[Federal Register Volume 65, Number 1 (Monday, January 3, 2000)]
[Notices]
[Pages 149-153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-34015]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24221; File No. 812-11824]


Nationwide Life Insurance Company, et al.

December 23, 1999.
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 (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 permit the 
recapture of credits applied to purchase payments made under certain 
variable annuity contracts.

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SUMMARY OF APPLICATION: Applicants seek an order under Section 6(c) of 
the 1940 Act to the extent necessary to permit, under specified 
circumstances, the recapture of credits applied to contributions made 
under the contracts (the ``Contracts'') that Nationwide will issue 
through the Separate Accounts, as well as other contracts that 
Nationwide may issue in the future through Future Separate Accounts 
that are substantially similar in all material respects to the 
Contracts (the ``Future Contracts''). Applicants also request that the 
order being sought extend to any other National Association of 
Securities Dealers, Inc. (``NASD'') member broker-dealer controlling or 
controlled by, or under common control with, Nationwide that may in the 
future serve as general distributor-principal underwriter of variable 
annuity contracts substantially similar in all material respects to 
those offered by the Separate Accounts.

APPLICANTS: Nationwide Life Insurance Company (``NLIC''), Nationwide 
Life and Annuity Insurance Company (``NLAIC'') (NLIC and NLAIC shall be 
collectively referred to as ``Nationwide''), Nationwide Variable 
Account--9 and Nationwide Fidelity Advisor Variable Account 
(collectively, the ``Separate Accounts'') and any current or future 
separate accounts of Nationwide (``Future Separate Accounts'') that may 
in the future offer variable annuity contracts substantially similar in 
all material respects to the contracts and supported by the Separate 
Accounts, Nationwide Advisory Services, Inc. (``NAS''), Fidelity 
Investment Institutional Services Company, Inc. (``FIISC''), and any 
other NASD member broker-dealer controlling or controlled by, or under 
common control with, Nationwide that may in the future serve as general 
distributor-principal underwriter of variable annuity contracts 
substantially similar in all material respects to those offered by the 
Separate Accounts (collectively ``Applicants'').

FILING DATE: The Application was filed on October 6, 1999, and amended 
and restated on December 23, 1999.

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 Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on January 17, 1999, and should be accompanied 
by proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issue contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants, c/o Nationwide Life 
Insurance Company, One Nationwide Plaza 01-09-V3, Columbus, Ohio 43215, 
Attn: Heather Harker, Esq.

FOR FURTHER INFORMATION CONTACT: Jane G. Heinrichs, Senior Counsel, at 
(202) 942-0699, or Susan M. Olson, Branch Chief, at (202) 942-0672, 
Office of Insurance Products, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. NLIC and NLAIC are stock life insurance companies organized 
under Ohio law. NLIC is licensed to do business in all fifty states, 
the District of Columbia and Puerto Rico. NLAIC is licensed to do 
business in 47 states. NLIC is a wholly owned subsidiary of Nationwide 
Financial Services, Inc., a holding company. NLAIC is a wholly owned 
subsidiary of NLIC.
    2. Nationwide Variable Account-9 was established on May 21, 1997 
and Nationwide Fidelity Advisor Variable Account was established on 
July 22, 1994. The Separate Accounts are segregated asset accounts of 
NLIC established under Ohio law for the purpose of funding variable 
annuity contracts. Any income, gains or losses, realized or unrealized, 
from assets allocated to the Separate Accounts, are in accordance with 
the respective Separate Accounts' contracts, credited to or charged 
against the Separate Accounts without regard to other income, gains or 
losses of Nationwide. The Separate Accounts are registered with the 
Commission as unit investment trusts under the 1940 Act.\1\ The 
Separate Accounts fund variable annuity contracts which are registered 
with the Commission under the Securities Act of 1933 on Forms N-4.\2\
---------------------------------------------------------------------------

    \1\ File No. 811-8666.
    \2\ File No. 333-28995 for Nationwide Variable Account-9 and 
File No. 33-89560 for Nationwide Fidelity Advisor Variable Account.
---------------------------------------------------------------------------

