outstanding at the end of
period 911,885 3,128
Salomon Brothers/JNL U.S.
Government & Quality Bond
Portfolio
Accumulation unit value:
Beginning of period $10.21 $10.00
End of period $10.33 $10.21
Accumulation units
outstanding at the end of
period 902,055 1,275
T. Rowe Price/JNL Established
Growth Portfolio
Accumulation unit value:
Beginning of period $10.36 $10.00
End of period $12.53 $10.36
Accumulation units
outstanding at the end of
period 2,500,896 10,564
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- -----------------------------------------------------------
<S> <C> <C>
T. Rowe Price/JNL
International Equity
Investment Portfolio
Accumulation unit value:
Beginning of period $10.49 $10.00
End of period $11.78 $10.49
Accumulation units
outstanding at the end of
period 2,039,430 3,096
T. Rowe Price/JNL Mid-Cap
Growth Portfolio
Accumulation unit value:
Beginning of period $10.37 $10.00
End of period $12.59 $10.37
Accumulation units
outstanding at the end of
period 3,585,051 5,120
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
FINANCIAL STATEMENTS
The full financial statements of the Separate Account for the year ended
December 31, 1996, the financial statements of the Company for the years ended
December 31, 1996, and December 31, 1995, and the applicable auditor's reports
thereon are contained in the Statement of Additional Information.
11
<PAGE> 12
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
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.
12
<PAGE> 13
- --------------------------------------------------------------------------------
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/Putnam Growth Series*
JNL/Putnam Value Equity Series*
PPM America/JNL Balanced Series*
PPM America/JNL High Yield Bond Series
PPM America/JNL Money Market 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
* Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was the
PPM America/JNL Value Equity Series, and the PPM America/JNL Balanced Series
was the JNL/Phoenix Investment Counsel Balanced 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.
13
<PAGE> 14
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
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 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.
14
<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
- --------------------------------------------------------------------------------
<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. Where permitted by
state law, the Company will waive the Withdrawal Charge on withdrawals made
pursuant to the provisions of a Waiver of Contingent Deferred Sales Charge
Endorsement for Terminal Illness attached to the Owner's Contract or a Waiver of
Contingent Deferred Sales Charge Endorsement for Specified Conditions attached
to the Owner's Contract. 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.
15
<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.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a
deferred annuity contract held by a corporation or other entity that is not a
natural person is not treated as an annuity contract for tax purposes. Income on
the contract is treated as ordinary income received by the Owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered held
by a natural person and treated as an annuity contract for tax purposes. Tax
advice should be sought prior to purchasing a Contract which is to be owned by a
trust or other non-natural person.
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
16
<PAGE> 17
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 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 generally 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 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 Owner's rights
under the Contract. The following are the Death Benefit Options:
Option 1 -- lump sum payment of the death benefit; or
17
<PAGE> 18
Option 2 -- the payment of the entire death benefit within 5 years of
the date of the death of the 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 the death of the Owner or any Joint Contract Owner.
Any portion of the death benefit not applied under Option 3 within one year
of the date of an 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 Owner's death. Upon the Owner's death after the Annuity Date, the
Beneficiary becomes the Owner.
DEATH OF ANNUITANT
Upon the death of an Annuitant, who is not an 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, the Owner will become the Annuitant. If the Owner is a
non-natural person, the death of the Annuitant will be treated as the death of
the 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.
18
<PAGE> 19
- --------------------------------------------------------------------------------
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 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 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 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 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
An 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 complete, 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
COMPLETE. If the application for a Contract is not complete, 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 made complete within five business days of such
receipt.
19
<PAGE> 20
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.
The combined number of Portfolio options available under the Separate
Account and guaranteed account options available under the General Account may
be greater than eighteen. However, an Owner may not allocate Contract Values to
more than eighteen options during the life of the Contract.
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 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
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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 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 or a
specified percentage of the Contract Owner's total Contract Value (equal to 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
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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.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Contracts issued to participants in the Texas Optional Retirement Program
("ORP") contain restrictions required under the Texas Administrative Code. In
accordance with those restrictions, a participant in the ORP will not be
permitted to make withdrawals prior to such participant's retirement, death,
attainment of age 70 1/2 years or termination of employment in a Texas public
institution of higher education. The foregoing restrictions on withdrawal do not
apply in the event a participant in the ORP transfers the Contract Value to
another approved contract or vendor during the period of ORP participation.
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.
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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.
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 Owners, at their last known address of record, any
statements and reports required by applicable law or regulation. Owners should
therefore give the Company prompt notice of any address change. The Company will
send a confirmation statement to 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
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 Owner may receive confirmation of such transactions
in their quarterly statements. The 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 Owner notifies the Company
otherwise within thirty (30) days after receipt of the statement. The Company
will also send to 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.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL
Section 72 of the 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
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(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. For certain
types of Qualified Plans there may be no cost basis in the Contract within the
meaning of Section 72 of the Code. Owners, Annuitants and Beneficiaries under
the Contracts should seek competent financial advice about the tax consequences
of distributions under the retirement plan for which the Contracts are
purchased.
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 the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct transfer. This requirement is mandatory and
cannot be waived by the Owner.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax sheltered annuity qualified under Section
403(b) of the Code (other than (1) 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.
Generally, the amount of any payment of interest to a non-resident alien of
the United States shall be subject to withholding of a tax equal to thirty (30%)
percent of such amount or, if applicable, a lower treaty rate. A payment may not
be subject to withholding where the recipient sufficiently establishes that such
payment is effectively connected to the recipient's conduct of a trade or
business in the United States and such payment is included in recipient's gross
income.
DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of Federal income tax to the
Owner with respect to earnings allocable to the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the Contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations establishing diversification
requirements for the 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
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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 Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the owner of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple annuity contracts which are issued within a
calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining the tax consequences
of any distribution. Such treatment may result in adverse tax consequences
including more rapid taxation of the distributed amounts from such multiple
contracts. 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 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-natural 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
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
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(6) which are allocable to premium payments made prior to August 14, 1982.
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) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated beneficiary; (4) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (5)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (6) distributions made to an alternate payee
pursuant to a qualified domestic relations order; and (7) distributions from an
IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D)
of the Code) for the Contract Owner or Annuitant (as applicable) and his or her
spouse and dependents if the Contract Owner or Annuitant (as applicable) has
received unemployment compensation for at least 12 weeks. This exception will no
longer apply after the Contract Owner or Annuitant (as applicable) has been
re-employed for at least 60 days.
The exceptions stated in items (4) and (6) above do not apply in the case
of an IRA.
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.
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
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.
Generally, distributions from a Qualified Plan generally must commence no
later than April 1 of the calendar year following the year in which the employee
attains the later of age 70 1/2 or the date of retirement. In the case of an
IRA, distribution must commence no later than April 1 of the calendar year
following the year in which the owner or annuitant attains age 70 1/2. Required
distributions must be over a period not exceeding the life or life expectancy of
the individual or the joint lives or life expectancies of the individual and his
or her designated beneficiary. If the required minimum distributions are not
made, a 50% penalty tax is imposed as to the amount not distributed.
28
<PAGE> 29
- --------------------------------------------------------------------------------
ADVERTISING
- --------------------------------------------------------------------------------
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 Company may
periodically advertise tax-deferred compounding charts and other hypothetical
illustrations.
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 Composite
Stock Price Index; S&P MidCap 400 Index; Salomon Brothers Broad Investment Grade
Index; Lehman Brothers High Yield Index; Lehman Brothers Aggregate Bond Index;
Salomon Brothers Treasury Index; Morgan Stanley Capital International World
Index; Morgan Stanley Europe and Australasia, Far East Equity Index; Russell
2000 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
29
<PAGE> 30
ratings are not intended to reflect the investment experience or financial
strength of the Separate Account. The 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.
30
<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.................................. 7
Annuity Payments; Net Investment Factor..................... 9
Financial Statements........................................ 10
- --------------------------------------------------------------------------------
</TABLE>
31
<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; Putnam Investment Management, Inc.
("Putnam") serves as sub-adviser for the JNL/Putnam Growth* and JNL/Putnam Value
Equity Series*; PPM America, Inc. ("PPM") serves as sub-adviser for the PPM
America/JNL Balanced*, PPM America/JNL High Yield Bond and PPM America/JNL Money
Market 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 medium-sized companies. 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/PUTNAM GROWTH SERIES seeks as its investment objective long-term growth
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 opportunity for capital growth.
JNL/PUTNAM VALUE EQUITY SERIES seeks as its investment objective capital
growth, with income as a secondary objective by investing primarily in common
stocks which the sub-adviser believes to be undervalued relative to underlying
asset value or earnings potential at the time of purchase.
PPM AMERICA/JNL 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.
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.
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
B-1
<PAGE> 35
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.
* Prior to May 1, 1997, Phoenix Investment Counsel, Inc. served as sub-adviser
to the JNL/Putnam Growth Series and the PPM America/JNL Balanced Series, and
PPM served as the sub-adviser to the JNL/Putnam Value Equity Series.
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>
- --------------------------------------------------------
COMPLETE HYPOTHETICAL WITHDRAWAL CHARGES
CONTRACT CONTRACT PREMIUMS ------------------
YEARS VALUE LIQUIDATED PERCENT AMOUNT
- --------------------------------------------------------
<C> <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
- ---------------------------------------------------------------------------------------------------------------
<C> <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
- --------------------------------------------------------------------------------
INDIVIDUAL DEFERRED FIXED AND VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
Issued By Jackson National Life Insurance Company in connection with the
Jackson National Separate Account -- I
ANNUITY SERVICE CENTER
Mail Address: Delivery Address:
P.O. Box 378002 8055 East Tufts Avenue, Second Floor
Denver, Colorado 80237-8002 Denver, Colorado 80237
Telephone Number: 1 (800) 539-9034
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/EAGLE CORE EQUITY SERIES
JNL/EAGLE SMALLCAP EQUITY SERIES
JNL/PUTNAM GROWTH SERIES
JNL/PUTNAM VALUE EQUITY SERIES
PPM AMERICA/JNL BALANCED SERIES
PPM AMERICA/JNL MONEY MARKET 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.
Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was the PPM
America/JNL Value Equity Series, and the PPM America/JNL Balanced Series was the
JNL/Phoenix Investment Counsel Balanced Series.
A Statement of Additional Information dated May 1, 1997, 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, 1997,
is incorporated herein by reference. The Table of Contents for the Statement of
Additional Information appears in the Prospectus under the heading "Table of
Contents of the Statement of Additional Information." The Securities and
Exchange Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding registrants that file electronically with the
Commission.
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, 1997.
1
<PAGE> 38
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<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............................. 10
Accumulation Unit Values.................................. 10
Financial Statements...................................... 11
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT......... 12
SEPARATE ACCOUNT INVESTMENTS................................ 13
Underlying Fund........................................... 13
Voting Rights............................................. 13
Substitution of Securities................................ 13
CONTRACT CHARGES............................................ 14
Mortality and Expense Risk Charge......................... 14
Contract Maintenance Charge............................... 14
Administration Charge..................................... 14
Transfer Fee.............................................. 14
Withdrawal Charge......................................... 15
Premium Taxes............................................. 15
Deduction for Separate Account Income Taxes............... 16
Other Expenses............................................ 16
Reduction of Charges for Sales to Certain Groups.......... 16
DESCRIPTION OF THE CONTRACTS................................ 16
Summary................................................... 16
Owner..................................................... 16
Annuitant................................................. 16
Modification of the Contract.............................. 16
Assignment................................................ 17
DEATH BENEFIT............................................... 17
Death of Contract Owner Before the Annuity Date........... 17
Death Benefit Amount Before the Annuity Date.............. 17
Death Benefit Options Before the Annuity Date............. 17
Death of Contract Owner After the Annuity Date............ 18
Death of Annuitant........................................ 18
Beneficiary............................................... 18
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 19
Premiums.................................................. 19
Automatic Payment Plan.................................... 19
Automatic Dollar Cost Averaging Program................... 19
Rebalancing............................................... 19
Allocation of Premiums.................................... 19
Transfer During Accumulation Period....................... 20
Separate Account Accumulation Unit Value.................. 20
Distribution of Contracts................................. 20
Withdrawals (Redemptions)................................. 21
Systematic Withdrawal Program............................. 21
ERISA Plans............................................... 22
Minimum Contract Value.................................... 22
ANNUITY PERIOD.............................................. 22
Annuity Date.............................................. 22
Annuity Options........................................... 22
ANNUITY PAYMENTS............................................ 24
Initial Monthly Annuity Payment........................... 24
Subsequent Monthly Payments............................... 24
Annuity Unit Value........................................ 24
ADMINISTRATION.............................................. 25
Statements and Reports.................................... 25
Market Timing and Asset Allocation Services............... 25
TAXES....................................................... 25
General................................................... 25
Withholding Tax on Distributions.......................... 26
Diversification -- Separate Account Investments........... 26
Multiple Contracts........................................ 27
Contracts Owned by Other than Natural Persons............. 27
Tax Treatment of Assignments.............................. 27
Qualified Plans........................................... 27
Tax Treatment of Withdrawals.............................. 27
ADVERTISING................................................. 29
LEGAL PROCEEDINGS........................................... 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 31
APPENDIX A.................................................. A-1
APPENDIX B.................................................. B-1
APPENDIX C.................................................. C-1
</TABLE>
2
<PAGE> 39
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
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
378002, Denver, Colorado 80237-8002, (800) 539-9034. 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, law or regulation, 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.
3
<PAGE> 40
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 a Fund.
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.
