Document ID: SEC-2010-1037-0001
Agency: sec
Document Type: Notice
Title: Applications: Nationwide Life Insurance Company, et al.
Posted Date: 2010-07-09T04:00Z

[Federal Register: July 9, 2010 (Volume 75, Number 131)]
[Notices]               
[Page 39589-39593]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy10-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29337; File No. 812-13756]

 
Nationwide Life Insurance Company, et al.; Notice of Application

July 2, 2010.
AGENCY: The Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of Application for an order pursuant to section 6(c) of 
the Investment Company Act of 1940, as amended (the ``1940 Act'') 
granting exemptions from the provisions of sections 2(a)(32), 22(c), 
and 27(i)(2)(A) of the 1940 Act and rule 22c-1 thereunder.

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Applicants: Nationwide Life Insurance Company (``NWL''); Nationwide 
Variable Account-II (the ``Separate Account''); and Nationwide 
Investment Services Corporation (``NISC'') (collectively, the 
``Applicants'').

Summary of application: Applicants seek an order pursuant to section 
6(c) of the 1940 Act granting exemptions from the provisions of 
sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 Act and rule 22c-1 
thereunder to the extent necessary to permit the recapture of certain 
bonus credits applied to purchase payments made under a certain 
deferred variable annuity contract (``Current Contract''). Applicants 
request that the relief under the order extend to any deferred variable 
annuity contracts substantially similar in all material respects to the 
Current Contract that NWL may issue in the future (the ``Future 
Contracts'') (Current Contract and Future Contracts collectively, the 
``Contracts''). Applicants also request that the relief in the order 
extend to any other separate accounts of NWL and its successors in 
interest that support the Future Contracts (``Other Accounts'') and any 
Financial Industry Regulatory Authority, Inc. (``FINRA'') member 
broker-dealers controlling, controlled by, or under common control with 
any Applicant, whether existing or created in the future, that in the 
future may act as principal underwriter for the Contracts (``Other 
Underwriters'').

Filing date: The Application was filed on February 18, 2010 and amended 
on July 1, 2010.

Hearing or notification of hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving the Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on July 26, 2010, and should be accompanied by 
proof of service on the Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o Nationwide Life 
Insurance Company, One Nationwide Plaza 01-34-201, Columbus, Ohio 
43215, Attn: Jamie Casto, Esq.

FOR FURTHER INFORMATION CONTACT: Michelle Roberts, Senior Counsel, or 
Joyce M. Pickholz, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the complete 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. NWL is a stock life insurance company organized under the laws 
of the State of Ohio.\1\ NWL offers traditional group and individual 
life insurance products as well as group and individual variable and 
fixed annuity contracts. NWL is wholly owned by Nationwide Financial 
Services, Inc.
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    \1\ Successors in interest to NWL is defined as any entity or 
entities that result from a reorganization into another 
jurisdiction, a merger, a change in control or a change in the type 
of business organization.
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    2. On October 7, 1981, the Nationwide Spectrum Variable Account was 
established under Ohio law for the purpose of funding variable annuity 
contracts. On April 1, 1987, the Board of Directors for NWL changed the 
name of the Nationwide Spectrum Variable Account to Nationwide Variable 
Account-II. The Separate Account is registered with the Commission as a 
unit investment trust (File No. 811-3330). The Separate Account is 
divided into subaccounts. Each subaccount invests exclusively in shares 
of one of several series-type open-end management investment companies. 
The assets of the Separate Account support various variable annuity 
contracts, including the Current Contract. The Current Contract was 
filed with the Commission on February 12, 2010 (File No. 333-164886). 
NWL may in the future issue Contracts through Other Accounts of NWL.
    3. NISC is a wholly owned subsidiary of NWL. It serves as the 
general distributor and principal underwriter of the Current Contract, 
as well as a number of other NWL variable annuity contracts and 
variable life insurance policies. NISC is registered as a broker-dealer 
under the Securities Exchange Act of 1934 and is a member of FINRA. 
NISC may, in the future, act as the general distributor and principal 
underwriter for Future Contracts. Additionally, Other Underwriters may 
act as general distributor and principal underwriter of Future 
Contracts.
    4. The Current Contract is an individual flexible premium deferred