    3. NAS and FIISC serve as general distributor-principal underwriter 
for Nationwide Variable Account-9 and Nationwide Fidelity Advisor 
Variable Account, respectively. Both entities are registered broker/
dealers under the Securities Exchange Act of 1934.
    4. The Contracts are sold to individuals as: (i) Non-qualified 
contracts which are governed for tax purposes by Section 72 of the 
Internal Revenue Code (the ``Code''); (ii) individual retirement 
annuities (IRAs), Roth IRAs, SEP IRAs or Simple IRAs which are governed 
by Section 408 of the Code; (iii) Tax Sheltered Annuities which are 
governed by Section 403(b) of the Code; or (iv) Investment-Only 
Contracts, sold to qualified plans governed by Section 401(a) of the 
Code.
    5. The Contracts issued in conjunction with the Separate Accounts 
are identical in every material respect, except in the array of 
underlying mutual funds which comprise the variable investment options 
under the Contracts. Nationwide Variable Account-9 is currently divided 
into 41 sub-accounts; Nationwide Fidelity Advisor Variable Account is 
divided into 14 sub-accounts. The Contracts are combination fixed and 
variable contracts; investment allocations that

[[Page 150]]

are not directed to the sub-accounts may by directed to a fixed account 
supported by the Nationwide general account. In addition, investment 
allocations may be directed to one or more Guaranteed Term Options 
which are supported by a non-unitized separate account, effectively 
functioning as a segmented portion of the Nationwide general account.
    6. The Contracts are flexible purchase payment contracts, meaning 
that additional purchase payments after the first may be made by 
Contract owners. Generally, the Contracts may be purchased with an 
initial purchase payment of $15,000; subsequent purchase payments of at 
least $1,000 may also be made. The Contracts assess a mortality and 
expense risk charge of 0.95%. In addition, the Contracts assess a 
contingent deferred sales charge (``CDSC'') of 7% of invested purchase 
payments in the first two years after the purchase payment is made. 
Thereafter, the CDSC declines by 1% each year until the eighth Contract 
year when the CDSC is eliminated. During each Contract year beginning 
with the first, the Contracts allow the Contract owner to withdraw 10% 
of all purchase payments without a CDSC. In addition, the CDSC is 
waived under a variety of other circumstances: upon the death of the 
annuitant; upon annuitization of the Contract (more than two years 
after the issue date of the Contract); whenever distributions from the 
Contract are necessary in order to meet minimum distribution 
requirements under the Internal Revenue Code; and, under an age-based 
``free-withdrawal'' program, allowing Contract owners to make 
systematic withdrawals of certain Contract value percentages at 
specified ages without a CDSC.
    7. A death benefit will be paid to a named beneficiary should the 
annuitant die before the annuity payment period has commenced. After 
two years from the date the Contract was issued, a Contract owner may 
elect to begin receiving annuity payments. The Contracts also provide 
features such as asset Rebalancing, dollar cost averaging and 
systematic withdrawals.
    8. The basic Contract features may be modified or augmented by a 
number of ``rider options.'' The rider options permit Contract owners 
to elect certain Contract features or benefits that fit their 
particular needs. Generally, the election of a particular rider option 
will result in higher explicit expenses for Nationwide or an increased 
risk that charges associated with the Contract will be inadequate in 
relation to expenses. Thus, most of the rider options, once elected, 
result in an increase in the basic mortality and expense risk charge 
(0.95%). Rider options must be chosen at the time of application. Such 
rider options include: (1) A reduced purchase payment option; (2) a 
five-year CDSC option; (3) an additional withdrawal without charge and 
disability waiver option; (4) a 10 year and disability waiver; (5) a 
hardship waiver; (6) a one-year step up death benefit; (7) a 5% 
enhanced death benefit; and (8) a guaranteed minimum income benefit.
    9. Nationwide intends to offer an additional rider option under the 
Contracts which, if elected at the time of application, will result in 
the crediting of a 3% bonus (the ``Credit'') on all purchase payments 
made during the first twelve months of the Contract. The Credit on the 
Contract owner's remitted purchase payments will be funded from the 
Nationwide general account and will be credited proportionately among 
the investment options chosen by the Contract owner. No extra amount 
will be credited to purchase payments made after the first twelve 
months of the Contract. For this rider option, an annualized fee of 
0.45% of the daily net assets of the variable account will be deducted 
for the first seven Contract years. The option of either electing the 
extra Credit or not, allows prospective purchasers to choose between 
two different Separate Account charge structures over the first seven 
years of the Contract years. The option of either electing the extra 
Credit or not, allows prospective purchasers to choose between two 
different Separate Account charge structures over the first seven years 
of the Contract. If the Credit is elected, total Separate Account 
charges under the Contract will be an annualized rate of 1.40% of the 
daily net assets of the Separate Account for the first seven years of 
the Contract, assuming no other rider options are elected. If the 
Credit is not elected, total Separate Account charges will be an 
annualized rate of 0.95% of the daily net assets of the Separate 
Account for the first seven years of the Contract, once again assuming 
that no other rider options are elected. Under such circumstances, the 
decision to elect or decline the extra Credit option will depend 
primarily on whether the prospective purchaser believes it is more 
advantageous to have (a) a 1.40% Separate Account charge for first 
seven years of the Contract, plus the Credit, or (b) a 0.95% Separate 
Account charge for the first seven years of the Contract, without the 
Credit. Applicants state that it can be mathematically demonstrated 
that electing the Credit will yield a greater accumulated Contract 
value at the end of seven years when the underlying investment options 
produce a gross annualized return of greater than 7.75%. In other 
words, a gross annualized return of 7.755 on assets, assuming a 0.95% 
Separate Account charge deduction and no Credit, will produce the same 
accumulated Contract value at the end of seven years as a 7.75% gross 
annualized return, with a 1.40% Separate Account charge deduction plus 
the Credit. These figures assume no additional purchase payments are 
made after the first twelve months.
    The following tables demonstrate hypothetical rates of return for 
Contracts with the extra credit option (1.40% total asset charges) and 
Contracts without the extra Credit option (0.95% total asset charges). 
the figures are based upon: (a) A $100,000 initial purchase payment 
with no additional purchase payments; (b) the deduction of Separate 
Account charges of an annualized rate of 0.95% (base Contract) and 
1.40% (Contract with the Credit option) of the daily net asset value; 
and (c) an assumed annual rate of return before charges of 5.0%, 7.75% 
and 10.0% for all years for a period of 10 years.