4
<PAGE> 41
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Contingent Deferred Sales Charge (Withdrawal Charge) (as a percentage of
Premiums)
<TABLE>
<CAPTION>
NUMBER OF COMPLETE CONTRACT YEARS
SINCE PREMIUM BEING WITHDRAWN WAS MADE
--------------------------------------
<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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEPARATE ACCOUNT EXPENSES
- --------------------------------------------------------------------------------
(As an annual percentage of average net asset value. The daily equivalent is
deducted from each of the Portfolios of the Separate Account.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Mortality and Expense Risk Charges.......................... 1.25%
Administration Charge....................................... .15%
-----
Total Separate Account Annual Expenses.................... 1.40%
</TABLE>
5
<PAGE> 42
- --------------------------------------------------------------------------------
UNDERLYING FUND EXPENSES
- --------------------------------------------------------------------------------
JNL SERIES TRUST
(As an annual percentage of average net assets.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER
EXPENSES
MANAGEMENT (AFTER TOTAL FUND
FEE REIMBURSEMENT) ANNUAL EXPENSES
- -----------------------------------------------------------------------------------------
<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/Eagle Core Equity Series................................ .90% .15%* 1.05%
JNL/Eagle SmallCap Equity Series............................ .95% .15%* 1.10%
JNL/Putnam Growth Series**.................................. .90% .15% 1.05%
JNL/Putnam Value Equity Series**............................ .90% .15% 1.05%
PPM America/JNL Balanced Series**........................... .75% .15% .90%
PPM America/JNL Money Market Series......................... .60% .15% .75%
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>
- --------------------------------------------------------------------------------
* The JNL/Eagle Core Equity Series and the JNL/Eagle SmallCap Equity Series
commenced operations on September 16, 1996. Estimated expenses for the first
fiscal year of operation. Actual expenses may be greater or lesser than those
shown.
** Prior to May 1, 1997, the management fee for the JNL/Putnam Growth Series was
.90%, the management fee for the JNL/Putnam Value Equity Series was .75%, and
the management fee for the PPM America/JNL Balanced Series was .90%.
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, each of the Series are reimbursed for annual expenses
(excluding Management Fees) in excess of .15% of average daily net assets. Prior
to reimbursement, Total Fund Annual Expenses as a percentage of net assets for
the period ended December 31, 1996, were: JNL Aggressive Growth Series -- 1.40%;
JNL Capital Growth Series -- 1.27%; JNL Global Equities Series -- 1.63%;
JNL/Alger Growth Series -- 1.19%; JNL/Putnam Growth Series -- 1.27%; JNL/Putnam
Value Equity Series -- 1.53%; PPM American/JNL Balanced Series -- 1.22%; PPM
America/JNL Money Market Series -- .85%; Salomon Brothers/JNL Global Bond Series
- -- 1.44%; Salomon Brothers/JNL U.S. Government & Quality Bond Series -- 1.37%;
T. Rowe Price/JNL Established Growth Series -- 1.11%; T. Rowe Price/JNL
International Equity Investment Series -- 1.29%; and T. Rowe Price/JNL Mid-Cap
Growth Series -- 1.14%; and are expected to be: JNL/Eagle Core Equity Series --
4.57% and JNL/Eagle SmallCap Equity Series -- 4.77%. Voluntary reimbursements to
these Series may be modified or discontinued at any time.
6
<PAGE> 43
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNL Aggressive Growth Portfolio............................. $96 $129 $165 $288
JNL Capital Growth Portfolio................................ 96 129 165 288
JNL Global Equities Portfolio............................... 96 131 168 293
JNL/Alger Growth Portfolio.................................. 96 130 167 291
JNL/Eagle Core Equity Portfolio............................. 95 128 163 283
JNL/Eagle SmallCap Equity Portfolio......................... 96 129 165 288
JNL/Putnam Growth Portfolio................................. 95 128 163 283
JNL/Putnam Value Equity Portfolio........................... 95 128 163 283
PPM America/JNL Balanced Portfolio.......................... 94 123 155 268
PPM America/JNL Money Market Portfolio...................... 92 119 148 253
Salomon Brothers/JNL Global Bond Portfolio.................. 95 126 160 278
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio................................................. 93 122 153 263
T. Rowe Price/JNL Established Growth Portfolio.............. 95 126 160 278
T. Rowe Price/JNL International Equity Investment
Portfolio................................................. 97 134 173 303
T. Rowe Price/JNL Mid-Cap Growth Portfolio.................. 96 129 165 288
</TABLE>
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNL Aggressive Growth Portfolio............................. $26 $79 135 288
JNL Capital Growth Portfolio................................ 26 79 135 288
JNL Global Equities Portfolio............................... 26 81 138 293
JNL/Alger Growth Portfolio.................................. 26 80 137 291
JNL/Eagle Core Equity Portfolio............................. 25 78 133 283
JNL/Eagle SmallCap Equity Portfolio......................... 26 79 135 288
JNL/Putnam Growth Portfolio................................. 25 78 133 283
JNL/Putnam Value Equity Portfolio........................... 25 78 133 283
PPM America/JNL Balanced Portfolio.......................... 24 73 125 268
PPM America/JNL Money Market Portfolio...................... 22 69 118 253
Salomon Brothers/JNL Global Bond Portfolio.................. 25 76 130 278
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio................................................. 23 72 123 263
T. Rowe Price/JNL Established Growth Portfolio.............. 25 76 130 278
T. Rowe Price/JNL International Equity Investment
Portfolio................................................. 27 84 143 303
T. Rowe Price/JNL Mid-Cap Growth Portfolio.................. 26 79 135 288
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 44
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," 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.
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
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. An Owner
may not allocate Contract Values to more than eighteen options during the life
of the Contract. 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/Eagle Core Equity Series
JNL/Eagle SmallCap Equity Series
JNL/Putnam Growth Series*
JNL/Putnam Value Equity Series*
PPM America/JNL Balanced Series*
PPM America/JNL Money Market 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
* Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was
the PPM America/JNL Value Equity Series, and the PPM America/JNL Balanced
Series was the JNL/Phoenix Investment Counsel Balanced Series.
8
<PAGE> 45
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
right to examine the policy. Within ten days (or longer if required by state
law) 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 unless otherwise required by state and/or federal law.
The Contract Value at the time of refund may be more or less than the Premium
paid.
9
<PAGE> 46
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ACCUMULATION UNIT VALUES
The following table presents Accumulation Unit values for the Separate
Account at the beginning and end of the periods indicated as well as ending
Accumulation Units outstanding under each Portfolio of the Separate Account as
of December 31, 1996, and December 31, 1995. This data has been taken from the
Separate Account's financial statements. The Separate Account's financial
statements for the periods ended December 31, 1996, and December 31, 1995, 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>
- ---------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- ---------------------------------------------------------
<S> <C> <C>
JNL Aggressive Growth
Portfolio
Accumulation unit value:
Beginning of period $10.20 $10.00
End of period $11.95 $10.20
Accumulation units
outstanding at the end of
period 2,355,530 4,008
JNL Capital Growth Portfolio
Accumulation unit value:
Beginning of period $10.34 $10.00
End of period $11.87 $10.34
Accumulation units
outstanding at the end of
period 2,985,668 1,587
JNL Global Equities
Portfolio
Accumulation unit value:
Beginning of period $10.48 $10.00
End of period $13.57 $10.48
Accumulation units
outstanding at the end of
period 3,090,234 4,778
JNL/Alger Growth Portfolio
Accumulation unit value:
Beginning of period $9.93 $10.00
End of period $11.11 $ 9.93
Accumulation units
outstanding at the end of
period 3,310,810 12,285
JNL/Eagle Core Equity
Portfolio
Accumulation unit value:
Beginning of period $10.00 N/A(b)
End of period $10.52 N/A(b)
Accumulation units
outstanding at the end of
period 84,895 N/A(b)
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- ---------------------------------------------------------
<S> <C> <C>
JNL/Eagle SmallCap Equity
Portfolio
Accumulation unit value:
Beginning of period $10.00 N/A(b)
End of period $11.12 N/A(b)
Accumulation units
outstanding at the end of
period 71,014 N/A(b)
JNL/Putnam Growth
Portfolio(c)
Accumulation unit value:
Beginning of period $10.58 $10.00
End of period $13.22 $10.58
Accumulation units
outstanding at the end of
period 1,682,604 571
JNL/Putnam Value Equity
Portfolio(c)
Accumulation unit value:
Beginning of period $10.59 $10.00
End of period $12.98 $10.59
Accumulation units
outstanding at the end of
period 1,330,288 3,944
PPM America/JNL Balanced
Portfolio(c)
Accumulation unit value:
Beginning of period $10.34 $10.00
End of period $11.29 $10.34
Accumulation units
outstanding at the end of
period 2,120,529 12,871
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
(b) The JNL/Eagle Core Equity Portfolio and the JNL/Eagle SmallCap Equity
Portfolio commenced operations on September 16, 1996.
(c) Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series and the management fee was .90%, the
JNL/Putnam Value Equity Series was the PPM America/JNL Value Equity Series
and the management fee was .75%; and the PPM America/JNL Balanced Series
was the JNL/Phoenix Investment Counsel Balanced Series and the management
fee was .90%.
10
<PAGE> 47
<TABLE>
<CAPTION>
- ---------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- ---------------------------------------------------------
PPM America/JNL Money Market
Portfolio
<S> <C> <C>
Accumulation unit value:
Beginning of period $10.03 $10.00
End of period $10.37 $10.03
Accumulation units
outstanding at the end of
period 2,193,176 14,608
Salomon Brothers/JNL Global
Bond Portfolio
Accumulation unit value:
Beginning of period $10.41 $10.00
End of period $11.74 $10.41
Accumulation units
outstanding at the end of
period 911,885 3,128
Salomon Brothers/JNL U.S.
Government & Quality Bond
Portfolio
Accumulation unit value:
Beginning of period $10.21 $10.00
End of period $10.33 $10.21
Accumulation units
outstanding at the end of
period 902,055 1,275
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
DECEMBER 31, DECEMBER 31,
PORTFOLIOS 1996 1995(a)
- ---------------------------------------------------------
<S> <C> <C>
T. Rowe Price/JNL
Established Growth
Portfolio
Accumulation unit value:
Beginning of period $10.36 $10.00
End of period $12.53 $10.36
Accumulation units
outstanding at the end of
period 2,500,896 10,564
T. Rowe Price/JNL
International Equity
Investment Portfolio
Accumulation unit value:
Beginning of period $10.49 $10.00
End of period $11.78 $10.49
Accumulation units
outstanding at the end of
period 2,039,430 3,096
T. Rowe Price/JNL Mid-Cap
Growth Portfolio
Accumulation unit value:
Beginning of period $10.37 $10.00
End of period $12.59 $10.37
Accumulation units
outstanding at the end of
period 3,585,051 5,120
</TABLE>
(a) The Separate Account commenced operations on October 16, 1995.
FINANCIAL STATEMENTS
The full financial statements of the Separate Account for the year ended
December 31, 1996, the financial statements of the Company for the years ended
December 31, 1996, and December 31, 1995, and the applicable auditor's reports
thereon are contained in the Statement of Additional Information.
11
<PAGE> 48
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
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.
12
<PAGE> 49
- --------------------------------------------------------------------------------
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/Eagle Core Equity Series
JNL/Eagle SmallCap Equity Series
JNL/Putnam Growth Series*
JNL/Putnam Value Equity Series*
PPM America/JNL Balanced Series*
PPM America/JNL Money Market 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
* Prior to May 1, 1997, the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series, the JNL/Putnam Value Equity Series was the
PPM America/JNL Value Equity Series, and the PPM America/JNL Balanced Series
was the JNL/Phoenix Investment Counsel Balanced 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
13
<PAGE> 50
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.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
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 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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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
- --------------------------------------------------------------------------------
<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. Where permitted by
state law, the Company will waive the Withdrawal Charge on withdrawals made
pursuant to the provisions of a Waiver of Contingent Deferred Sales Charge
Endorsement for Terminal Illness attached to the Owner's Contract or a Waiver of
Contingent Deferred Sales Charge Endorsement for Specified Conditions attached
to the Owner's Contract. 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> 52
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.
For Non-Qualified Contracts, in accordance with Code Section 72(u), a
deferred annuity contract held by a corporation or other entity that is not a
natural person is not treated as an annuity contract for tax purposes. Income on
the contract is treated as ordinary income received by the Owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered held
by a natural person and treated as an annuity contract for tax purposes. Tax
advice should be sought prior to purchasing a Contract which is to be owned by a
trust or other non-natural person.
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
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<PAGE> 53
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 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 generally 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 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 Owner's rights
under the Contract. The following are the Death Benefit Options:
Option 1 -- lump sum payment of the death benefit; or
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<PAGE> 54
Option 2 -- the payment of the entire death benefit within 5 years of
the date of the death of the 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 the death of the Owner or any Joint Contract Owner.
Any portion of the death benefit not applied under Option 3 within one year
of the date of an 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 Owner's death. Upon the Owner's death after the Annuity Date, the
Beneficiary becomes the Owner.
DEATH OF ANNUITANT
Upon the death of an Annuitant, who is not an 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, the Owner will become the Annuitant. If the Owner is a
non-natural person, the death of the Annuitant will be treated as the death of
the 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.
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- --------------------------------------------------------------------------------
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 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 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 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 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
An 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 complete, 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
COMPLETE. If the application for a Contract is not complete, 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 made complete within five business days of such
receipt.
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<PAGE> 56
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.