[[Page 39590]]

variable annuity contract that NWL may issue to individuals on a ``non-
qualified'' basis or in connection with employee benefit plans that 
receive favorable Federal income tax treatment under the Internal 
Revenue Code of 1986, as amended (the ``Code''). The Current Contract 
requires an initial purchase payment of $10,000. If the Contract owner 
elects to make subsequent purchase payments, they must be at least 
$1,000 each ($150 each if submitted via automatic electronic transfer).
    5. The Current Contract makes available a number of subaccounts of 
the Separate Account to which a Contract Owner may allocate purchase 
payments and associated bonus credits (described below) and to which an 
owner may transfer contract value. The Current Contract also offers 
fixed-interest allocation options under which NWL credits guaranteed 
rates of interest for various periods. Subject to certain restrictions, 
a Contract Owner may make transfers of contract value at any time among 
and between the subaccounts, and among and between the subaccounts and 
the fixed-interest allocation options.
    6. The Current Contract offers a variety of annuity payment 
options. The Contract Owner may annuitize at any time following the 
second contract anniversary. In the event of a Contract Owner's (or the 
Annuitant's, if any Contract Owner is not an individual) death prior to 
annuitization, the beneficiary may elect to receive the death benefit 
in the form of one of the annuity payment options instead of a lump 
sum. The Current Contract also offers living benefits that guarantee a 
minimum income benefit or lifetime withdrawals.
    7. The Current Contract assesses a Mortality and Expense Risk 
Charge equal to an annualized rate of 1.65% of the daily net assets of 
the Separate Account for the first eight contract years. Beginning with 
the ninth contract year, the Mortality and Expense Risk Charge is equal 
to an annualized rate of 1.30% of the daily net assets of the Separate 
Account. Also, the Current Contract assesses an Administrative Charge 
equal to an annualized rate of 0.20% of the daily net assets of the 
Separate Account.
    8. The Current Contract assesses a Contingent Deferred Sales Charge 
(``CDSC'') upon certain surrenders from the contract. The CDSC schedule 
is as follows:

----------------------------------------------------------------------------------------------------------------
 Number of completed years from
    date of purchase payment        0        1        2        3        4        5        6        7        8+
----------------------------------------------------------------------------------------------------------------
CDSC Percentage................      8%       8%       8%       7%       6%       5%       4%       3%       0%
----------------------------------------------------------------------------------------------------------------