                          5.00% Rate of Return
------------------------------------------------------------------------
                                                               Contract
                                                     Base     with extra
                                                   contract     credit
                                                    (0.95%       rider
                  Contract year                      total      (1.40%
                                                     asset       total
                                                   charges)      asset
                                                               charges)
------------------------------------------------------------------------
1...............................................    $104,050    $106,708
2...............................................     108,264     110,549
3...............................................     112,649     114,529
4...............................................     117,211     118,652
5...............................................     121,958     122,924
6...............................................     126,897     127,349
7...............................................     132,037     131,934
8...............................................     137,384     137,277
9...............................................     142,948     142,837
10..............................................     148,738     148,622
------------------------------------------------------------------------


                          7.75% Rate of Return
------------------------------------------------------------------------
                                                               Contract
                                                     Base     with extra
                                                   contract     credit
                                                    (0.95%       rider
                  Contract year                      total      (1.40%
                                                     asset       total
                                                   charges)      asset
                                                               charges)
------------------------------------------------------------------------
1...............................................    $106,080    $109,541
2...............................................     114,062     116,496
3...............................................     121,819     123,894
4...............................................     130,102     131,761
5...............................................     138,949     140,128
6...............................................     148,398     149,026
7...............................................     158,489     158,489
8...............................................     169,266     169,266
9...............................................     180,776     180,777
10..............................................     193,069     193,069
------------------------------------------------------------------------


[[Page 151]]


                          10.00% Rate of Return
------------------------------------------------------------------------
                                                               Contract
                                                     Base     with extra
                                                   contract     credit
                                                    (0.95%       rider
                  Contract year                      total      (1.40%
                                                     asset       total
                                                   charges)      asset
                                                               charges)
------------------------------------------------------------------------
1...............................................    $109,050    $111,858
2...............................................     118,919     121,478
3...............................................     129,681     131,925
4...............................................     141,417     143,270
5...............................................     154,216     155,592
6...............................................     168,172     168,973
7...............................................     183,392     183,504
8...............................................     199,989     200,111
9...............................................     218,088     218,221
10..............................................     237,825     237,970
------------------------------------------------------------------------