The combined number of Portfolio options available under the Separate
Account and guaranteed account options available under the General Account may
be greater than eighteen. However, an Owner may not allocate Contract Values to
more than eighteen options during the life of the Contract.
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 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
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<PAGE> 57
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 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 or a
specified percentage of the Contract Owner's total Contract Value (equal to 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
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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.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Contracts issued to participants in the Texas Optional Retirement Program
("ORP") contain restrictions required under the Texas Administrative Code. In
accordance with those restrictions, a participant in the ORP will not be
permitted to make withdrawals prior to such participant's retirement, death,
attainment of age 70 1/2 years or termination of employment in a Texas public
institution of higher education. The foregoing restrictions on withdrawal do not
apply in the event a participant in the ORP transfers the Contract Value to
another approved contract or vendor during the period of ORP participation.
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.
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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.
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) 539-9034. Be
sure to provide the policy number and Owner's name.
STATEMENTS AND REPORTS
The Company will mail to Owners, at their last known address of record, any
statements and reports required by applicable law or regulation. Owners should
therefore give the Company prompt notice of any address change. The Company will
send a confirmation statement to 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
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 Owner may receive confirmation of such transactions
in their quarterly statements. The 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 Owner notifies the Company
otherwise within thirty (30) days after receipt of the statement. The Company
will also send to 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.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL
Section 72 of the 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
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(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. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of
distributions under the retirement plan for which the Contracts are purchased.
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 the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct transfer. This requirement is mandatory and
cannot be waived by the Owner.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax sheltered annuity qualified under Section
403(b) of the Code (other than (1) 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.
Generally, the amount of any payment of interest to a non-resident alien of
the United States shall be subject to withholding of a tax equal to thirty (30%)
percent of such amount or, if applicable, a lower treaty rate. A payment may not
be subject to withholding where the recipient sufficiently establishes that such
payment is effectively connected to the recipient's conduct of a trade or
business in the United States and such payment is included in recipient's gross
income.
DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of Federal income tax to the
Owner with respect to earnings allocable to the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the Contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations establishing diversification
requirements for the 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
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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 Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the owner of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple annuity contracts which are issued within a
calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining the tax consequences
of any distribution. Such treatment may result in adverse tax consequences
including more rapid taxation of the distributed amounts from such multiple
contracts. 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 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-natural 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
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
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(6) which are allocable to premium payments made prior to August 14, 1982.
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) after separation
from service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Owner or Annuitant (as applicable) or the joint lives (or
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated beneficiary; (4) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (5)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (6) distributions made to an alternate payee
pursuant to a qualified domestic relations order; and (7) distributions from an
IRA for the purchase of medical insurance (as described in Section 213(d)(1)(D)
of the Code) for the Contract Owner or Annuitant (as applicable) and his or her
spouse and dependents if the Contract Owner or Annuitant (as applicable) has
received unemployment compensation for at least 12 weeks. This exception will no
longer apply after the Contract Owner or Annuitant (as applicable) has been
re-employed for at least 60 days.
The exceptions stated in items (4) and (6) above do not apply in the case
of an IRA.
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.
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
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.
Generally, distributions from a Qualified Plan generally must commence no
later than April 1 of the calendar year following the year in which the employee
attains the later of age 70 1/2 or the date of retirement. In the case of an
IRA, distribution must commence no later than April 1 of the calendar year
following the year in which the owner or annuitant attains age 70 1/2. Required
distributions must be over a period not exceeding the life or life expectancy of
the individual or the joint lives or life expectancies of the individual and his
or her designated beneficiary. If the required minimum distributions are not
made, a 50% penalty tax is imposed as to the amount not distributed.
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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 Company may
periodically advertise tax-deferred compounding charts and other hypothetical
illustrations.
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 Composite
Stock Price Index; S&P MidCap 400 Index; Salomon Brothers Broad Investment Grade
Index; Lehman Brothers High Yield Index; Lehman Brothers Aggregate Bond Index;
Salomon Brothers Treasury Index; Morgan Stanley Capital International World
Index; Morgan Stanley Europe and Australasia, Far East Equity Index; Russell
2000 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
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ratings are not intended to reflect the investment experience or financial
strength of the Separate Account. The 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.
30
<PAGE> 67
- --------------------------------------------------------------------------------
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.................................. 7
Annuity Payments; Net Investment Factor..................... 9
Financial Statements........................................ 10
- --------------------------------------------------------------------
</TABLE>
31
<PAGE> 68
- --------------------------------------------------------------------------------
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> 69
[This Page Intentionally Left Blank]
<PAGE> 70
- --------------------------------------------------------------------------------
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; Eagle Asset Management, Inc. serves
as sub-adviser for the JNL/Eagle Core Equity Series and the JNL/Eagle SmallCap
Equity Series; Putnam Investment Management, Inc. ("Putnam") serves as
sub-adviser for the JNL/Putnam Growth* and JNL/Putnam Value Equity Series*; PPM
America, Inc. ("PPM") serves as sub-adviser for the PPM America/ JNL Balanced*
and PPM America/JNL Money Market 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 medium-sized companies. 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/EAGLE CORE EQUITY SERIES seeks as its investment objective long-term
capital appreciation and, secondarily, current income by investing primarily in
a diversified portfolio of common stocks which the sub-adviser believes offers
above-average potential for long-term capital appreciation.
JNL/EAGLE SMALLCAP EQUITY SERIES seeks as its investment objective
long-term capital appreciation by investing primarily in equity securities of
smaller companies which the sub-adviser believes offer potential for rapid
growth.
JNL/PUTNAM GROWTH SERIES seeks as its investment objective long-term growth
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 opportunity for capital growth.
JNL/PUTNAM VALUE EQUITY SERIES seeks as its investment objective capital
growth, with income as a secondary objective by investing primarily in common
stocks which the sub-adviser believes to be undervalued relative to underlying
asset value or earnings potential at the time of purchase.
PPM AMERICA/JNL 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.
B-1
<PAGE> 71
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.
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.
* Prior to May 1, 1997, Phoenix Investment Counsel, Inc. served as sub-adviser
to the JNL/Putnam Growth Series and the PPM America/JNL Balanced Series, and
PPM served as the sub-adviser to the JNL/Putnam Value Equity Series.
B-2
<PAGE> 72
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------
COMPLETE HYPOTHETICAL WITHDRAWAL CHARGES
CONTRACT CONTRACT PREMIUMS ------------------
YEARS VALUE LIQUIDATED PERCENT AMOUNT
- --------------------------------------------------------
<C> <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
- ---------------------------------------------------------------------------------------------------------------
<C> <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> 73
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
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, 1997. 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
PAGE
General Information and History 2
Services 2
Purchase of Securities Being Offered 2
Underwriters 2
Calculation of Performance 2
Additional Tax Information 7
Annuity Payments; Net Investment Factor 9
Financial Statements 10
1
<PAGE> 74
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.
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 performs 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 a Portfolio on the
first day of the
2
<PAGE> 75
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 is annualized and reflects the deduction of a Contract Maintenance
Charge and a Mortality 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 returns
for each Portfolio (except the PPM America/JNL Money Market Portfolio), for the
periods indicated are as follows:
<TABLE>
<S> <C> <C>
One Year Period Commencement of
Ended Operations to
December 31, 1996 December 31, 1996
JNL Aggressive Growth Portfolio* 9.66% 21.53%
JNL Capital Growth Portfolio* 7.46% 25.87%
JNL Global Equities Portfolio* 21.65% 32.81%
JNL/Alger Growth Portfolio** 4.09% 2.41%
JNL/Eagle Core Equity Portfolio*** N/A -0.96%****
JNL/Eagle SmallCap Equity Portfolio*** N/A 7.94%****
JNL/ Putnam Growth Portfolio* 17.54% 28.82%
JNL/ Putnam Value Equity Portfolio* 15.26% 24.25%
PPM America/JNL Balanced Portfolio* 1.83% 11.05%
PPM America/JNL High Yield Bond Portfolio* 4.08% 6.61%
Salomon Brothers/JNL Global Bond Portfolio* 5.60% 8.11%
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio* -6.09% .64%
T. Rowe Price/JNL Established Growth Portfolio* 13.28% 22.26%
T. Rowe Price/JNL International Equity Investment Portfolio* 4.78% 7.67%
T. Rowe Price/JNL Mid-Cap Growth Portfolio* 13.89% 27.62%
</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.
*** Corresponding Series of the JNL Series Trust commenced operations on
September 16, 1996.
**** Not Annualized.
3
<PAGE> 76
Prior to May 1, 1997, the PPM America/JNL Balanced Series was the
JNL/Phoenix Investment Counsel Balanced Series and was sub-advised by Phoenix
Investment Counsel, Inc., the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series and was sub-advised by Phoenix Investment
Counsel, Inc., and the JNL/Phoenix Value Equity Series was the PPM America/JNL
Value Equity Series and was sub-advised by PPM America, Inc.
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 returns 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 periods indicated are as follows:
<TABLE>
<CAPTION>
One Year Commencement
Period Ended of
December 31, Operations to
1996 December 31,
1996
<S> <C> <C>
JNL Aggressive Growth Portfolio* 17.31% 44.24%
JNL Capital Growth Portfolio* 15.19% 52.43%
JNL Global Equities Portfolio* 29.51% 65.93%
JNL/Alger Growth Portfolio** 11.83% 9.69%
JNL/Eagle Core Equity Series*** N/A 6.04%
JNL/Eagle SmallCap Equity Series*** N/A 14.84%
JNL/ Putnam Growth Portfolio* 25.04% 57.79%
JNL/ Putnam Value Equity Portfolio* 22.59% 49.01%
PPM America/JNL Balanced Portfolio 9.26% 25.11%
PPM America/JNL High Yield Bond Portfolio* 11.33% 17.27%
Salomon Brothers/JNL Global Bond Portfolio* 12.79% 19.82%
Salomon Brothers/JNL U.S. Government & Quality Bond
Portfolio* 1.14% 7.20%
</TABLE>
4
<PAGE> 77
<TABLE>
<CAPTION>
<S> <C> <C
T. Rowe Price/JNL Established Growth Portfolio* 20.88% 45.56%
T. Rowe Price/JNL International Equity Investment Portfolio* 12.31% 19.41%
T. Rowe Price/JNL Mid-Cap Growth Portfolio* 21.76% 55.92%
</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.
*** Corresponding Series of the JNL Series Trust commenced operations on
September 16, 1996.
Prior to May 1, 1997, the PPM America/JNL Balanced Series was the
JNL/Phoenix Investment Counsel Balanced Series and was sub-advised by Phoenix
Investment Counsel, Inc., the JNL/Putnam Growth Series was the JNL/Phoenix
Investment Counsel Growth Series and was sub-advised by Phoenix Investment
Counsel, Inc., and the JNL/Phoenix Value Equity Series was the PPM America/JNL
Value Equity Series and was sub-advised by PPM America, Inc.
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 PPM America/JNL 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:
5
<PAGE> 78
(A-B) )6
YIELD =[2(---- + 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, 1996 for each of the
above-referenced Portfolios is as follows:
PPM America/JNL Balanced Portfolio 0.37%
PPM America/JNL High Yield Bond Portfolio 6.89%
Salomon Brothers/JNL Global Bond Portfolio 5.81%
Salomon Brothers/JNL U.S. Government & Quality Bond Portfolio 4.35%
Prior to May 1, 1997, the PPM America/JNL Balanced Series was the
JNL/Phoenix Investment Counsel Balanced Series and was sub-advised by Phoenix
Investment Counsel, Inc.
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
6
<PAGE> 79
period to obtain a base period return and multiplying the base period return by
(365/7). The PPM America/JNL Money Market Portfolio's 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, 1996 were 3.45% and 3.51%, 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
7
<PAGE> 80
allowable contributions; form, manner and timing of distributions 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
8
<PAGE> 81
for use with corporate pension or profit sharing plans should obtain 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.