    9. The Current Contract permits a certain amount of CDSC-free 
withdrawals each year. This annual ``free-out'' amount is equal to 10% 
of purchase payments that are subject to a CDSC (such amount being net 
of any purchase payments previously withdrawn that were already subject 
to the CDSC). Additionally, no CDSC is assessed: upon the annuitant's 
death, upon annuitization of the contract, when distributions are 
necessary in order to meet minimum distribution requirements under the 
Code, and under an age-based ``free-withdrawal'' program that allows 
Contract Owners to take systematic withdrawals of certain contract 
value percentages at specified ages without incurring a CDSC. Finally 
the Current Contract includes a Long-Term Care/Nursing Home and 
Terminal Illness Waiver at no additional charge that allows a Contract 
Owner to withdraw value from their contract free of CDSC if, under 
certain circumstances, the Contract Owner is confined to a long-term 
care facility or hospital, or if the Contract Owner is diagnosed with a 
terminal illness.
    10. At the time of application, an owner may purchase one of two 
optional living benefit riders described below, subject to state 
availability. The Applicants may add other optional living benefit 
riders to the Current Contract in the future.
    (a) The 5% Lifetime Income Option (``5% L.Inc Option'') provides 
for lifetime withdrawals, up to a certain amount each year, even after 
the contract value is zero, for the duration of the Contract Owner's 
lifetime. The 5% L.Inc Option calculates the benefit base using a 5% 
simple interest calculation. In exchange for the 5% L.Inc Option, NWL 
assesses an annual charge not to exceed 1.00% (currently, 0.85%) of the 
current benefit base.
    (b) NWL also offers a 5% Spousal Continuation Benefit whereby the 
spouse of a deceased Contract Owner can continue to receive the 
benefits associated with the 5% L.Inc Option for the rest of his or her 
lifetime. In exchange for the 5% Spousal Continuation Option Benefit, 
NWL assesses an annual charge equal to 0.15% of the current benefit 
base. The charges for the 5% L.Inc Option and the 5% Spousal 
Continuation Benefit are taken via redemption of accumulation units. 
The 5% L.Inc Option and the 5% Spousal Continuation Benefit are only 
available for Current Contracts issued in the State of New York.
    (c) The 10% L.Inc Option is substantially the same as the 5% L.Inc 
Option except that it calculates the benefit base using a 10% simple 
interest calculation. In exchange for the 10% L.Inc Option, NWL 
assesses an annual charge not to exceed 1.20% (currently, 1.00%) of the 
current benefit base.
    (d) NWL also offers a 10% Spousal Continuation Benefit whereby the 
spouse of a deceased Contract Owner can continue to receive the 
benefits associated with the 10% L.Inc Option for the rest of his or 
her lifetime. In exchange for the 10% Spousal Continuation Benefit, NWL 
assesses an annual charge not to exceed 0.30% (currently, 0.20%) of the 
current benefit base. The charges for the 10% L.Inc Option and the 10% 
Spousal Continuation Benefit are taken via redemption of accumulation 
units. The 10% Spousal Continuation Benefit is not available for 
Current Contracts issued in the State of New York.
    11. The Current Contract provides for a death benefit to be paid to 
the designated beneficiary(ies) upon the death of the annuitant prior 
to annuitization. The death benefit will be the greater of the contract 
value or the total of all purchase payments, less an adjustment for 
amounts surrendered. There is no charge for this death benefit. In lieu 
of the standard death benefit, the Contract Owner can elect one of 
three available death benefit options, each of which assesses an 
additional charge.
    (a) One-Year Enhanced Death Benefit Option--For Current Contracts 
with total purchase payments equal to or less than $3 million at the 
time of death, the amount of the death benefit will be the greatest of: 
(1) The contract value; (2) the total of all purchase payments, less an 
adjustment for amounts surrendered; or (3) the highest contract value 
on any contract anniversary before the annuitant's 86th birthday, less 
an adjustment for amounts subsequently surrendered, plus purchase 
payments received after that contract anniversary. For Current 
Contracts with total purchase payments greater than $3 million at the 
time of death, the amount of the death benefit will be calculated using 
the following formula: (A x F) + B(1-F) where A equals the death

[[Page 39591]]