    Applicants state that, to the extent permitted, tables similar to 
the table above may be shown in the prospectus and supplemental sales 
literature solely for the purpose of illustrating the breakpoint and 
the operation of the Contract.
    After the end of the first seven Contract years, the 0.45% charge 
for the rider option will no longer be assessed and the Credit will be 
fully vested. Nationwide intends to administer the removal of the 0.45% 
rider option charge by decreasing the number of units and increasing 
the unit value of the sub-accounts in which the Contract owner was 
invested at the end of the seventh contract year. The process will be 
accomplished through the replacement of that class of units 
corresponding to the aggregate Separate Account charges which include 
the 0.4% rider option charge, with another class of units associated 
with aggregate Separate Account charges minus the 0.45% rider option 
charge. The later class of units will have a greater individual unit 
value than the former, therefore, a reduction in the number of units is 
necessary to ensure that Contract values will remain unaffected by this 
process. Although this is not the only method of accomplishing the 
elimination of the 0.45% rider option charge, Nationwide intends to use 
the method to minimize the different unit values that must be tracked 
and administered. Other than the change in unit values and number of 
units, the removal of the 0.45% charge of the Credit will be entirely 
transparent to the Contract owner, except that the Credit will at that 
time be fully vested, and on-going charges against the assets of the 
variable account will be reduced by an annualized rate of 0.45% of the 
daily net assets of the variable account.
    During the first seven years of the Contract, the Credit will be 
fully vested except during the contractual free look period and when 
certain surrenders of Contract value are made. If the free look 
privilege is exercised, Nationwide will recapture the Credit. Earnings 
on the Credit, however, will be retained by the Contract owner.
    After the free look period and before the end of the seventh 
Contract year, certain withdrawals from Contract value will subject the 
Credit to recapture. During the first seven Contract years only, if an 
amount withdrawn is subject to a CDSC, then a portion of the Credit may 
be recaptured. No recapture will take place after the seventh Contract 
year. The Credit will not be subject to recapture if a free withdrawal 
(not subject to the CDSC) is being made. For purposes of calculating 
the CDSC surrenders are considered to first come from the oldest 
purchase payment made to the Contract, then the next oldest purchase 
payment and so forth. Earnings to the Contract are not subject to CDSC. 
Thus, if the Contract owner withdraws 13% of purchase payments made 
within the first Contract year, 3% of the Credit will be recaptured by 
Nationwide, since the Contract owner may withdraw 10% of purchase 
payments without a CDSC. This means that the percentage of the Credit 
to be recaptured will be determined by the percentage of total purchase 
payments reflected in the amount surrendered that is subject to CDSC. 
The recaptured amount will be taken proportionately from each 
investment option as allocated at the time of the withdrawal. No 
recapture of the Credit will take place if the Contract is annunitized 
(annuitization is not permitted during the first two Contract years), 
if a death benefit becomes payable, if distributions are required in 
order to meet minimum distributions requirements under the Code, if 
free withdrawals are being taken pursuant to an aged-based systematic 
withdrawal program, or in connections with any other type of withdrawal 
not otherwise subject to a CDSC. As indicated previously, after the end 
of the seventh Contract year, the Credit will be fully vested without 
limitation and the 0.45% charge associated with the Credit will be 
eliminated.
    Applicants seek exemption pursuant to Section 6(c) from 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 Nationwide to issue 
contracts from the Separate Accounts and any Future Separate Accounts 
that provide for (i) the recapture of the Credit when the Contract 
owner returns the Contract during the free-look period; and (ii) the 
recapture of a portion of the Credit (as described above) when the 
Contract owner withdraws any amounts subject to CDSC during the first 
seven years from the date the Contract is issued.