ANNUITY PAYMENTS; NET INVESTMENT FACTOR
See "Annuity Payments" in 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);
9
<PAGE> 82
(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> 83
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 of
changes in net assets present fairly, in all material respects, the financial
position of Jackson National Separate Account - I and the JNL Aggressive Growth
Portfolio, JNL Capital Growth Portfolio, JNL Global Equities Portfolio,
JNL/Alger Growth Portfolio, JNL/Eagle Core Equity Portfolio, JNL/Eagle SmallCap
Equity 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 and T. Rowe Price/JNL Mid-Cap Growth Portfolio at December 31, 1996,
the results of each of their operations and the changes in each of their net
assets for each of the periods indicated, 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 audits. We
conducted our audits of these financial 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.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
February 14, 1997
<PAGE> 84
JACKSON NATIONAL SEPARATE ACCOUNT - I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION> Portfolios
----------------------------------------------------------------------------
JNL JNL JNL
Aggressive Capital Global JNL/Alger JNL/Eagle
Growth Growth Equities Growth Core Equity
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in JNL Series Trust,
at market value
(See schedule of investments) $ 28,142,010 $ 35,439,496 $ 41,921,523 $ 36,776,807 $ 892,695
Due from Jackson National Life
Insurance Company 277,666 273,586 300,349 167,463 -
Receivable for Investments Sold 9,911 3,665 6,582 2,127 34
------------ ------------ ------------ ------------ -------------
Total Assets 28,429,587 35,716,747 42,228,454 36,946,397 892,729
LIABILITIES:
Payable for Investments Purchased 277,666 273,586 300,349 167,463 -
Due to Jackson National Life
Insurance Company 9,911 3,665 6,582 2,127 34
------------ ------------ ------------ ------------ -------------
Total Liabilities 287,577 277,251 306,931 169,590 34
------------ ------------ ------------ ------------ -------------
NET ASSETS $ 28,142,010 $ 35,439,496 $ 41,921,523 $ 36,776,807 $ 892,695
============ ============ ============ ============ =============
TOTAL NET ASSETS REPRESENTED BY:
Number of units outstanding 2,355,530 2,985,668 3,090,234 3,310,810 84,895
============ ============ ============ ============ =============
Unit value (net assets divided by
units outstanding) $ 11.95 $ 11.87 $ 13.57 $ 11.11 $ 10.52
============ ============ ============ ============ =============
<CAPTION>
Portfolios
----------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM PPM
JNL/Eagle Investment Investment America/JNL America/JNL
SmallCap Counsel Counsel High Yield Money
Equity Balanced Growth Bond Market
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in JNL Series Trust,
at market value
(See schedule of investments) $ 789,875 $ 23,948,598 $ 22,240,202 $ 12,920,333 $ 22,752,692
Due from Jackson National Life
Insurance Company - 104,931 256,232 253,885 783,413
Receivable for Investments Sold 30 1,099 912 1,691 843
------------ ------------ ------------ ------------ -------------
Total Assets 789,905 24,054,628 22,497,346 13,175,909 23,536,948
LIABILITIES:
Payable for Investments Purchased - 104,931 256,232 253,885 783,413
Due to Jackson National Life
Insurance Company 30 1,099 912 1,691 843
------------ ------------ ------------ ------------ -------------
Total Liabilities 30 106,030 257,144 255,576 784,256
------------ ------------ ------------ ------------ -------------
NET ASSETS $ 789,875 $ 23,948,598 $ 22,240,202 $ 12,920,333 $ 22,752,692
============ ============ ============ ============ =============
TOTAL NET ASSETS REPRESENTED BY:
Number of units outstanding 71,014 2,120,529 1,682,604 1,147,840 2,193,176
============ ============ ============ ============ =============
Unit value (net assets divided by
units outstanding) $ 11.12 $ 11.29 $ 13.22 $ 11.26 $ 10.37
============ ============ ============ ============ =============
<CAPTION>
Portfolios
----------------------------------------------------------------------------
T. Rowe
PPM Salomon Salomon T. Rowe Price/JNL T. Rowe
America/JNL Brothers/JNL Brothers/JNL Price/JNL International Price/JNL
Value Global U.S. Gov't & Established Equity Mid-Cap
Equity Bond Quality Bond Growth Investment Growth
------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in JNL Series Trust,
at market value
(See schedule of investments) $17,266,864 $10,703,598 $ 9,319,515 $ 31,326,604 $ 24,034,289 $ 45,147,060
Due from Jackson National Life
Insurance Company 110,290 58,862 26,556 212,122 170,174 280,259
Receivable for Investments Sold 39,394 4,501 3,845 28,431 4,756 2,647
----------- ----------- ----------- ------------ ------------ ------------
Total Assets 17,416,548 10,766,961 9,349,916 31,567,157 24,209,219 45,429,966
LIABILITIES:
Payable for Investments Purchased 110,290 58,862 26,556 212,122 170,174 280,259
Due to Jackson National Life
Insurance Company 39,394 4,501 3,845 28,431 4,756 2,647
----------- ----------- ----------- ------------ ------------ ------------
Total Liabilities 149,684 63,363 30,401 240,553 174,930 282,906
----------- ----------- ----------- ------------ ------------ ------------
NET ASSETS $17,266,864 $10,703,598 $ 9,319,515 $ 31,326,604 $ 24,034,289 $ 45,147,060
=========== =========== =========== ============ ============ ============
TOTAL NET ASSETS REPRESENTED BY:
Number of units outstanding 1,330,288 911,885 902,055 2,500,896 2,039,430 3,585,051
=========== =========== =========== ============ ============ ============
Unit value (net assets divided by
units outstanding) $ 12.98 $ 11.74 $ 10.33 $ 12.53 $ 11.78 $ 12.59
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 85
JACKSON NATIONAL SEPARATE ACCOUNT-I
STATEMENT OF OPERATIONS
For the Year ended December 31, 1996
<TABLE>
<CAPTION>
Portfolios
--------------------------------------------------------------------------------------
JNL JNL JNL JNL/Eagle
Aggressive Capital Global JNL/Alger JNL/Eagle SmallCap
Growth Growth Equities Growth Core Equity* Equity*
----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET REALIZED GAIN FROM
SALES OF INVESTMENTS:
Proceeds from sales $1,725,784 $1,519,646 $ 1,727,384 $3,495,535 $ 149,997 $ 20,263
Cost of investments sold 1,694,788 1,485,303 1,635,236 3,452,327 147,432 19,961
---------- ---------- ---------- ---------- ---------- ----------
Net realized gain from 30,996 34,343 92,148 43,208 2,565 302
sales of investments
NET UNREALIZED GAIN
ON INVESTMENTS:
Unrealized gain beginning of year 620 554 891 2,552 - -
Unrealized gain end of year 1,151,235 375,378 2,911,351 2,302,486 12,728 48,839
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized gain on
investments 1,150,615 374,824 2,910,460 2,299,934 12,728 48,839
---------- ---------- ---------- ---------- ---------- ----------
NET GAIN ON INVESTMENTS 1,181,611 409,167 3,002,608 2,343,142 15,293 49,141
EXPENSES:
Administrative charge 15,954 19,253 20,934 25,410 187 130
Mortality and expense charge 132,954 160,441 174,451 211,746 1,561 1,085
---------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,032,703 $ 229,473 $2,807,223 $2,105,986 $ 13,545 $ 47,926
========== ========== ========== ========== ========== ==========
<CAPTION>
Portfolios
---------------------------------------------------------------------------------------
JNL/Phoenix JNL/Phoenix PPM PPM PPM Salomon
Investment Investment America/JNL America/JNL America/JNL Brothers/JNL
Counsel Counsel High Yield Money Value Global
Balanced Growth Bond Market Equity Bond
------------ ------------ ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET REALIZED GAIN FROM
SALES OF INVESTMENTS:
Proceeds from sales $1,932,806 $1,153,436 $1,028,968 $ 22,904,119 $ 677,432 $ 670,512
Cost of investments sold 1,855,628 1,098,492 998,282 22,717,601 643,344 650,132
---------- ---------- ---------- ------------ ----------- ------------
Net realized gain from 77,178 54,944 30,686 186,518 34,088 20,380
sales of investments
NET UNREALIZED GAIN
ON INVESTMENTS:
Unrealized gain beginning of year 1,640 301 12 393 1,099 494
Unrealized gain end of year 1,374,742 1,086,316 741,120 263,414 1,518,174 497,123
---------- ---------- ---------- ------------ ----------- ------------
Net unrealized gain on
investments 1,373,102 1,086,015 741,108 263,021 1,517,075 496,629
---------- ---------- ---------- ------------ ----------- ------------
NET GAIN ON INVESTMENTS 1,450,280 1,140,959 771,794 449,539 1,551,163 517,009
EXPENSES:
Administrative charge 15,595 11,492 6,480 14,235 8,763 5,606
Mortality and expense charge 129,959 95,771 53,997 118,627 73,025 46,718
---------- ---------- ---------- ------------ ----------- ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,304,726 $1,033,696 $ 711,317 $ 316,677 $1,469,375 $ 464,685
========== ========== ========== ============ ========== ============
<CAPTION>
Portfolios
---------------------------------------------------------------
T. Rowe
Salomon T. Rowe Price/JNL T. Rowe
Brothers/JNL Price/JNL International Price/JNL
U.S. Gov't & Established Equity Mid-Cap
Quality Bond Growth Investment Growth
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
NET REALIZED GAIN FROM
SALES OF INVESTMENTS:
Proceeds from sales $ 657,699 $ 1,530,489 $ 1,561,059 $ 3,355,426
Cost of investments sold 648,269 1,470,455 1,530,187 3,252,267
----------- ------------ -------------- -------------
Net realized gain from 9,430 60,034 30,872 103,159
sales of investments
NET UNREALIZED GAIN
ON INVESTMENTS:
Unrealized gain beginning of year 111 3,012 671 1,039
Unrealized gain end of year 271,639 2,490,988 1,273,843 3,539,268
----------- ------------ -------------- -------------
Net unrealized gain on
investments 271,528 2,487,976 1,273,172 3,538,229
----------- ------------ -------------- -------------
NET GAIN ON INVESTMENTS 280,958 2,548,010 1,304,044 3,641,388
EXPENSES:
Administrative charge 5,581 17,198 14,785 26,466
Mortality and expense charge 46,511 143,319 123,213 220,554
----------- ------------ -------------- -------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 228,866 $ 2,387,493 $ 1,166,046 $ 3,394,368
=========== ============ ============== =============
</TABLE>
*For the period from September 16, 1996 (commencement of operations) through
December 31, 1996.
See accompanying Notes to Financial Statements.
<PAGE> 86
JACKSON NATIONAL SEPARATE ACCOUNT - I
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Portfolios
-------------------------------------------------------------------------
JNL Aggressive JNL Capital
Growth Growth
--------------------------------- ----------------------------------
Period from Period from
October 16, October 16,
Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales
of investments $ 30,996 $ 216 $ 34,343 $ -
Net unrealized gain on investments 1,150,615 620 374,824 554
Administrative charge (15,954) (3) (19,253) (1)
Mortality and expense charge (132,954) (25) (160,441) (5)
------------- ------------- ------------- ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,032,703 808 229,473 548
NET DEPOSITS INTO SEPARATE ACCOUNT (NOTE 6) 27,068,440 40,059 35,193,609 15,866
------------- ------------- ------------- ------------
Increase in net assets 28,101,143 40,867 35,423,082 16,414
NET ASSETS:
BEGINNING OF PERIOD 40,867 - 16,414 -
------------- ------------- ------------- ------------
END OF PERIOD $ 28,142,010 $ 40,867 $ 35,439,496 $ 16,414
============= ============= ============= ============
<CAPTION>
Portfolios
-------------------------------------------------------------------------------
JNL Global JNL/Alger JNL/Eagle
Equities Growth Core Equity
--------------------------------- ------------------------------- -------------
Period from Period from Period
October 16, October 16, September 16,
Year Ended 1995* to Year Ended 1995* to 1996* to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
-------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales
of investment $ 92,148 $ 1 $ 43,208 $ 201 $ 2,565
Net unrealized gain on investments 2,910,460 891 2,299,934 2,552 12,728
Administrative charge (20,934) (3) (25,410) (6) (187)
Mortality and expense charge (174,451) (22) (211,746) (49) (1,561)
------------- --------- ------------ --------- -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 2,807,223 867 2,105,986 2,698 13,545
NET DEPOSITS INTO SEPARATE ACCOUNT (NOTE 6) 39,064,248 49,185 34,548,799 119,324 879,150
------------- --------- ------------ --------- -----------
Increase in net assets 41,871,471 50,052 36,654,785 122,022 892,695
NET ASSETS:
BEGINNING OF PERIOD 50,052 - 122,022 - -
------------- --------- ------------ --------- -----------
END of period $ 41,921,523 $ 50,052 $ 36,776,807 $ 122,022 $ 892,695
============= ========= ============ ========= ===========
<CAPTION>
Portfolios
-------------------------------------------------------------------------------
JNL/Eagle JNL/Phoenix Investment JNL/Phoenix Investment
SmallCap Equity Counsel Balanced Counsel Growth
--------------- ------------------------------- ----------------------------
Period from Period from Period from
September 16, October 16, October 16,
1996* to [B Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31,
1996 1996 1996 1995 1995
-------------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales of
investments $ 302 $ 77,178 $ (5) $ 54,944 $ -
Net unrealized gain on investments 48,839 1,373,102 1,640 1,086,015 301
Administrative charge (130) (15,595) (5) (11,492) (1)
Mortality and expense charge (1,085) (129,959) (46) (95,771) (7)
------------ ------------- ---------- -------------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 47,926 1,304,726 1,584 1,033,696 293
NET DEPOSITS INTO SEPARATE ACCOUNT (NOTE 6) 741,949 22,510,825 131,463 21,200,464 5,749
------------ ------------- ---------- -------------- ----------
Increase in net assets 789,875 23,815,551 133,047 22,234,160 6,042
NET ASSETS:
BEGINNING OF PERIOD - 33,047 - 6,042 -
------------ ------------- ---------- -------------- ----------
END OF PERIOD $ 789,875 $ 23,948,598 $ 133,047 $ 22,240,202 $ 6,042
============ ============= ========== ============== ==========
</TABLE>
*Commencement of operations.
See accompanying Notes to Financial Statements.