benefit described above, B equals the contract value, and F equals the 
ratio of $3,000,000 to the total of all purchase payments made to the 
contract. In no event will the beneficiary receive less than the 
contract value. This rider option is only available for Current 
Contracts where the annuitant is age 80 or younger at the time of 
application. An annualized charge equal to 0.20% of the daily net 
assets of the Separate Account is assessed for the election of this 
rider option.
    (b) One-Month Enhanced Death Benefit Option--For Current Contracts 
with total purchase payments equal to or less than $3 million at the 
time of death, the amount of the death benefit will be the greatest of: 
(1) The contract value; (2) the total of all purchase payments, less an 
adjustment for amounts surrendered; or (3) the highest contract value 
on any monthly contract anniversary before the annuitant's 81st 
birthday, less an adjustment for amounts subsequently surrendered, plus 
purchase payments received after that contract anniversary. For Current 
Contracts with total purchase payments greater than $3 million at the 
time of death, the amount of the death benefit will be calculated using 
the following formula: (A x F) + B(1-F) where A equals the death 
benefit described above, B equals the contract value, and F equals the 
ratio of $3,000,000 to the total of all purchase payments made to the 
contract. In no event will the beneficiary receive less than the 
contract value. This rider option is only available for Current 
Contracts where the annuitant is age 75 or younger at the time of 
application. An annualized charge equal to 0.35% of the daily net 
assets of the Separate Account is assessed for the election of this 
rider option.
    (c) Combined Enhanced Death Benefit Option--For Current Contracts 
with total purchase payments equal to or less than $3 million at the 
time of death, the amount of the death benefit will be the greatest of: 
(1) The contract value; (2) the total of all purchase payments, less an 
adjustment for amounts surrendered; (3) the highest contract value on 
any contract anniversary before the annuitant's 81st birthday, less an 
adjustment for amounts subsequently surrendered, plus purchase payments 
received after that contract anniversary; or (4) the 5% interest 
anniversary value, which is equal to purchase payments minus amounts 
surrendered, accumulated at 5% compound interest until the last 
contract anniversary prior to the annuitant's 81st birthday. Such total 
accumulated amount shall not exceed 200% of the net of purchase 
payments and amounts surrendered. For Current Contracts with total 
purchase payments greater than $3 million at the time of death, the 
amount of the death benefit will be calculated using the following 
formula: (A x F) + B(1-F) where A equals the death benefit described 
above, B equals the contract value, and F equals the ratio of 
$3,000,000 to the total of all purchase payments made to the contract. 
In no event will the beneficiary receive less than the contract value. 
This rider option is only available for Current Contracts where the 
annuitant is age 75 or younger at the time of application. An 
annualized charge equal to 0.45% of the daily net assets of the 
Separate Account is assessed for the election of this rider option.
    (d) Spousal Protection Feature--The standard death benefit and each 
of the death benefit riders include a Spousal Protection Feature at no 
additional charge. This feature allows a surviving spouse to continue 
the contract while receiving the economic benefit of the death benefit 
upon the death of the other spouse.
    12. The Beneficiary Protector Option II--The Current Contract 
offers the Beneficiary Protector Option II as an optional rider. This 
option provides that upon the death of the annuitant, and in addition 