Applicants' Legal Analysis

    1. Section 6(c) of the 1940 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. Applicants request 
that the Commission, pursuant to Section 6(c) of the 1940 Act, grant 
the exemptions outlined above with respect to the Contracts and any 
Future Contracts underwritten or distributed by NAS, FIISC, or any 
other NASD member broker-dealer controlling or controlled by, or under 
common control with, Nationwide. Applicants represent that any such 
Future Contracts funded by the Separate Accounts or Future Separate 
Accounts will be substantially similar in all material respects to the 
Contracts described herein. Applicants believe that the requested 
exemptions are appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the 1940 Act.
    2. Applicants represent that the 0.45% charge associated with the 
rider option providing the Credit is consistent with the requirements 
of Section 26(e)(A)(2) of the 1940 Act. Section 26(e)(A)(2) provides 
that it is unlawful for registered separate accounts or sponsoring 
insurance companies to sell any variable insurance contract ``unless 
the fees and charges deducted under the contract, in the aggregate, are 
reasonable in relation to the services rendered, the expenses expected 
to be incurred, and the risks assumed by the insurance company.'' 
Because the Credit associated with the rider option will be funded from 
the Nationwide general account, the Credit creates an expense for 
Nationwide. In addition, the risk of not recovering that expense is 
substantial in light of the fact that under several different 
contingencies, the Credit will be fully or partially vested long before 
the charge for the Credit is discontinued at the end of the seventh 
Contract year. Accordingly, Applicants represent that the 0.45% charge 
associated with the rider, in addition to the basic mortality and 
expense risk charge of 0.95%, is reasonable and therefore consistent 
with the

[[Page 152]]

requirements of section 26(e)(2)(A) of the 1940 Act. A similar 
representation will be made in the registration statements for the 
Contracts, as required under section 26(e)(2)(A). Applicants also 
submit that the risk of not recovering the expense associated with the 
rider option is substantially diminished if the Contract value, 
including the Credit, is not surrendered or otherwise distributed prior 
to the end of the seventh Contract year. Thus, the elimination of the 
0.45% rider option charge is entirely warranted and will benefit 
Contract owners.
    3. Applicants represent that it is not administratively feasible to 
track the Credit amount in the Separate Accounts after the Credit is 
applied. Accordingly, the asset-based charges applicable (when the 
rider option providing the Credit is elected) to the Separate Account 
will be assessed against the entire amounts held in the Separate 
Accounts, even during those periods when the Credit is not completely 
vested. Accordingly, the aggregate asset based charges assessed against 
a Contract owner's Separate Account value will be higher than those 
that would have been charged if the Contract owner's Separate Account 
value did not include the Credit and the Contract provided for no rider 
option charge of 0.45%.
    4. Subsection (i) of Section 27 provides that Section 27 does not 
apply to any registered separate account funding variable insurance 
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 any 
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. Section 2(a)(32) defines 
``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.
    5. Applicants submit that recapturing the Credit will not deprive 
an owner of his or her proportionate share of the Separate Accounts' 
current net assets. Applicants state that an owner's interest in the 
amount of the Credit allocated to his or her annuity account value is 
subject to the vesting provisions of the Contracts. Until or unless the 
Credit is vested, Nationwide retains a right and interest in the 
Credit, although not in any earnings attributable to the Credit. 
Contractual provisions allowing Nationwide to recapture the Credit (a) 
upon the exercise of free look privileges, and (b) during the first 
seven contract years for any amount distributed subject to CDSC, merely 
allow Nationwide to recover its own assets. Applicants assert that 
since amounts subject to recapture are not vested, the Contract owner 
is not deprived of his or her proportionate share of Separate Account 
assets.
    6. In addition, with respect to Credit recapture upon the exercise 
of the free-look privilege, Applicants state that it would be unfair to 
allow a Contract owner to retain the amount credited. Applicants state 
that if Nationwide could not recapture the Credit upon return of the 
Contract, individuals could purchase a Contract with the intention of 
retaining the credited amount for an unjustified profit at the expense 
of Nationwide.
    7. Applicants assert that the Credit will be attractive to and in 
the interest of investors because it will permit owners to have 103% of 
contributions made during the first twelve months invested in selected 
investment options from the date the contribution is received. Also, 
any earnings attributable to the Credit will be retained by the 
Contract owner in addition to the principal amount of the Credit, 
provided the contingencies described herein are satisfied. Further, 
Applicants believe that the optional Credit rider will be particularly 
attractive to and in the interest of long-term investors due to the 
elimination of the charge associated with the Credit rider after the 
seventh Contract year. Applicants assert that the elimination of the 
charge associated with the Credit will allow prospective purchasers to 
assess the value of the optional Credit rider, and elect or decline it, 
based on their particular circumstances, preferences and expectations.
    8. Applicants submit that the provisions for recapture of the 
Credit under the Contracts do not violate Section 2(a)(32) and 
27(i)(2)(A) of the 1940 Act. Nevertheless, to avoid any possible 
uncertainties, Applicants request an exemption from those Sections, to 
the extent deemed necessary, to permit the recapture of any Credit 
under the circumstances described herein with respect to the Contracts 
and any Future Contracts issued in conjunction with the Separate 
Accounts or any Future Separate Accounts without loss of the relief 
provided by Section 27(i).
    9. Section 22(c) of the 1940 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, whether or not members of any 
securities association, to the same extent, covering the same subject 
matter, and for the accomplishment of the same ends as are prescribed 
in Section 22(a) in respect of the rules which may be made by a 
registered securities association governing its members. Rule 22c-1 
thereunder 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.
    10. It could be argued that Nationwide's recapture of the Credit 
constitutes a redemption of securities for a price other than the 
current net asset value of the Separate Accounts. Applicants contend, 
however, that recapture of the Credits does not violate Section 22(c) 
and Rule 22c-1. Applicants argue that such recapture does 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. To recapture any Credit, 
Nationwide will redeem Contract owners' interests in the Separate 
Accounts at a price determined on the basis of current net asset value 
of the respective Separate Accounts.
    Nationwide will only recapture amounts credited when withdrawals 
are taken subject to a CDSC and when the contractual Free Look right is 
exercised. The percentage of the Credit recaptured will be determined 
by the ratio of the amount withdrawn (subject to a CDSC and the 
contractual Free Look) to the sum of all purchase payments. If, for 
example, the amount withdrawn (subject to CDSC) equals 50% of purchase 
payments, 50% of the Credit will be recaptured. Nationwide will not 
recapture Credits for amounts