<PAGE> 87
JACKSON NATIONAL SEPARATE ACCOUNT - 1
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Periods ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Portfolios
- -------------------------------------------------------------------------------------------------------------------------------
PPM America/JNL PPM America/JNL PPM America/JNL
High Yield Bond Money Market Value Equity
---------------- ---------------- ----------------
Period from Period from Period from
October 16, October 16, October 16,
Year Ended 1995* to Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales $ 30,686 $ - $186,518 $ - $ 34,088 $ 6
of investments 741,108 12 263,021 393 1,517,075 1,099
Net unrealized gain on investments (6,480) - (14,235) (11) (8,763) (4)
Administration charge (53,997) (1) (118,627) (90) (73,025) (34)
Mortality and expense charge --------- --------- ------- -------- ---------- ---------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 711,317 11 316,677 292 1,469,375 1,067
NET DEPOSITS INTO SEPARATE ACCOUNT 12,208,005 1,000 146,579 146,287 15,755,729 40,693
(NOTE 6) ---------- ------- ---------- ------- ---------- -------
Increase in net assets 12,919,322 1,011 22,606,113 146,579 17,225,104 41,760
NET ASSETS:
Beginning of period 1,011 - 22,289,436 - 41,760 -
---------- -------- ----------- -------- ---------- --------
End of period $12,920,333 $1,011 22,752,692 $146,579 $ 17,266,864 $41,760
========== ====== ========== ======== ============ =======
<CAPTION>
Salmon Brothers/JNL Salomon Brothers/JNL T. Rowe Price/JNL
Global Bond U.S. Gov't & Quality Bond Established Growth
------------------- ------------------------- ------------------
Period from Period from Period from
October 16, October 16, October 16,
Year Ended 1995* to Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31, December 31
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales $ 20,380 $ 12 $ 9,430 $ - $ 60,034 $ 4
of investments
Net unrealized gain on investments 496,629 494 271,528 111 2,487,976 3,012
Administration charge (5,606) (2) (5,581) (1) (17,198) (8)
Mortality and expense charge (46,718) (13) (46,511) (9) (143,319) (68)
---------- ------------ ------------ ----------- ------------ ---------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 464,685 491 228,866 101 2,387,493 2,940
NET DEPOSITS INTO SEPARATE ACCOUNT 10,206,357 32,065 9,077,627 12,921 28,829,643 106,528
(NOTE 6) ---------- ----------- ------------ ----------- ---------- ---------
Increase in net assets 10,671,042 32,556 9.306,493 13,022 31,217,136 109,468
NET ASSETS: 32,556 - 13,022 - 109,468 -
BEGINNING OF PERIOD ------------ ------------ ------------ ---------- ----------- ---------
END OF PERIOD 10,703,598 32,556 9,319,515 13,022 31,326,604 109,468
============ ============ ============ ========== ============ =========
<CAPTION>
Period from Period from
October 16, October 16,
Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31,
1996 1995 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net realized gain/(loss) from sales $ 30,872 $ - $ 103,159 $ -
of investments
Net unrealized gain on investments 1,273,172 671 3,538,229 1,039
Administration charge (14,785) (2) (26,466) (3)
Mortality and expense charge (123,213) (19) (220,554) (26)
----------- ------------ --------- -----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,166,046 650 3,394,368 1,010
NET DEPOSITS INTO SEPARATE ACCOUNT 22,835,756 31,837 41,699,598 52,084
(NOTE 6) ----------- ------------ ----------- -----------
Increase in net assets
NET ASSETS:
BEGINNING OF PERIOD 32,487 - 53,094 -
----------- ------------ ------------ ------------
END OF PERIOD $24,034,289 $ 32,487 $ 45,147,060 $ 53,094
=========== ============ ============ ============
</TABLE>
<PAGE> 88
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
Jackson National Life Insurance Company ("JNL") established Jackson
National Separate Account - I (the "Separate Account") on June 14, 1993.
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 currently contains sixteen Portfolios,
each of which invests in the following series of the JNL Series Trust:
JNL Aggressive Growth Series
JNL Capital Growth Series
JNL Global Equities Series
JNL/Alger Growth Series
JNL/Eagle Core Equity Series
JNL/Eagle SmallCap Equity 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
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 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.
<PAGE> 89
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Investments
The Separate Account's investments in the series of the JNL Series
Trust are stated at the net asset values of the respective series.
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 series
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 series.
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 units. For the year ended December 31, 1996,
$2,400 in contract maintenance charges were assessed.
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 year
ended December 31, 1996, no transfer fees were assessed.
<PAGE> 90
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - POLICY CHARGES - CONTINUED
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
year ended December 31, 1996, $71,709 in surrender charges were
assessed.
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> 91
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
For the period ended December 31, 1996, purchases and proceeds from sales of
investments in the JNL Series Trust were as follows:
<TABLE>
<CAPTION>
PROCEEDS
PURCHASES FROM SALES
JNL SERIES TRUST: ---------------- ----------------
- -----------------
<S> <C> <C>
JNL Aggressive Growth $ 28,647,165 $ 1,725,784
JNL Capital Growth 36,535,310 1,519,646
JNL Global Equities 40,596,245 1,727,384
JNL/Alger Growth 37,807,173 3,495,535
JNL/Eagle Core Equity 1,027,399 149,997
JNL/Eagle SmallCap Equity 760,997 20,263
JNL/Phoenix Investment Counsel Balanced 24,298,072 1,932,806
JNL/Phoenix Investment Counsel Growth 22,246,637 1,153,436
PPM America/JNL High Yield Bond 13,176,496 1,028,968
PPM America/JNL Money Market 45,097,949 22,904,119
PPM America/JNL Value Equity 16,351,371 677,432
Salomon Brothers/JNL Global Bond 10,824,543 670,512
Salomon Brothers/JNL U.S. Government & Quality Bond 9,683,233 657,699
T. Rowe Price/JNL Established Growth 30,199,611 1,530,489
T. Rowe Price/JNL International Equity Investment 24,258,816 1,561,059
T. Rowe Price/JNL Mid-Cap Growth 44,811,602 3,355,426
</TABLE>
<PAGE> 92
JACKSON NATIONAL SEPARATE ACCOUNT - I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - ACCUMULATION OF UNIT ACTIVITY
The following is a reconciliation of the accumulation of unit activity for the
periods ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
UNITS UNITS UNITS
OUTSTANDING UNITS UNITS OUTSTANDING UNITS UNITS OUTSTANDING
AT 10/16/95 ISSUED REDEEMED AT 12/31/95 ISSUED REDEEMED AT 12/31/96
---------- ------ -------- ----------- ------ -------- -----------
PORTFOLIO:
<S> <C> <C> <C> <C> <C> <C> <C>
JNL Aggressive Growth - 4,794 (786) 4,008 2,489,793 (138,271) 2,355,530
JNL Capital Growth - 1,587 - 1,587 3,099,665 (115,584) 2,985,668
JNL Global Equities - 4,778 - 4,778 3,207,085 (121,629) 3,090,234
JNL/Alger Growth - 13,268 (983) 12,285 3,610,116 (311,591) 3,310,810
JNL/Eagle Core Equity - - - - 99,222 (14,327) 84,895
JNL/Eagle SmallCap Equity - - - - 72,877 (1,863) 71,014
JNL/Phoenix Investment Counsel Balanced - 13,361 (490) 12,871 2,271,164 (163,506) 2,120,529
JNL/Phoenix Investment Counsel Growth - 572 (1) 571 1,763,677 (81,644) 1,682,604
PPM America/JNL High Yield Bond - 100 - 100 1,238,600 (90,860) 1,147,840
PPM America/JNL Money Market - 19,600 (4,992) 14,608 4,391,649 (2,213,081) 2,193,176
PPM America/JNL Value Equity - 4,064 (120) 3,944 1,375,629 (49,285) 1,330,288
Salomon Brothers/JNL Global Bond - 3,226 (98) 3,128 963,549 (54,792) 911,885
Salomon Brothers/JNL U.S. Government & Quality Bond - 1,275 - 1,275 960,739 (59,959) 902,055
T. Rowe Price/JNL Established Growth - 10,866 (302) 10,564 2,609,100 (118,768) 2,500,896
T. Rowe Price/JNL International Equity Investment - 3,096 - 3,096 2,162,647 (126,313) 2,039,430
T. Rowe Price/JNL Mid-Cap Growth - 5,120 - 5,120 3,846,339 (266,408) 3,585,051
</TABLE>
<PAGE> 93
JACKSON NATIONAL SEPARATE ACCOUNT - I
Notes to Financial Statements (continued)
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 periods ended, December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Portfolios
--------------------------------------------------------------------------------------------------
JNL Aggressive JNL Capital JNL Global JNL/Alger
Growth Growth Equities Growth
---------------------------- ---------------------------- ------------------------- --------------
Period from Period from Period from
October 16, October 16, October 16,
Year Ended 1995* to Year Ended 1995* to Year Ended 1995* to Year Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995 1996
-------------- ------------ ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from units issue $ 27,543,128 $ 48,063 $ 35,519,102 $ 15,872 $ 39,106,636 $ 49,185 $36,756,292)
Value of units redeemed (1,145,314) (8,004) (975,072) (6) (1,240,848) - (2,573,647)
Transfers between funds and
general account 676,383 - 653,800 - 1,204,468 - 376,063
------------- --------- ------------- --------- ------------- -------- -----------
Total gross deposits net of
transfers to general account 27,074,197 40,059 35,197,830 15,866 39,070,256 49,185 34,558,708
DEDUCTIONS:
Policyholder charges 5,757 - 4,221 - 6,008 - 9,909
------------- --------- ------------- --------- ------------- -------- -----------
Net deposits from policyholders $ 27,068,440 $ 40,059 $ 35,193,609 $ 15,866 $ 39,064,248 $ 49,185 $34,548,799
============= ========= ============= ========= ============= ======== ===========
<CAPTION>
Portfolios
--------------------------------------------------------------------------------------------------
JNL/Alger JNL/Eagle JNL/Eagle JNL/Phoenix Investment JNL/Phoenix Investment
Growth Core Equity SmallCap Equity Counsel Balanced Counsel Growth
------------ ------------ ---------------- ---------------------- ------------------------
Period from Period from Period from Period from Period from
October 16, September 16, September 16, October 16, October 16,
1995* to 1996* to 1996* to Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31, December 31, December 31,
1995 1996 1996 1996 1995 1996 1995
------------ ------------ ------------ ------------- -------------- ------------ ------------
<C> <C> <C> <C> <C> <C> <C>
Proceeds from units issue $ 129,147 $1,021,518 $ 750,702 $23,509,961 $ 136,362 $21,442,640 $ 5,756
Value of units redeemed (9,823) (148,208) (18,081) (1,217,837) (4,899) (796,160) (7)
Transfers between funds and
general account - 5,840 9,328 227,388 - 560,800 -
------------- ---------- ------------- ----------- ------------- ----------- --------
Total gross deposits net of 119,324 879,150 741,949 22,519,512 131,463 21,207,280 5,749
transfers to general account
DEDUCTIONS:
Policyholder charges - - - 8,687 - 6,816 -
------------- ---------- ------------- ----------- ------------- ----------- --------
Net deposits from policyholders $ 119,324 $ 879,150 $ 741,949 $22,510,825 $ 131,463 $21,200,464 $ 5,749
============= ========== ============= =========== ============= =========== ========
</TABLE>
* Commencement of operations
<PAGE> 94
JACKSON NATIONAL SEPARATE ACCOUNT - 1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - RECONCILIATION OF GROSS AND NET DEPOSITS INTO THE SEPARATE ACCOUNT
(CONTINUED)
<TABLE>
<CAPTION>
Portfolios
---------------------------------------------------------------------------------------
PPM America/JNL PPM America/JNL PPM America/JNL
High Yield Bond Money Market Value Equity
--------------------------- --------------------------- ---------------------------
Period from Period from Period from
October 16, October 16, October 16,
Year Ended 1995* to Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C>
Proceeds from units issued $ 12,260,162 $ 1,000 $ 43,127,416 $ 196,208 $ 15,632,015 $ 41,909
Value of units redeemed (815,925) - (14,310,306) (49,921) (411,373) (1,216)
Transfers between funds and
general account 766,118 - (6,523,796) - 537,691 -
------------- ------- ------------- ---------- ------------- ---------
Total gross deposits net of
transfers to general account 12,210,355 1,000 22,293,314 146,287 15,758,333 40,693
DEDUCTION:
Policyholder charges 2,350 - 3,878 - 2,604 -
------------- ------- ------------- ---------- ------------- ---------
Net deposits from policyholders $ 12,208,005 $ 1,000 $ 22,289,436 $ 146,287 $ 15,755,729 $ 40,693
============= ======= ============= ========== ============= =========
<CAPTION>
Portfolios
---------------------------------------------------------------------------------------
Salomon Brothers/JNL Salomon Brothers/JNL T. Rowe Price/JNL
Global Bond U.S. Gov't & Quality Bond Established Growth
--------------------------- --------------------------- ----------------------------
Period from Period from Period from
October 16, October 16, October 16,
Year Ended 1995* to Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996 1995
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from units issued $ 10,448,311 $33,080 $ 9,278,322 $ 12,921 $ 29,052,257 $ 109,565
Value of units redeemed (486,567) 91,015 (469,196) - (1,202,924) (3,037)
Transfers between funds and
general account 246,760 - 271,425 - 988,000 -
------------ ------- ------------ ---------- ------------- ---------
Total gross deposits net of
transfers to general account 10,208,504 32,065 9,080,551 12,921 28,837,333 106,528
DEDUCTION:
Policyholder charges 2,147 - 2,924 - 7,690 -
------------ ------- ------------ ---------- ------------- ---------
Net deposits from policyholders $ 10,206,357 $32,065 $ 9,077,627 $ 12,921 $ 28,829,643 $ 106,528
============ ======= ============ ========== ============= =========
<CAPTION>
Portfolios
----------------------------------------------------------
T. Rowe Price/JNL T. Rowe Price/JNL
International Equity Mid-Cap Growth
---------------------------- ---------------------------
Period from Period from
October 16, October 16,
Year Ended 1995* to Year Ended 1995* to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from units issued $ 23,348,962 $31,837 $ 43,089,505 $ 52,084
Value of units redeemed (1,329,874) - (2,671,376) -
Transfers between funds and
general account 820,933 - 1,288,321 -
------------- ------- ------------ ----------
Total gross deposits net of
transfers to general account 22,840,021 31,837 41,706,450 52,084
DEDUCTION:
Policyholder charges 4,265 - 6,852 -
------------- ------- ------------ ----------
Net deposits from policyholders $ 22,835,756 $31,837 $ 41,699,598 $ 52,084
============= ======= ============ ==========
</TABLE>
*Commencement of operations
<PAGE> 95
JACKSON NATIONAL SEPARATE ACCOUNT - I
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES COST VALUE
JNL SERIES TRUST: ---------- ------------ ------------
- -----------------
<S> <C> <C> <C>
JNL Aggressive Growth 2,103,289 $ 26,990,775 $ 28,142,010
JNL Capital Growth 2,450,864 35,064,118 35,439,496
JNL Global Equities 2,757,995 39,010,172 41,921,523
JNL/Alger Growth 3,295,413 34,474,321 36,776,807
JNL/Eagle Core Equity 84,058 879,967 892,695
JNL/Eagle SmallCap Equity 68,506 741,036 789,875
JNL/Phoenix Investment Counsel Balanced 2,009,111 22,573,856 23,948,598
JNL/Phoenix Investment Counsel Growth 1,565,109 21,153,886 22,240,202
PPM America/JNL High Yield Bond 1,210,903 12,179,213 12,920,333
PPM America/JNL Money Market 22,752,692 22,489,278 22,752,692
PPM America/JNL Value Equity 1,190,818 15,748,690 17,266,864