to any death benefit payable, NWL will credit an additional amount to 
the contract equal to either 40% (if the annuitant is age 70 or younger 
at the time of application) or 25% (if the annuitant is age 71 to 75 at 
the time of application) of adjusted earnings. If no co-annuitant is 
named, the optional benefit and its associated charge will terminate 
after the application of the earnings enhancement. If a co-annuitant is 
named and such surviving co-annuitant is 75 or younger at the time of 
the first annuitant's death, the option will ``reset'' upon the death 
of the first co-annuitant and a second earnings enhancement will be 
applied upon the death of the second annuitant. If the surviving co-
annuitant is older than 75 at the time of the first annuitant's death, 
the optional benefit and its associated charge will terminate. This 
rider option is not available for Current Contracts where the annuitant 
is older than age 75 at the time of application. Earnings enhancements 
applied under this option are considered earnings, not purchase 
payments. An annualized charge of 0.35% of the daily net assets of the 
Separate Account is assessed for election of this rider option. 
Additionally, allocations made to the fixed account are assessed a 
charge of 0.35% by means of a decreased interest crediting rate.
    13. For the first contract year, NWL will apply a credit (the 
``Credit'') to each Current Contract equal to 5% of each purchase 
payment made to that contract. The Credit, which is funded by NWL's 
general account, will be allocated among the subaccounts and the fixed 
account in the same proportion and at the same time that the purchase 
payment is allocated to the Current Contract. For purposes of all 
benefits and taxes under the Current Contract, Credits are considered 
earnings, not purchase payments.
    14. NWL would recapture Credits in several circumstances. First, 
NWL would recapture Credits in the event that the Contract Owner 
exercises his or her ``free look'' right. Second, NWL would recapture 
Credits applied after or within 12 months prior to the Contract Owner's 
death (unless the deceased Contract Owner's spouse chooses to continue 
the Current Contract) (the ``Death Caveat''). Third, NWL would 
recapture Credits upon a surrender or withdrawal of purchase payments 
where the CDSC is waived under the terms of the Long-Term Care/Nursing 
Home and Terminal Illness Waiver, as defined in the Current Contract, 
in which event NWL would recapture all Credits applied during the 12 
months prior to receipt of long-term care, confinement to a nursing 
home, or date of diagnosis of a terminal illness, as applicable (the 
``Long-term Care Caveat'').
    15. Credits vest after the end of the free look period, with two 
exceptions. After the end of the free look period, NWL would recapture 
subject to the Death and Long-term Care Caveats. All Credits are fully 
vested 12 months after the date NWL applies them to the Contract 
Owner's contract value.
    16. The Applicants represent that NWL provides the Credit from its 
general account on a guaranteed basis. The Current Contract is designed 
to be a long-term investment vehicle and, consistent with this design, 
NWL contemplates that a Contract Owner would retain his or her Current 
Contract over an extended period. NWL designed the Current Contract so 
that it would recover its costs (including the Credits) over an 
anticipated duration while a Current Contract is in force. The 
Applicants contend that if NWL pays a death benefit or the Contract 
Owner takes a withdrawal or surrender before the end of this 
anticipated period, or if a Contract Owner withdraws his or her money 
during the free look period, NWL would not have had sufficient time to 
recover the costs associated with providing the Credits, and will incur 
a loss.