[[Page 153]]

withdrawn under the Contract due to the following: withdrawals taken in 
order to meet minimum distribution requirements under the Code; 
annuitization; payment of a death benefit; free-withdrawals taken as 
allowed under the contract; or any other type of withdrawal not subject 
to a CDSC. In no event will the amount recaptured equal more than the 
amount of the Credit that Nationwide paid out of its general account. 
Although Contract owners will be entitled to retain any investment gain 
attributable to the Credit the amount of such gain will be determined 
on the basis of the current net asset value of the respective Separate 
Account.
    Thus, no dilution will occur upon the recapture of the Credit. 
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. To avoid any uncertainty as to full 
compliance with the 1940 Act, Applicants request an exemption from the 
provisions of Section 22(c) and Rule 22c-1 to the extent deemed 
necessary to permit them to recapture the Credit under the Contracts 
and any Future Contracts (that are substantially similar in all 
material respects to the Contracts described herein) issued in 
conjunction with the Separate Accounts or any Future Separate Accounts.
    Section 6(c) of the Act provides: The Commission, by rules and 
regulations upon its own motion, or by Order upon application, may 
conditionally or unconditionally exempt any person, security, or 
transactions, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of this title or of any 
rule or regulation 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 this title.
    Applicants assert that their request for an Order is appropriate in 
the public interest. Applicants state that such an 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 Applicants' 
resources. Applicants argue that investors would not receive any 
benefit or additional protection by requiring Applicants to repeatedly 
seek exemptive relief that would present no issue under the 1940 Act 
that has not already been addressed in their amended Application 
described herein. Applicants assert that having them file additional 
applications would impair their ability to effectively take advantage 
of business opportunities as they arise. Further Applicants state that 
if they were required repeatedly 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 assert, based on the grounds summarized above, that 
their exemptive request meets the standards set out in Section 6(c) of 
the 1940 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-34015 Filed 12-30-99 8:45 am]
BILLING CODE 8010-01-M