Salomon Brothers/JNL Global Bond 1,006,924 10,206,474 10,703,598
Salomon Brothers/JNL U.S. Government & Quality Bond 913,678 9,047,876 9,319,515
T. Rowe Price/JNL Established Growth 2,494,156 28,835,616 31,326,604
T. Rowe Price/JNL International Equity Investment 1,989,593 22,760,446 24,034,289
T. Rowe Price/JNL Mid-Cap Growth 3,032,039 41,607,792 45,147,060
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 96
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 660,246 $ 88,088
Fixed maturities held to maturity, at amortized cost
(market value: 1996, $4,160,485; 1995, $4,199,528) 4,168,277 4,118,883
Investments available for sale, at market value:
Fixed maturities (amortized cost: 1996, $19,796,064; 1995, $18,248,600) 20,225,507 19,252,534
Equities (cost: 1996, $156,767; 1995, $191,908) 202,442 236,095
Mortgage loans 843,860 174,463
Policy loans 594,962 527,041
Other invested assets 118,662 45,567
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 26,813,956 24,442,671
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued investment income 338,099 327,022
Deferred acquisition costs 1,231,388 891,355
Variable annuity assets 369,569 761
Reinsurance recoverable 155,451 145,333
Value of acquired insurance in force 183,284 196,563
Deferred income taxes 131,470 63,287
Other assets 75,373 67,862
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 29,298,590 $ 26,134,854
====================================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policy reserves and liabilities:
Reserves for future policy benefits $ 624,733 $ 612,636
Deposits on investment contracts 24,021,621 22,836,811
Guaranteed investment contracts 1,464,010 100,080
Other policyholder funds 16,098 20,215
Claims payable 139,617 130,067
Variable annuity liabilities 369,569 761
Liability for guaranty fund assessments 89,104 94,853
Income taxes currently payable to Parent 140,364 102,047
Other liabilities 419,523 344,149
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 27,284,639 24,241,619
- ------------------------------------------------------------------------------------------------------------------------------------
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 648,982 603,982
Net unrealized gain on debt and equity securities
available for sale, net of tax of $97,155 in 1996
and $209,937 in 1995 180,432 389,883
Retained earnings 1,170,737 885,570
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 2,013,951 1,893,235
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 29,298,590 $ 26,134,854
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
forty
<PAGE> 97
CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $ 292,448 $ 310,231 $ 303,759
Net investment income 1,997,032 1,836,372 1,617,557
Net realized investment gains (losses) 18,573 84,626 (18,820)
Fee income:
Mortality charges 123,245 128,695 115,460
Surrender charges 64,933 54,380 42,168
Expense charges 20,641 20,308 20,349
Variable annuity fees 4,063 -- --
- ---------------------------------------------------------------------------------------------------------------
Total fee income 212,882 203,383 177,977
Other income 28,741 8,768 8,542
- ---------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,549,676 2,443,380 2,089,015
- ---------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death benefits 282,973 281,011 247,310
Interest credited on deposit liabilities 1,449,852 1,379,435 1,266,497
Increase in reserves, net of reinsurance recoverables 3,568 43,680 62,206
Other policyholder benefits 14,446 17,511 11,496
Commissions 232,901 214,060 229,261
General and administrative expenses 147,644 127,020 95,042
Taxes, licenses and fees 23,535 56,472 45,334
Deferral of acquisition costs (262,351) (227,093) (220,633)
Amortization of acquisition costs 175,062 142,308 144,506
Amortization of insurance in force 13,279 12,379 11,464
- ---------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS
AND EXPENSES 2,080,909 2,046,783 1,892,483
- ---------------------------------------------------------------------------------------------------------------
Pretax income 468,767 396,597 196,532
Income tax expense (164,100) (140,000) (41,450)
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 304,667 $ 256,597 $ 155,082
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
forty-one
<PAGE> 98
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL STOCK
Beginning and end of year $ 13,800 $ 13,800 $ 13,800
- --------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Beginning of year 603,982 603,982 603,982
Capital contributions 45,000 -- --
- --------------------------------------------------------------------------------------------------
End of year 648,982 603,982 603,982
- --------------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS
Beginning of year 389,883 (353,692) 22,027
Net effect of adoption of SFAS 115 (See Note 2) -- -- 321,547
Change in market value of investments
available for sale, net of taxes and
related deferred acquisition costs (209,451) 743,575 (697,266)
- --------------------------------------------------------------------------------------------------
End of year 180,432 389,883 (353,692)
- --------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning of year 885,570 648,473 512,891
Net income 304,667 256,597 155,082
Dividends paid to stockholder (19,500) (19,500) (19,500)
- --------------------------------------------------------------------------------------------------
End of year 1,170,737 885,570 648,473
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY $ 2,013,951 $ 1,893,235 $ 912,563
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
forty-two
<PAGE> 99
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 304,667 $ 256,597 $ 155,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Net realized investment (gains) losses (18,573) (84,626) 18,820
Interest credited on deposit liabilities 1,449,852 1,379,435 1,266,497
Other charges (212,882) (203,383) (177,977)
Amortization of discount and premium on investments (55,808) (32,261) (32,411)
Change in:
Deferred income taxes 44,600 (364) 6,105
Accrued investment income (11,077) (15,469) (12,634)
Deferred acquisition costs (87,289) (84,785) (76,127)
Value of acquired insurance in force 13,279 12,379 11,464
Income taxes currently payable to Parent 38,317 58,672 (52,997)
Other assets and liabilities, net (90,724) 91,116 71,962
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,374,362 1,377,311 1,177,784
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of:
Fixed maturities and equities available for sale 3,281,105 2,994,755 4,438,513
Mortgage loans 16,360 3,840 4,690
Principal repayments, maturities, calls and redemptions:
Available for sale 1,052,506 257,793 1,725,628
Held to maturity 465,862 289,266 211,878
Purchases of:
Fixed maturities and equities available for sale (5,716,350) (4,782,081) (6,947,423)
Fixed maturities held to maturity (557,749) (1,050,039) (1,666,176)
Mortgage loans (685,938) (140,379) (2,040)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (2,144,204) (2,426,845) (2,234,930)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 4,198,094 2,589,863 2,491,506
Withdrawals (2,540,112) (1,713,037) (1,159,070)
Net transfers to separate accounts (341,482) (748) --
Payment of cash dividends to Parent (19,500) (19,500) (19,500)
Capital contribution from Parent 45,000 -- --
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,342,000 856,578 1,312,936
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 572,158 (192,956) 255,790
CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD 88,088 281,044 25,254
- ----------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 660,246 $ 88,088 $ 281,044
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
forty-three
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS
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, including immediate and deferred annuities, variable annuities,
guaranteed investment contracts ("GICs"), and individual life insurance
products in 49 states and the District of Columbia.
The accompanying consolidated financial statements include JNL and its wholly
owned subsidiaries, First Jackson National Life Insurance Company, an insurance
company; 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"). All
significant intercompany accounts and transactions are eliminated in
consolidation. Certain 1995 and 1994 amounts have been reclassified to conform
with the current year presentation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results may differ from those estimates.
INVESTMENTS
Cash and short-term investments primarily include cash, commercial paper, and
money market instruments. All such investments are carried at cost plus
accrued interest, which approximates fair value, have maturities of three
months or less, and are considered cash equivalents for reporting cash flows.
Fixed maturities (including bonds, notes, redeemable preferred stocks, and
mortgage-backed securities) available for sale and common stocks and
non-redeemable preferred stocks are carried at aggregate market value, with
changes in unrealized gains or losses, net of tax and the effect on deferred
acquisition costs, credited or charged directly to stockholder's equity. Fixed
maturities which the Company has the intent and ability to hold to maturity are
reported at amortized cost. 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 record appreciation on available for sale fixed
maturities of $887,174, less the effect on related deferred 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, 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.
Mortgage loans are carried at the unpaid principal balances, net of unamortized
discounts and premiums. Policy loans are carried at the unpaid principal
balances. Real estate is carried at the lower of cost or fair value.
Limited partnership investments are accounted for using the equity method.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using call or maturity dates.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into financial derivative transactions, including swaps,
put-swaptions, and futures to reduce and manage business risks. These
transactions are used to manage the risk of a change in the value, yield,
price, cash flows, or quantity of, or a degree of exposure with respect to
assets, liabilities, or future cash flows, which the Company has acquired or
incurred. Hedge accounting practices are supported by cash flow matching,
duration matching or scenario testing.
Swap agreements generally involve the exchange of fixed and floating payments
over the life of the agreement without an exchange of the underlying principal
amount. All swap agreements outstanding at December 31, 1996, hedge available
for sale securities and are carried at fair value with the change in value
reflected in stockholder's equity. Amounts paid or received on swap contracts,
if any, are included in investment income. Accrued amounts payable to or
receivable from counterparties are included in other liabilities or other
assets. Realized gains and losses 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.
Put-swaptions purchased provide the Company with the right, but not the
obligation, to require the writers to pay the Company the present value of a
ten year interest rate swap at future exercise dates. These put-swaptions are
entered into as a hedge against significant upward fluctuations in interest
rates. Premiums paid for put-swaption contracts are included in other invested
assets and are being amortized to investment income over the remaining terms of
the contracts of one to four years. Put-swaptions, designated as a hedge of
available for sale securities, are carried at fair value with the change in
value reflected in stockholder's equity.
Equity index futures contracts are used in conjunction with equity index-linked
immediate and deferred annuities offered by the Company. The futures contracts
are accounted for as hedges of the associated annuity liabilities.
Financial derivative contracts are primarily held for hedging purposes.
High-yield swaps and equity swaps were held for investment purposes during
1996.
The Company manages the potential credit exposure for over-the-counter
derivative contracts through careful evaluation of the counterparty credit
standing, collateral agreements, and master netting agreements. The Company is
exposed to credit loss in the event of nonperformance by counterparties,
however, the Company does not anticipate nonperformance.
DEFERRED ACQUISITION COSTS
Certain costs of acquiring new business, principally commissions and certain
costs associated with policy issue and underwriting which vary with, and are
primarily related to the production of new business, have been capitalized as
deferred acquisition costs. Deferred acquisition costs are increased by
interest thereon and amortized in proportion to anticipated premium revenues
for traditional life policies and in proportion to estimated gross profits for
annuities and interest-sensitive life products. As certain debt and equity
securities available for sale are carried at aggregate fair value, an
adjustment is made to deferred acquisition costs equal to the change in
amortization that would have occurred if such securities had been sold at their
stated aggregate fair value and the proceeds reinvested at current yields. The
change in this adjustment is included with the change in market value of
investments, net of tax, on debt and equity securities available for sale that
is credited or charged directly to stockholder's equity. At December 31, 1996
and 1995, deferred acquisition costs have been decreased by $188.1 million and
$440.8 million, respectively, to reflect this change.
VALUE OF ACQUIRED INSURANCE IN FORCE
The value of acquired insurance in force at acquisition date ("value of
business" or "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.
forty-four
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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.
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 of the
issue date as to mortality, interest, policy lapsation and expenses plus
provisions for adverse deviations. Mortality assumptions range from 59% to 90%
of the 1975-1980 Basic Select and Ultimate tables 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 interest-sensitive life contracts, reserves approximate the
policyholder's accumulation account. For deferred annuity, variable annuity,
and other investment contracts, the reserve is the policyholder's account
value.
VARIABLE ANNUITY ASSETS AND LIABILITIES
The assets and liabilities resulting from the receipt of variable annuity
premiums are segregated in a separate account. The Company receives
administrative fees for managing the funds and other fees for assuming
mortality and certain expense risks. Such fees are recorded as earned and
included in variable annuity fees in the consolidated income statement.
REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance are reported as revenues when due.
Benefits, claims and expenses are associated with earned revenues in order to
recognize profit over the lives of the contracts. This association is
accomplished by provisions for future policy benefits and the deferral and
amortization of deferred acquisition costs.
Deposits on interest-sensitive life products and investment contracts,
principally deferred annuities and guaranteed investment contracts, are treated
as policyholder deposits and excluded from revenue. Revenues consist primarily
of the investment income earned on those deposits. Revenues also 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.