[[Page 39592]]

    17. The Applicants previously received orders for exemptive relief 
to permit, with respect to an earlier class of contracts (the ``Prior 
Contracts''), the recapture of certain bonus credits. Those orders 
encompassed relief for future contracts substantially similar to the 
Prior Contracts. Applicants assert that the Current Contract differs 
from the Prior Contracts in the following respects: (1) The bonus 
credits are part of the base contract, as opposed to being optional 
riders; (2) the CDSC in the Current Contract is slightly higher; (3) 
the Current Contract offers two optional guaranteed lifetime withdrawal 
riders, which were not contemplated in the Prior Contracts; and (4) the 
circumstances under which NWL will recapture the bonus credits is 
different than contemplated in previous applications. Because the 
Applicants believe the Commission may view these differences as 
material, the Applicants are seeking an additional order as set forth 
in the amended application.

Legal Analysis

    1. Subsection (i) of section 27 of the act provides that section 27 
does not apply to any registered separate account supporting variable 
annuity contracts, or to the sponsoring insurance company and principal 
underwriter of such account, except as provided in paragraph (2) of the 
subsection. Paragraph (2) provides that it shall be unlawful for a 
registered separate account funding variable insurance contracts or a 
sponsoring insurance company of such account to sell a contract funded 
by the registered separate account unless, among other things, such 
contract is a redeemable security.
    2. Section 2(a)(32) of the act defines a ``redeemable security'' as 
any security, other than short-term paper, under the terms of which the 
holder, upon presentation to the issuer, is entitled to receive 
approximately his or her proportionate share of the issuer's current 
net assets, or the cash equivalent thereof.
    3. Section 22(c) of the act authorizes the Commission to make rules 
and regulations applicable to registered investment companies and to 
principal underwriters of, and dealers in, the redeemable securities of 
any registered investment company to accomplish the same purposes as 
contemplated by section 22(a) of the act. Rule 22c-1 thereunder imposes 
requirements with respect to both the amount payable on redemption of a 
redeemable security and the time as of which such amount is calculated. 
Specifically, rule 22c-1, in pertinent part, prohibits a registered 
investment company issuing any redeemable security, a person designated 
in such issuer's prospectus as authorized to consummate transactions in 
any such security, and a principal underwriter of, or dealer in, such 
security from selling, redeeming, or repurchasing any such security, 
except at a price based on the current net asset value of such security 
which is next computed after receipt of a tender of such security for 
redemption, or of an order to purchase or sell such security.
    4. Section 6(c) of the act authorizes the Commission to exempt any 
person, security, or transaction, or any class or classes of persons, 
securities, or transactions from the provisions of the act and the 
rules promulgated thereunder if and to the extent that such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the act.
    5. To the extent that the recapture of the Credits could be seen as 
resulting in the redemption of a security at a price other than at the 
security's current net asset value, or could be viewed as resulting in 
the payment to a Contract Owner of less than his or her proportional 
share of the issuer's net assets in violation of section 2(a)(32) or 
27(i)(2)(A) of the act, NWL's recapture of Credits would trigger the 
need for relief absent some exemption from the act. Consequently, the 
Applicants request an exemption from the provisions of sections 
2(a)(32), 22(c), and 27(i)(2)(A) of the act and Rule 22c-1 thereunder 
to the extent deemed necessary to permit them to recapture Credits 
under the Contracts issued in conjunction with the Separate Account and 
any Other Accounts.
    6. The Applicants contend that the recapture of the Credit would 
not result in a violation of section 22(c) and rule 22c-1, which 
prohibit, among other things, the redemption of a security at a price 
other than the security's current net asset value. The Applicants 
contend that the recapture procedures described herein do not involve 
either of the evils or harmful events that rule 22c-1 was intended to 
eliminate or reduce, namely: (1) The dilution of the value of 
outstanding redeemable securities of registered investment companies 
through their sale at a price below net asset value or their redemption 
or repurchase at a price above it; and (2) other unfair results, 
including speculative trading practices. Applicants submit that these 
evils were the result of backward pricing, the practice of pricing a 
mutual fund share based on the per share net asset value determined as 
of the close of the market on the previous day. Backward pricing 
diluted the value of outstanding mutual fund shares by allowing 
investors to take advantage of increases or decreases in net asset 
value that were not yet reflected in the mutual fund share price.
    7. The Applicants submit that recapturing the Credits will not 
deprive a Contract Owner of his or her proportionate share of the 
Separate Account's current net assets. After the end of the free look 
period, the Credits are fully vested with two exceptions. NWL will 
recapture: (1) All Credits applied within 12 months prior to the 
Contract Owner's death, and also any Credits applied after the Contract 
Owner's death (unless the deceased Contract Owner's spouse chooses to 
continue the Current Contract); and (2) all Credits applied within 12 
months prior to receipt of long-term care, confinement to a nursing 
home, or date of diagnosis of a terminal illness, as applicable. The 
purpose of these exceptions is to allow enough time to pass after 
application of a Credit for NWL to recoup a sufficient portion of the 
expense it incurred in providing the Credit. The Applicants submit that 
until the Credits are fully vested, NWL retains the right to and 
interest in each Contract Owner's contract value in an amount equal to 
the dollar amount of any unvested Credits. Therefore, if NWL recaptures 
any Credits in the circumstances described herein, it would merely be 
retrieving its own assets. To the extent that NWL recaptures any 
Credits in connection with the Current Contract, it would not deprive 
any Contract Owner of his or her proportionate share of the Separate 
Account's assets, and thus would not violate the act.
    8. The Applicants also submit that the second harm that rule 22c-1 
was designed to address, namely, speculative trading practices 
calculated to take advantage of backward pricing, will not occur as a 
result of the recapture of the Credit. Variable annuities are designed 
for long-term investment, and by their nature do not lend themselves to 
the kind of speculative short-term trading that rule 22c-1 was designed 
to prevent. Furthermore, the Applicants contend that the process of 
recapturing Credits does not create the opportunity for speculative 
trading.
    9. Even if the Credit provisions arguably conflict with sections 
2(a)(32) or 27(i)(2)(A) of the act or rule 22c-1 thereunder, the 
Applicants submit that the Commission should grant the exemptions 
requested in the application