Benefit payments are treated as reductions to the policyholder account. Death
benefits, net of the policyholder account, are recognized as an expense when
incurred. Expenses consist primarily of the interest credited to the
policyholder deposit. Underwriting expenses are associated with gross profit
in order to recognize profit over the life of the business. This is
accomplished by deferral and amortization of deferred acquisition costs.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the basis used by the Company in estimating its fair
value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS
Carrying value is considered to be a reasonable estimate of fair value.
FIXED MATURITIES AND EQUITY SECURITIES
Fair values are based principally on quoted market prices, if available. For
securities that are not actively traded, fair values are estimated using
independent pricing services or analytically determined values.
MORTGAGE LOANS
Fair values are determined by discounting the future cash flows to the present
at current market rates. At December 31, 1996, the fair value approximated
$846.6 million.
POLICY LOANS
The carrying value approximates fair value, since policy loans reduce the
amount payable at death or surrender of the contract.
DERIVATIVES
The fair value of derivatives is based on estimates received from financial
institutions.
VARIABLE ANNUITY ASSETS
Variable annuity assets are carried at the market value of the underlying
securities.
ANNUITY RESERVES
Fair values for immediate and deferred annuities, without mortality features,
are derived by discounting the future estimated cash flows using current
interest rates with similar maturities. At December 31, 1996, the carrying
value and fair value of such annuities approximated $19.5 billion and $18.5
billion, respectively, and $18.2 billion and $17.2 billion, respectively, at
December 31, 1995.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS
Fair value is based on the present value of future cash flows at current
pricing rates. At December 31, 1996, the fair value approximated $1,465.3
million.
VARIABLE ANNUITY 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, 1996,
the fair value approximated $345.0 million.
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 deposits 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.
DEBT SECURITIES
The following table sets forth fixed maturity investments at December 31, 1996,
classified by rating categories as assigned by nationally recognized
statistical rating organizations or, if not rated by such firms, the rating
assigned by the National Association of Insurance Commissioners ("NAIC"). For
purposes of the table, NAIC Class 1 is included in the "A" rating; Class 2,
"BBB"; Class 3, "BB" and Classes 4-6, "B and below."
Percent of Total
Investment Rating Assets
------------------------------------------------
AAA 41.1%
AA 2.3
A 15.9
BBB 16.6
------------------------------------------------
Investment grade 75.9
------------------------------------------------
BB 5.3
B and below 2.1
------------------------------------------------
Below investment grade 7.4
------------------------------------------------
Total fixed maturities 83.3
------------------------------------------------
Other assets 16.7
------------------------------------------------
Total assets 100.0%
================================================
forty-five
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. INVESTMENTS (CONTINUED)
The amortized cost and estimated market value of fixed maturity investments
held to maturity are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate securities $ 886,250 $ 7,931 $ 7,766 $ 886,415
Mortgage-backed securities 3,282,027 32,945 40,902 3,274,070
- --------------------------------------------------------------------------------------------
TOTAL $4,168,277 $ 40,876 $ 48,668 $4,160,485
============================================================================================
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate securities $ 809,925 $ 15,108 $ 3,028 $ 822,005
Mortgage-backed securities 3,308,958 77,201 8,636 3,377,523
- --------------------------------------------------------------------------------------------
TOTAL $4,118,883 $ 92,309 $ 11,664 $4,199,528
============================================================================================
</TABLE>
The amortized cost and estimated market value of fixed maturity
investments available for sale are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,461 $ 118 $ -- $ 5,579
U.S. Government agencies
and foreign governments 227,307 14,109 91 241,325
Public utilities 748,841 26,708 13,710 761,839
Corporate securities 9,902,242 435,905 59,060 10,279,087
Mortgage-backed securities 8,912,213 150,619 125,155 8,937,677
- --------------------------------------------------------------------------------------------
TOTAL $19,796,064 $ 627,459 $ 198,016 $20,225,507
============================================================================================
<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
Mortgage-backed securities 6,383,685 239,881 32,960 6,590,606
- --------------------------------------------------------------------------------------------
TOTAL $18,248,600 $ 1,070,663 $ 66,729 $19,252,534
============================================================================================
</TABLE>
forty-six
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Gross unrealized gains pertaining to equity securities at December 31, 1996 and
1995 were $48.2 million and $51.2 million, respectively. Gross unrealized
losses at December 31, 1996 and 1995 were $2.5 million and $7.0 million,
respectively.
The amortized cost and estimated market value of fixed maturities at December
31, 1996, 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 (IN THOUSANDS):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Due after 1 year through 5 years $ 319,458 $ 322,776
Due after 5 years through 10 years 510,859 506,549
Due after 10 years through 20 years 29,950 31,107
Due after 20 years 25,983 25,983
Mortgage-backed securities 3,282,027 3,274,070
- -----------------------------------------------------------------
TOTAL $ 4,168,277 $ 4,160,485
=================================================================
FIXED MATURITIES AVAILABLE FOR SALE (IN THOUSANDS):
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Due within 1 year or less $ 206,459 $ 247,299
Due after 1 year through 5 years 2,335,443 2,406,666
Due after 5 years through 10 years 4,033,081 4,144,217
Due after 10 years through 20 years 1,902,431 1,978,856
Due after 20 years 2,406,437 2,510,792
Mortgage-backed securities 8,912,213 8,937,677
- -----------------------------------------------------------------
TOTAL $19,796,064 $20,225,507
=================================================================
</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, 1996, fixed maturities with a carrying value of $4.7 million
were on deposit with regulatory authorities as required by law in various
states in which the insurance operations conduct business.
Investments (all of which are actively managed fixed maturities) in any single
entity in excess of 10 percent of stockholder's equity at December 31, 1996,
other than investments issued or guaranteed by the United States Government or
a United States Government agency are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
INVESTMENT (IN MILLIONS) COST FAIR VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Hermitage CBO LLC (see Note 12) $ 633.5 $ 633.7
USX Corporation 224.0 244.0
- -----------------------------------------------------------------
</TABLE>
MORTGAGE LOANS
Mortgage loans consist of the following at December 31, 1996
(in thousands):
<TABLE>
<S> <C>
Single family $ 1,057
Commercial 842,803
- -----------------------------------------------------------------
TOTAL $ 843,860
=================================================================
</TABLE>
At December 31, 1996, mortgage loans were collateralized by properties located
in 28 states. Approximately 17% of the aggregate carrying value of the
portfolio is secured by properties located in Texas.
DERIVATIVES
The fair value of derivatives reflects the estimated amounts that the Company
would receive or pay upon termination of the contracts at the reporting date.
A summary of the aggregate notional or contractual amounts and estimated fair
values of these financial instruments at December 31, 1996 and 1995 are
presented below (in millions):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
CONTRACTUAL/ CONTRACTUAL/
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps $ 1,255 $ 39 $ 1,000 $ 68
Put-swaptions 24,500 11 12,000 7
Futures 16 -- -- --
==========================================================================
</TABLE>
During 1996, the Company recorded $24.3 million in net investment income from
derivative instruments, including $12.6 million from investment activity. The
average notional amount of swaps outstanding during 1996 was $1.3 billion,
including $255 million notional amount of high yield and equity swaps.
SECURITIES LENDING
The Company has entered into a securities lending agreement whereby blocks of
securities are loaned to third parties, primarily major brokerage firms. As of
December 31, 1996, the estimated fair value of loaned securities was $287.0
million. The agreement requires a minimum of 102 percent of the fair value of
the loaned securities as collateral, calculated on a daily basis. To further
minimize the credit risks related to this program, the financial condition of
counterparties is monitored on a regular basis.
5. INVESTMENT INCOME AND REALIZED GAINS
AND LOSSES
Major categories of investment income are summarized below
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 1,872,820 $ 1,766,654 $ 1,550,367
Other investment income 140,717 82,614 79,802
- ------------------------------------------------------------------------
Total investment income 2,013,537 1,849,268 1,630,169
Less investment expenses (16,505) (12,896) (12,612)
- ------------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,997,032 $ 1,836,372 $ 1,617,557
========================================================================
</TABLE>
Net realized investment gains and losses are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of fixed maturities:
Gross gains $ 78,099 $ 101,682 $ 131,620
Gross losses (36,624) (27,897) (200,135)
Sales of equity securities:
Gross gains 20,886 47,883 58,270
Gross losses (5,329) (1,576) (6,082)
Impairment losses (29,500) (29,824) (123)
Other invested assets, net (8,959) (5,642) (2,370)
- --------------------------------------------------------------------------
TOTAL $ 18,573 $ 84,626 $ (18,820)
==========================================================================
</TABLE>
forty-seven
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995
- ----------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 196,563 $ 208,942
Amortization, net of interest (13,279) (12,379)
- ----------------------------------------------------------
Balance, end of year $ 183,284 $ 196,563
==========================================================
</TABLE>
The VOB is expected to be amortized as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 14,000
1998 15,000
1999 16,000
2000 17,000
Thereafter 121,284
- ------------------------------------------------
TOTAL $183,284
================================================
</TABLE>
7. POLICY RESERVES AND LIABILITIES
A summary of the components of policy reserves and liabilities is as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Term life and other traditional life $ 624,733 $ 612,636
Interest-sensitive life 4,502,912 4,332,780
Deferred and immediate annuities 19,518,709 18,504,031
Guaranteed investment contracts 1,464,010 100,080
- -----------------------------------------------------------------------
SUBTOTAL 26,110,364 23,549,527
=======================================================================
Claims payable and other
policyholder funds 155,715 150,282
- -----------------------------------------------------------------------
TOTAL $ 26,266,079 $ 23,699,809
=======================================================================
</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.
The effect of reinsurance on premiums is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $ 358,533 $ 367,937 $ 366,964
Assumed premiums 10,961 4,763 1,544
Less reinsurance ceded (77,046) (62,469) (64,749)
- ------------------------------------------------------------------
TOTAL NET PREMIUMS $ 292,448 $ 310,231 $ 303,759
==================================================================
</TABLE>
Components of the reinsurance recoverable asset as of December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ---------------------------------------------------
<S> <C> <C>
Ceded reserves $ 139,998 $ 131,469
Ceded claims liability 9,192 8,721
Ceded -- other 6,261 5,143
- ---------------------------------------------------
TOTAL $ 155,451 $ 145,333
===================================================
</TABLE>
At December 31, 1996, and 1995, $87.4 million and $91.6 million, respectively,
of ceded reserves was reinsured through Brooke Life.
9. FEDERAL INCOME TAXES
The components of the provision for federal income taxes as computed in
accordance with SFAS 109 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 119,500 $ 152,480 $ 26,835
Deferred tax expense (benefit) 44,600 (12,480) 14,615
- --------------------------------------------------------------------------
Provision for income taxes $ 164,100 $ 140,000 $ 41,450
==========================================================================
</TABLE>
The federal income tax provisions differ from the amounts determined by
multiplying pretax income by the statutory federal income tax rate of 35% for
1996, 1995 and 1994 as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $ 164,069 $ 138,809 $ 68,786
Reduction in taxes resulting from
release of accrued federal tax
due to IRS settlement -- -- (27,000)
Other 31 1,191 (336)
- -----------------------------------------------------------------------------
Provision for income taxes $ 164,100 $ 140,000 $ 41,450
=============================================================================
Effective tax rate 35.0% 35.3% 21.1%
=============================================================================
</TABLE>
The Company made income tax payments of $81.2 million in 1996, $116.1 million in
1995 and $79.9 million in 1994.
forty-eight
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Significant temporary differences included in the deferred tax asset as of
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
GROSS DEFERRED TAX ASSET
Policy reserves and other insurance items $ 643,237 $ 669,247
Difference between financial reporting
and the tax basis of:
Assets acquired 12,444 17,483
Insolvency fund assessments 30,970 32,483
Other, net 14,481 12,688
- --------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSET 701,132 731,901
==========================================================================
GROSS DEFERRED TAX LIABILITY
Deferred acquisition costs (324,157) (216,636)
Difference between financial reporting
and the tax basis of the value of the
insurance in-force (64,149) (68,797)
Difference between financial reporting and
the tax basis of other assets (5,546) (7,468)
Net unrealized gains on available
for sale securities (162,989) (364,116)
Other, net (12,821) (11,597)
- --------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITY (569,662) (668,614)
- --------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 131,470 $ 63,287
==========================================================================
</TABLE>
10. CONTINGENCIES
The Company and its subsidiaries are involved in litigation arising in the
ordinary course of business including litigation relating to allegations of
improper sales practices. It is the opinion of management that the ultimate
disposition of such litigation will not have a material adverse effect on the
Company's financial condition or results of operations.
State guaranty funds provide payments for policyholders of insolvent life
insurance companies. These guaranty funds are financed by assessments to
solvent insurance companies based on location, volume, and types of business.
The Company estimated its reserve for future state guaranty fund assessments
based on data received from the National Organization of Life and Health
Insurance Guaranty Associations. Based on data received at the end of 1996, the
Company's reserve for future state guaranty fund assessments is $89.1 million.
The Company believes the reserve is adequate for all anticipated payments for
known insolvencies.
The Company offers synthetic GIC contracts to group customers including pension
funds and other institutional organizations. The synthetic GIC contract is an
off-balance-sheet fee-based product where the customer retains ownership of the
assets related to these contracts and JNL guarantees the customer's obligation
to meet withdrawal requirements. The book value of off-balance-sheet
guarantees at December 31, 1996, and market value of related assets, was $122
million.
11. STOCKHOLDER'S EQUITY
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, 1997, the maximum amount of dividends that can be paid by the
Company without prior approval of the Commissioner under this limitation
approximated $272.2 million.
Statutory capital and surplus of the Company at December 31, 1996, and 1995 was
$1,501.0 million and $1,196.1 million, respectively. Statutory net income of
the Company was $272.2 million, $156.6 million and $125.3 million in 1996, 1995
and 1994, 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 $8.7 million, $6.8 million and $5.8 million to PPM for investment
advisory services during 1996, 1995, and 1994, respectively.
On August 26, 1987, Brooke Life issued $180 million of 12% notes due August 26,
1997 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 $20 million of 12% notes due December 28, 1998, to Prudential.
On October 31, 1991, Brooke Life issued $200 million of 9.75% notes due October
31, 2001, to Prudential Finance BV, a Prudential subsidiary.
On November 8, 1996, Brooke Life issued $388 million of 8.50% notes due December
31, 2006 to Brooke Finance, Inc. ("Brooke Finance"), a wholly owned subsidiary
of Brooke Holdings, Inc., ultimately a wholly owned subsidiary of Prudential.
These proceeds were used to extinguish principal and accrued interest on both
the $180 million note due in 1997 and the $20 million note due in 1998. On
December 31, 1996, Brooke Life issued $45 million of 8.51% notes due December
31, 2006 to Brooke Finance. These proceeds were used by Brooke Life to
contribute an additional $45 million of capital to JNL. In 1996, 1995, and
1994, JNL made annual dividend payments to Brooke Life of $19.5 million to pay
the accrued interest on the notes. At December 31, 1996, the aggregate amount
outstanding on the Brooke Life notes was as follows (in millions):
Principal $ 633.0
Accrued interest 3.4
-----------------------------------
Total $ 636.4
===================================
On December 18, 1996, the Company established the Hermitage CBO Limited
Liability Corporation ("Hermitage") for the purpose of securitizing certain of
its holdings in below investment grade bonds. The Company contributed $657.4
million of non-investment grade securities to Hermitage and in exchange
received $616.2 million of subordinated notes, $13.0 million in cash, and 46.4%
of the equity in Hermitage. The Company's ultimate parent, Prudential,
obtained the remaining 53.6% equity interest in Hermitage in exchange for $19.9
million in cash.
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 $2.4 million related to this plan during 1996, $2.3
million in 1995 and $2.2 million in 1994.
forty-nine
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICE WATERHOUSE LLP LETTERHEAD]
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 income statement and consolidated statements of stockholder's
equity and of cash flows present fairly, in all material respects, the
financial position of Jackson National Life Insurance Company and its
subsidiaries (the "Company") at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, 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.
Price Waterhouse LLP
February 7, 1997
[End of GAAP Consolidated Financial Statements]
fifty
<PAGE> 107
CONSOLIDATED STATUTORY SUMMARY OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE:
Life and annuity premiums $ 3,042,939 $ 2,760,774
Deposit-type funds 1,412,694 100,000
Net investment income 2,006,777 1,837,978
Other income 61,752 10,222
- ----------------------------------------------------------------------------------------------
TOTAL PREMIUMS AND OTHER REVENUE 6,524,162 4,708,974
==============================================================================================
BENEFITS AND EXPENSES:
Death benefits 325,600 314,867
Annuity benefits 2,144,748 1,457,050
Other benefits 394,838 210,726
Net transfers to/from separate accounts 349,921 748
Increase in aggregate reserves 1,278,129 1,982,094
Increase in liability for premium and other deposit funds 1,318,071 100,000
Increase (decrease) in reserves for supplementary contracts
without life contingencies and for dividend
and coupon accumulations (383) 488
- ----------------------------------------------------------------------------------------------
TOTAL BENEFITS AND RESERVES 5,810,924 4,065,973
==============================================================================================
OTHER OPERATING COSTS AND EXPENSES:
Commissions 232,820 212,476
General expenses 139,518 125,097
Taxes, licenses and fees excluding federal
income tax 28,692 53,082
Increase in loading and cost of collection in excess
of loading on deferred and uncollected premiums (4,918) (12,193)
- ----------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 6,207,036 4,444,435
==============================================================================================
Operating gain before dividends and federal
income taxes 317,126 264,539
Dividends to policyholders 19 19
- ----------------------------------------------------------------------------------------------
Net operational gain before federal income taxes 317,107 264,520
Federal income taxes incurred 41,172 104,200
- ----------------------------------------------------------------------------------------------
Net operational gain before net realized capital losses 275,935 160,320
Net realized capital losses (3,739) (3,742)
- ----------------------------------------------------------------------------------------------
NET INCOME $ 272,196 $ 156,578
==============================================================================================
</TABLE>
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<PAGE> 108
STATUTORY BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Bonds $ 23,976,036 $ 22,382,717
Stocks 215,685 249,964
Mortgage loans 843,311 173,863
Real estate 13,720 15,070
Policy loans 594,710 527,041
Short-term investments 618,092 62,478
Other investments 114,363 51,437
- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS 26,375,917 23,462,570
======================================================================================
Cash 28,758 23,248
Deferred and uncollected premiums 181,490 246,386
Accounts receivable reinsurance 6,261 5,143
Accrued investment income 338,009 326,724
EDP equipment 14,925 11,000
Other receivables 2,549 460
Other assets 39,241 23,524
Separate account assets 369,569 761
- --------------------------------------------------------------------------------------
TOTAL ASSETS $ 27,356,719 $ 24,099,816
======================================================================================
LIABILITIES, CAPITAL AND SURPLUS
LIABILITIES:
Future policy benefits $ 22,966,463 $ 21,783,791
Policy contract claims 135,058 126,845
Policyholder funds:
Premium deposit funds 10,458 14,570
Guaranteed investment contracts 1,464,010 100,080
Other 5,372 5,658
Interest maintenance reserve 126,138 119,188
Federal income taxes due and accrued 9,600 50,473
Cost of collection on deferred premiums 13,210 15,800
Asset Valuation Reserve 313,188 290,917
Remittances not allocated 25,693 31,280
Other liabilities 416,958 364,305
Separate account liabilities 369,569 761
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES 25,855,717 22,903,668
======================================================================================
CAPITAL AND SURPLUS:
Capital 13,800 13,800
Paid-in surplus 648,982 603,982
Unassigned surplus 838,220 578,366
- --------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 1,501,002 1,196,148
======================================================================================
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 27,356,719 $ 24,099,816
======================================================================================
</TABLE>
fifty-two
<PAGE> 109
STATUTORY FIVE YEAR PERFORMANCE HISTORY
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIFE INSURANCE IN FORCE (000's)
Whole Life $ 29,767,348 $ 30,642,130 $ 30,856,323 $ 30,796,616 $ 28,972,425
Term 116,637,142 115,785,746 117,308,939 113,727,920 109,637,091
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIFE INSURANCE IN FORCE $ 146,404,490 $ 146,427,876 $ 148,165,262 $ 144,524,536 $ 138,609,516
=================================================================================================================================
NEW BUSINESS ISSUED (000's)
Whole Life $ 1,637,196 $ 2,190,761 $ 1,591,322 $ 2,821,444 $ 5,508,301
Term 13,353,191 10,151,326 15,826,645 15,871,396 17,529,889
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NEW BUSINESS ISSUED $ 14,990,387 $ 12,342,087 $ 17,417,967 $ 18,692,840 $ 23,038,190
=================================================================================================================================
PREMIUM INCOME
First-year Life $ 51,422,556 $ 62,370,257 $ 82,319,688 $ 121,752,363 $ 140,789,246
Renewal Life 590,801,488 610,258,912 612,555,127 582,246,754 543,784,250
Annuity 2,400,714,546 2,088,145,187 2,066,204,059 1,548,433,989 2,323,604,123
Deposit-type funds 1,412,693,672 100,000,000 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL PREMIUM INCOME $4,455,632,262 $2,860,774,356 $2,761,078,874 $ 2,252,433,106 $3,008,177,619
=================================================================================================================================
TOTAL ASSETS (BILLIONS) $ 27.36 $ 24.10 $ 21.63 $ 19.07 $ 16.67
PERCENTAGE DISTRIBUTION OF ASSETS
Bonds 90.7% 95.3% 95.2% 96.2% 95.0%
Stocks 0.8% 1.1% 0.9% 1.2% 1.5%
Mortgage Loans on Real Estate 3.2% 0.7% 0.2% 0.2% 0.3%
Real Estate 0.1% 0.1% 0.1% 0.1% 0.2%
Policy Loans 2.3% 2.2% 2.1% 2.0% 1.8%
Cash and Short-term Investments 2.6% 0.4% 1.3% 0.1% 1.0%
Other Invested Assets 0.3% 0.2% 0.2% 0.2% 0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND INVESTED ASSETS 100.0% 100.0% 100.0% 100.0% 100.0%
=================================================================================================================================
INVESTMENT DATA
Return on Invested Assets 8.27% 8.36% 8.39% 9.06% 9.53%
Net Investment Income $2,006,777,135 $1,837,977,663 $1,617,963,852 $1,527,755,190 $1,357,612,701
Realized Capital Gains (Losses) 7,767,438 41,291,556 (104,455,727) 95,495,906 12,888,698
Unrealized Capital Gains (Losses) (4,316,823) 35,918,127 50,024,949 26,354,396 44,685,525
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,010,227,750 $1,915,187,346 $1,563,533,074 $1,649,605,492 $1,415,186,924
=================================================================================================================================
BENEFITS AND RESERVE INCREASES
Total Policy Benefits $2,803,593,717 $1,967,038,988 $1,373,175,823 $1,076,579,746 $ 953,267,071
Increase in Life Reserves 242,902,882 309,542,000 392,340,506 421,691,797 422,779,698
Dividends to Policyowners 19,237 18,718 19,095 27,658 27,466
OPERATING RATIOS
Expense/Commissions Ratio 11.3% 11.5% 11.6% 12.4% 11.1%
Expense Ratio 4.1% 6.7% 5.0% 5.9% 4.1%
Lapse Ratio 9.9% 9.1% 9.1% 9.3% 10.8%
- ---------------------------------------------------------------------------------------------------------------------------------
NET GAIN FROM OPERATIONS
AFTER FEDERAL INCOME TAXES $ 275,934,538 $ 160,319,596 $ 139,373,164 $ 155,902,977 $ 212,149,257
=================================================================================================================================
</TABLE>
All amounts and calculations in the above table reflect consolidated statutory
amounts.
fifty-three
<PAGE> 110
FOOTNOTES
1. For complete information about The Perspective Fixed and Variable Annuity (VA
200), including charges and expenses, get a prospectus by calling 800/766-4683.
Read it carefully before you invest or send money. The Perspective is a
long-term investment vehicle and is subject to a maximum deferred sales charge
of 7% in the first year, declining 1% each year through year seven. There may
be a 10% IRS tax penalty for early withdrawals prior to age 591/2. The
Perspective Fixed and Variable Annuity is available through Jackson National
Financial Services, Inc., an NASD member.
2. For ELI products, S&P 500 and S&P MidCap 400 are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Jackson National
Life. The product is not sponsored, endorsed, sold or promoted by Standard and
Poor's, and Standard and Poor's makes no representation regarding the
advisability of purchasing the product.
The Nasdaq 100(R), Nasdaq 100 Index(R), and Nasdaq(R) are registered trademarks
of the Nasdaq Stock Market, Inc. (which, with its affiliates, are the
"Corporations") and are licensed for use by Jackson National Life. The
product(s) have not been passed on by the Corporations as to their legality or
suitability. The product(s) are not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE PRODUCT(S).
The Nikkei Newspaper Corporation has granted Jackson National Life the
non-exclusive use of the Nikkei 225(R) Average. The Nikkei Newspaper
Corporation reserves the right to modify the content of and to cease publishing
the Nikkei Average. The Nikkei Newspaper Corporation accepts no liability
regarding this product offering.
The FTSE 100(R) is calculated by FTSE International Limited in conjunction with
the Institute of Actuaries. FTSE International Limited accepts no liability in
connection with the trading of any products on the index.
DAX(R) is a registered trademark of Deutsche Borse AG.
"CAC40(R)" is a registered trademark of the SBF-Paris Bourse, which designates
the index that the SBF-Paris Bourse calculates and publishes. Authorization to
use the index and the "CAC40" trademark in connection with this product has
been granted by license. The SBF-Paris Bourse does not sponsor, endorse or
participate in the marketing of this product.
The IRS may impose a 10% penalty on all withdrawals from fixed annuities before
age 59 1/2. See your tax adviser for details. This contract has certain
restrictions and limitations. For costs and complete details about JNL Equity
Linked Index Annuity and the Index Options, please ask your JNL Representative.
Policy form numbers ELI-DA500, ELI-IA100, and ELI-IA 200. May not be available
in all states; state variations of the contract may apply. JNL reserves the
right to add or delete an Index at any time.
Contract values in an Indexed Option may be reduced if amounts are transferred,
annuitized or withdrawn prior to the end of the Indexed Option period. Talk to
your JNL Representative for complete details.
3. For JNL Products, corresponding policy form numbers: JNL Select A500;
Lifeline Ultimate L1000; Lifeline Term L1667; 10-, 15- and 20-Year R&C L1665;
JNL Survivorship UL UL2003.
All products and product features may not be available in all states. The
contracts have restrictions and limitations. For costs and complete details,
contact your Jackson National Representative, or call 800/USE-JNLI (873-5654).
4. May be subject to an interest rate adjustment. Withdrawals within the
policy's first seven years (most states) will be adjusted -- downward when
interest rates are rising, upward when they're falling -- to reflect the market
price of the policy's underlying bond investments.
Fifty-four