[[Page 39593]]

on equitable grounds. The Applicants contend that the Credit provisions 
are generally beneficial to the Contract Owner. The recapture 
provisions of the Current Contracts temper this benefit somewhat, but 
unless the Contract Owner dies, the Contract Owner retains the ability 
to avoid the Credit recapture in the circumstances described in the 
application. The Applicants state that the Credit recapture provisions 
are necessary for NWL to offer the Credits and avoid anti-selection 
against it. No CDSC would be imposed in any of the circumstances under 
which a Credit would be recaptured.
    10. The Applicants submit that it would be inequitable to NWL to 
permit a Contract Owner to keep his or her Credits upon his or her 
exercise of the Current Contract's free look provision. Because no CDSC 
applies to the exercise of the free look right, the Contract Owner 
could obtain a quick profit in the amount of the Credit at NWL's 
expense by exercising that right immediately after the Credits were 
applied to the Current Contract.
    11. Likewise, the Applicants submit that it would be inequitable to 
permit a Contract Owner or beneficiary to keep Credits in those 
situations where the annuitant dies within 12 months of applying a 
Credit, where Credits are applied after the Contract Owner's death, or 
where the Contract Owner takes a surrender or withdrawal from the 
Current Contract without a CDSC under the terms of the Long-Term Care/
Nursing Home and Terminal Illness Waiver within 12 months of applying a 
Credit. In these situations, NWL would be unable to recover the cost of 
granting the Credits because they would be redeemed out of the Current 
Contract before enough time passed for NWL to recoup a sufficient 
portion of the associated costs through the assessment of charges, 
particularly the daily Mortality and Expense Risk Charge and the daily 
Administrative Charge. The Applicants state that NWL cannot offer the 
proposed Credits without the ability to recapture those Credits in the 
circumstances described herein.
    12. The Applicants state, based on the grounds presented below, 
that their exemptive request meets the standards set out in section 
6(c) of the act, namely, that the exemptions requested are necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the act and that, therefore, the Commission should grant 
the requested order.
    13. The Applicants submit that their request for an Order that is 
applicable to the Contracts and Other Accounts, as well as Other 
Underwriters, is appropriate in the public interest. The Applicants 
also contend that such Order would promote competitiveness in the 
variable annuity market by eliminating the need to file redundant 
exemptive applications, thereby reducing administrative expenses and 
maximizing the efficient use of the Applicants' resources. The 
Applicants further assert that investors would not receive any benefit 
or additional protection by requiring the Applicants to repeatedly seek 
exemptive relief that would present no issue under the act that has not 
already been addressed in the Amended Application described herein. The 
Applicants submit that filing additional applications would impair 
their ability to effectively take advantage of business opportunities 
as they arise. Furthermore, the Applicants state that if they were 
repeatedly required to seek exemptive relief with respect to the same 
issues addressed in the Amended Application described herein, investors 
would not receive any benefit or additional protection thereby.

Conclusion

    Applicants submit that based on the analysis presented above, the 
provisions for recapture of the Credit under the Contracts does not 
violate sections 2(a)(32) and 27(i)(2)(A) of the act and rule 22c-1 
thereunder. Applicants further submit that there are equitable grounds 
for granting the requested relief and the exemptions requested meet the 
standards of section 6(c) of the act and respectfully request that the 
Commission issue an order of approval pursuant to section 6(c) of the 
act to exempt the Applicants with respect to: (1) The Contracts; (2) 
the Separate Account and Other Accounts that support the Contracts; and 
(3) NISC and Other Underwriters, from the provisions of sections 
2(a)(32) and 27(i)(2)(A) of the act and rule 22c-1 thereunder, to the 
extent necessary to permit the recapture of all or a portion of the 
Credits in the circumstances described above.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-16754 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P